Federal labor laws and related state laws affect all businesses with employees—even more so for companies with at least 50 workers. They govern workforce practices and areas such as overtime, minimum wage, on-call pay, employee breaks, sick leave, hiring minors, and employment discrimination. Labor laws provide workers with protections and contain enforcement and reporting requirements, including rules on how long to keep payroll records.
Complying with labor laws as an employer can help you avoid thousands of dollars in fines, as well as costly employee lawsuits. Keep in mind that the full list of state and federal labor laws is long, but we’ve compiled those most likely to impact small businesses.
State Employment Laws
Nearly every US state has labor laws that affect businesses that employ workers in that state. Companies located in just one state can typically learn about these laws by searching the local state government website or attending a local HR or labor law seminar.
Multistate employers must also stay compliant. Even if your business has no physical presence in a state (which is becoming more common given today’s remote work environment), you’ll need to comply with that state’s laws if you hire an employee there and, in some cases, advertise a job and accept applicants within that state.
Use our map below to be directed to your states specific labor law webpage:
State Labor Law Map
Federal Employment Laws
As with state laws, federal employment laws can change suddenly. If managing compliance in-house, we recommend you or your HR manager schedule regular time to check for any new or pending activity; you can also opt to hire or partner with an HR provider that will stay abreast of changes for you.
Download our list of the most common federal labor laws that impact small businesses, plus links to each website for more information:
The FLSA is the overarching labor law that all businesses need to know. Its basic principle is to ensure employees are paid fairly. The law requires you to pay overtime for certain employees—based on classifications referred to as exempt or nonexempt.
Nonexempt employees are eligible to receive overtime pay, while exempt employees are not. To be exempt, employees must meet certain criteria related to their job duties and salary level. Small businesses need to be aware of how to properly classify employees to remain compliant with labor laws.
At the federal level, overtime is calculated at 1.5 times an employee’s regular hourly pay rate for all hours over 40 worked in a week. The FLSA also mandates a federal minimum wage with exceptions in a few industries, like agriculture, railroads, and education. Many states and cities require businesses to pay a higher minimum wage or calculate overtime more generously.
The current federal minimum wage is $7.25 per hour—yet California is one state with minimum wage rates that vary by city (almost $20 per hour). And, it has a significant number of additional laws that protect workers by providing, for example, mandatory paid sick leave.
The DOL announced a final rule which regulates how employers can take tip credits for employees that receive tips. The tipped minimum wage is only $2.13 per hour at the federal level, though it is much higher in some states. This new rule only allows employers to take a tip credit from an employee’s wages for the hours worked on tip-producing work.
For example, if an employee receives tips for just half of their shift work and the rest of their duties involve work that’s not tip-producing, the employer can only take a tip credit for half of the employee’s shift. Imagine a server at a breakfast diner who opens the restaurant, spending two hours preparing the restaurant for customers by opening the cash registers and conducting administrative or operational work that’s not tip-producing work. In this scenario, the server’s employer cannot take a tip credit for the two hours the employee spends opening the restaurant each shift.
FLSA compliance issues—such as misclassifying salaried and hourly employees, failing to pay overtime, having inconsistent pay practices such as missing paydays, or paying men and women differently for the same job—can plague small businesses.
The NLRA gives employees the right to collectively bargain with their employers and form or join a labor union. It also establishes guidelines for union organization and the bargaining process, as well as protections for employees to engage in union-related activities.
If employees decide to organize and form a union, small businesses must follow the NLRA rules and regulations for engaging in collective bargaining. This means complying with requirements for meeting and negotiating with union representatives.
Employers cannot take any action that may be considered retaliatory or discriminatory against employees attempting to organize or join a union. Specifically, employers cannot coerce or interfere with union activities. Violations can result in costly fines and penalties.
