Federal Labor Laws Every Small Business Should Know

Federal labor laws are the broad term for the laws that US businesses with employees must follow. Many federal labor laws apply to certain sizes of companies only, such as those with 15 employees or more. However, it is recommended that small business owners do their best to follow federal labor laws, regardless of size, in order to be supportive of your employees and maintain a strong reputation as a business owner.

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In this article, we will go over the following federal labor laws that matter most to small business owners, including:

• Law 1: Fair Labor Standards Act (FLSA)
• Law 2: Immigration and Nationality Act (INA)
• Law 3: Occupational Safety & Health Act (OSHA)
• Law 4: Title VII of the Civil Rights Act
• Law 5: Americans with Disabilities Act (ADA)
• Federal Labor Laws If You Provide Benefits
• Other Federal Labor Laws
• Where to Find Free Labor Posters

Law 1: Fair Labor Standards Act (FLSA)

The most talked about law is the first one all small business owners need to know. Its basic principle is to classify employees as exempt or non exempt for overtime pay.

What It Is:

The FLSA is a law that requires you to pay overtime for certain employees, and it affects most employers in the US, even small businesses. An employee must meet all 3 of these conditions in order to be exempt from overtime pay:

1. Salary amount — Employee must earn more than $455/week or $23,600/annual.
2. Consistency in pay — An employee is either salaried, or on a consistent hourly schedule with a relatively unchanging paycheck.
3. Types of job duties performed — Employee position is managerial (aka executive), administrative (aka they are staff employees and not “on the line”), or professional (meaning they require a degree like an engineer, doctor, or lawyer).

Let’s take an example since this is a complicated issue:

Suzie is at $11/hour as a retail sales associate. She is part time at 20 hours per week, and consistently works her 20 hours. Suzie makes $11,200/year consistently. Suzie would be eligible for overtime pay, but only if she works over 40 hours per week. This is because she would be below $23,600/annually even at full time. So, after 40 hours per week, she would get 1.5x $11/hour.

What Businesses Have To Comply With It:

Everyone except for a few industries, like agriculture, railroads, and schoolteachers, and others that we talk about in our full exempt vs non-exempt guide.

Common Issues:

There are a few common errors that can lead to compliance issues with FLSA that can plague small businesses. Those issues include not having employment agreements, letting part-timers log full-time hours, and not calculating overtime with a guaranteed compliance payroll system like Gusto. Also, in general, highly compensated employees that make over $100,000 are always exempt, even if they are paid hourly. To learn more about FLSA, consider investing in HR training for your staff.

Law 2: Immigration and Nationality Act (INA)

INA is why you need to have I-9 forms completed within 3 days of onboarding your new employee. If you’re not using a PEO or payroll program to handle this for you, we highly recommend using the E-verify program to track your I-9 verifications and also recommend that you keep all I-9s in a separate folder from other personnel files (password protected if electronic or locked if paper).

What It Is:

INA is the law that applies to aliens authorized to work in the U.S. under certain nonimmigrant visa programs (H-1B, H-1B1, H-1C, H2A).

What Businesses Have To Comply With It:

Every business in the US needs to comply with INA.

Common Issues:

Forgetting to get the I-9 completed within the 3 days allocated can result in problems down the line should your employees not actually be eligible to work in the US. Require your new employee bring the IDs on the first day, or else ask them to start when they can provide them to avoid problems.

Law 3: Occupational Safety and Health Act (OSHA)

OSHA is both the act and the agency that govern safety and health issues in the workplace. This can range from bedbugs to printer fumes to much more serious issues.

What It Is:

Safety and health conditions in the workplace are regulated by the Occupational Safety & Health Administration (OSHA) which was founded by the OSH Act. Aside from reporting requirements, employers also have a general duty under this act to have a safe, clean, and hazard-free workplace. Employees have the right to file OSHA complaints without fear of retaliation.

What Businesses Have To Comply With It:

All employers must comply with it, but only those with over 10 employees must keep records of serious injuries or accidents for 5 years. They also need to report any issues to OSHA between February and April of each year.

Common Issues:

For small businesses, the most OSHA-related issues happen due to cleanliness. Hire a monthly cleaning service and provide your staff with a cupboard of cleaning supplies like desk wipes. Do a safety check once per month too on things like electrical outlets, computer wires, and other potential safety hazards. You can also go to the OSHA website for free resources.

Law 4: Title VII of the Civil Rights Act

Title VII has expanded greatly over the years to continually be more inclusive of all Americans and their rights to employment.

What It Is:

Title VII prohibits discrimination in employment and hiring practices. The current list of protected classes include race, color, biological sex, creed or religion, national origin or ancestry, genetic information, age, veteran status, citizenship, and physical or mental disabilities. Please note that many states’ version of this law also include gender identity, financial status, and sexual orientation, but federal does not include them.

What Businesses Have To Comply With It:

Any business with 15 or more full-time employees must comply with Title VII. All businesses, regardless of size, should comply with it as a best practice.

Common Issues:

While outright discrimination is still out there, most cases happen by accident. For example, the interviewing bias called “similar to me” is a strong bias where people naturally like people who are similar to them, and this extends to appearance and background. Try some of our interviewing articles, including structured interviewing, to eliminate bias and involve other people in the hiring process from your company to get a whole picture view of a candidate.

Law 5: Americans with Disabilities Act (ADA)

The Americans with Disabilities Act added extra protection for people with physical and mental disabilities to Title VII when it was passed in 1990.

What It Is:

The ADA prohibits private employers, governments, recruiting agencies and labor unions from discriminating against qualified candidates with disabilities in job application procedures, hiring, firing, advancement, compensation, job training and other employment processes. Remember that pregnancy is also protected under a different law, but it is also treated as a temporary disability and protected by this law as well.

What Businesses Have To Comply With It:

While the ADA is only for employers of 15 or more employees, we recommend that all businesses comply with it to the best of their abilities.

Common Issues:

Complying with the law includes using “reasonable accommodation” to hire a disabled person (or to work with a current employee who becomes disabled). For example, if a hearing impaired candidate was a perfect fit for your open job and needed a $150 special headset to answer the phone, that would be a reasonable accommodation in hiring them. If you had a person in a wheelchair who wanted to work for you, but your office was in a 3 story walk up, the construction of an elevator would NOT be a reasonable accommodation for a small business since it would be too much of a financial burden.

Let’s now look at the other federal labor laws you might need to comply with if you provide employee benefits, as well as the 10 other important federal labor laws in summary.

Federal Labor Laws If You Provide Benefits

If you provide employee benefits, you will need to understand the following federal labor laws. Two are geared towards medical insurance and the other is geared towards retirement plans. Your benefits providers should guarantee compliance with these laws, but it is good to know them on your own as well.

Law 1: Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA)

What It Is:

COBRA is the law that requires the option for continuation of health insurance for employees that have been fired, laid off, or let go for any reason from a business. COBRA paperwork should come automatically from your provider or benefits system when you terminate them, but double check that it is emailed and snail mailed to employees. The employee then can opt to continue to pay the full premium on their own through COBRA to keep their insurance. Some businesses include reimbursement of COBRA premiums in termination agreements as part of severance pay.

What Businesses Have To Comply With It:

If you provide medical insurance and have 20 or more employees, you need to comply with COBRA. Your provider should be able to help you to do this. If you provide dental or vision, those plans are not subject to COBRA. We recommend complying with COBRA whenever possible regardless of your business size.

Common Issues:

The paperwork for COBRA needs to go out in a timely manner. We recommend having it ready at the time of termination, firing, or on the employee’s last day or before if they quit. Create an off-boarding procedure or file and have the COBRA documents ready to go via email and paper copies.

Law 2: Health Insurance Portability and Accountability Act (HIPAA)

HIPAA (pronounced hip-uh and sometimes misspelled as HIPPA) is a popularly quoted health insurance and medical privacy law because it covers a large scope.

What It Is:

HIPAA’s rules cover everything from medical information privacy to the coverage you need to provide and in the time you need to provide to employees if you offer health insurance. A PEO provider or benefits provider will help to make sure that you are in compliance with HIPAA and may provide training for you as the business owner (or whoever manages your employee benefits).

What Businesses Have to Comply With It:

If you provide benefits, you need to comply with HIPAA, no matter what your employee base size is.