INA ensures that your workers have the right to work in the US. It’s why you need to complete I-9 forms within three business days of onboarding your new employees. Verification is determined by reviewing a passport, driver’s license, and Social Security card—or other nonimmigrant visas. If you’re not using a payroll program to handle this for you, we highly recommend signing up for the E-Verify program, which is managed by the Department of Homeland Security.
For more information, read our article on how to complete the I-9 form correctly.
Forgetting to complete employee I-9 forms within the three days allocated can result in problems down the line should your employees not actually be eligible to work in the US. Some employers also make the mistake of keeping I-9s in the employee’s personnel file, when they should instead be kept in a separate I-9 folder in case your business is audited by ICE.
FICA requires you to withhold Social Security and Medicare taxes from your employees’ wages, and you must also contribute a matching amount of these taxes per employee. Your role as an employer is to collect the employee’s share of the tax from their earnings and provide quarterly payments to the IRS.
FICA works by taking a percentage of your employees’ income that you match and send to the government. For example, if Joel earns $2,000 a month, you’ll collect 6.2% of his income for Social Security and 1.45% for Medicare, match it, and send it in as a quarterly tax payment using IRS Form 941.
The most common mistakes made are missing quarterly tax payments, misclassifying employees as exempt, and calculating tax payment amounts incorrectly. All can result in penalties against your business, in addition to having to pay back pay with fines double that amount. FICA does not come into play when you hire independent contractors, such as self-employed freelance or gig workers.
OSHA is both the act and the agency that governs workplace safety and health. This can range from bed bugs affecting hotel workers to printer fumes causing respiratory concerns.
OSHA regulates safety and health conditions in the workplace. All employers have a general duty under this act to provide a safe, clean, and hazard-free workplace—which may include establishing an emergency exit plan in an office and setting up an eye-wash station near where chemicals are stored. In addition, like most federal laws, employees have the right to file complaints without fear of retaliation.
Need help establishing a hazard-free workplace? Check out our article on the most common workplace injuries and how to avoid them.
If you have more than 10 employees, annual OSHA reporting is required, and any injuries should be reported annually between February and April. Therefore, it’s a good idea to conduct a monthly safety check on things like electrical outlets, computer wires, and other potential safety hazards.
For small businesses, most OSHA-related issues are caused by unsafe employee practices, such as employees standing on chairs, leaving desk heaters plugged in, or not wearing protective gear. Safety training can prevent these risks, and many insurance providers can help by offering training resources.
Check out our roundup of the best insurance providers for small businesses for options.
The Whistleblower Protection Act protects employees who report suspected violations of law, fraud, or other misconduct from retaliation by their employer. Companies cannot retaliate against an employee who reports illegal activity or unethical behavior in the workplace. Retaliation could include firing, demoting, or otherwise harming an employee who has reported misconduct.
Employees who experience retaliation can file a complaint with the DOL. Businesses may face legal and financial consequences not only for illegal acts but also for retaliating against an employee who has reported misconduct.
Title VII prohibits discrimination in employment and hiring practices. The current list of protected classes includes race, color, sex, creed or religion, national origin or ancestry, genetic information, age, veteran status, citizenship, and physical or mental disabilities.
All businesses, regardless of size, should comply with anti-discrimination as a best practice. Title VII has expanded greatly over the years to be more inclusive of all Americans and their right to employment.
Any business with 15 or more full-time employees must comply with Title VII. Many states’ versions of this law also include gender identity, financial status, and sexual orientation, and a few states require that annual training be provided to all employees. It’s best to check the anti-discrimination laws in your state as they’re likely to be more inclusive.
Compliance Tip: If you have remote employees in states that require annual training or have greater protections than federal law, you need to follow those requirements for those specific employees. In practice, it can be more effective to simply align your company policies with the most protective state so that you’re certain to be in compliance and able to reduce the administrative burden on your HR team.
To prevent hiring bias, consider training managers on how to avoid discrimination and use structured interviews in your recruitment process. Training, including sexual harassment prevention, can help your team focus on work-related traits and help you create an inclusive workforce, free of discrimination.