Common Issues:

Not having locked medical insurance files and employees over-sharing medical information (i.e. sick notes, office gossip) are two common issues. Make sure your personnel files with insurance information is kept under lock & key (or password protected on a computer, or kept in a password protected provider space like Gusto). Then, if an employee begins to overshare, stop them in their tracks and say that you do not need more details on their medical history and ask them to get to the point of what they need (i.e. 1 week off).

Law 3: Employee Retirement Income Security Act (ERISA)

This law from the 1970s regulates employers who offer pension, retirement or welfare benefit plans for their employees.

What It Is:

ERISA is one of the most complicated pieces of legislation to read if you desire to do so. The law covers retirement plans and has a lot of legal jargon on qualified, unqualified, and more. The law spans setting the conditions on qualified versus unqualified retirement plans, the conditions behind them, when you can make pre-tax payments, and more. This is why using a provider like Ubiquity for your retirement plans makes sense, since they guarantee compliance and will help you to do so.

What Businesses Have To Comply With It:

If you provide a 401K or other type of retirement plan, you will need to comply with ERISA regardless of your size or contribution amount.

Common Issues:

Paperwork and knowing when to provide it can be the biggest ERISA issues. Working with a strong provider will help guide you to when you need to provide information and how to best track that information for employees (such as in a payroll system like Gusto).

Here is a list of the other major federal labor laws, a short line on each, as well as the businesses who should consider reading more about them.

Other Federal Labor Laws

Here is a list of the other 6 major federal labor laws you should make sure you understand as a small business owner:

• Fair Credit Reporting Act of 1970 (FCRA)– Under the FCRA, an employer may obtain an applicant’s or employee’s consumer report for employment related purposes if it (1) gives the applicant or employee a written disclosure notifying them that a consumer report may be obtained and (2) obtains written authorization from that person.
• Equal Pay Act of 1963– This law requires that men and women be given equal pay for equal work at a business. It is job content, not job titles, that determines whether jobs are decidedly equal.
• Federal Insurance Contributions Act (FICA)– Generally, you are required to withhold social security and Medicare taxes from your employees’ wages and you must also pay a matching amount of these taxes because of the FICA federal law from 1935.
• Uniformed Services Employment and Reemployment Rights Act– Also known as USERRA, this federal labor law from 1994 establishes the cumulative length of time that a person may be absent from work for military duty and retain reemployment rights. This law can protect someone for up to five years.
• Consumer Credit Protection Act (CCPA)– The most relevant part of this law to employers has to do with wage garnishments and limiting the percentage garnished from an employee’s paycheck. If you have employees with garnishments from liens, student loans, or child support, you will want to make sure you are in compliance.
• Family and Medical Leave Act (FMLA)– This federal labor law requires employers of 50 or more employees to give up to 12 weeks of unpaid, job-protected leave to eligible employees (of over 1 continuous year of service) for the birth or adoption of a child or for the serious illness of the employee or a spouse, child or parent. It also allows up to 26 weeks for the same protection for being an injured or ill military service person or for caring for a military service person. Here’s information on how to develop an FMLA-compliant maternity leave policy.

A way to stay compliant with all of these laws is by having federal labor law posters in your workplace.

Where to Find Free Labor Posters

Some of the statutes and regulations enforced that are federal labor laws require that notices be provided to employees and/or posted in the workplace. The Department of Labor provides free electronic and printed copies of these required posters.

Other resources where you can find labor law compliance and help:

• Large payroll providers like ADP and Paychex provide labor posters as part of their service
• Professional Employer Organizations (PEOs) can also help you to make sure your small business is compliant. If you are thinking of joining a PEO, check out our guide.
• Your state’s own Department of Labor website or you can check out our state by state tax resource.

Be aware that there are labor poster provision services out there — but a number of them are scams. If you receive calls and fake-looking bills from one of those, and don’t remember signing up — you probably didn’t. Google the company first to avoid giving your credit card information away to these companies and use the providers we recommend instead.

The Bottom Line

Federal labor laws are important understand as a small business owner in order to stay out of hot water. Payroll providers, benefits providers, and PEOs like Justworks can all help your small business stay out of trouble by using their services. Many provide labor posters with their services as well. If you want to see a great resource from SHRM on all federal labor laws by company size, check out this PDF.

And be sure to check out Gusto to make sure you’re in compliance with all payroll-related laws. Click here for a free trial.

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