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US Employment Rules and Regulations: A Guide for Very Small Businesses

A man is sitting at a desk looking at some paperwork on a clipboard. There's an open laptop in front of him and an open calendar notebook to his left. Across from the man sits a young woman. She's looking at the back of the clipboard, smiling, and leaning slightly forward to show enthusiasm. Her hands are clasped together and resting relaxedly on the desk. He is interviewing her for a job, so he’ll need to keep in mind various employment rules and regulations when asking her questions.

In the US, there are a lot of laws about how businesses should treat their employees. These employment rules and regulations apply to different sized businesses in different ways. Larger businesses can afford to hire lawyers to help them comply with these laws. But, as a small business, you don’t have the time or the money to do the same. So, how do you follow these rules and regulations and stay out of trouble, now that you’re ready to hire your first employees? In this article, we’ll go over some basic US employment rules and regulations that you should know and show you some best practices.

This article is part of our series on how to hire your first employees. One of our articles in this series deals with payroll software. These software can help you comply with a lot of employment laws. We encourage you to read our entire series on hiring employees and then use a payroll software to help manage the issues.

This article talks about US laws for US businesses. If you’re reading this article from another country for a business based in another country, you’ll need to look at your country’s laws instead. And, even if you’re a US business, our article only gives you a general overview of US labor and employment law. It’s not a substitute for legal advice. If you have specific questions about employment law, be sure to ask a labor and employment lawyer for the definitive answer.

Let’s start with looking at the major employment-related laws in the US.

Major US Employment Rules and Regulations

US employment rules and regulations are confusing because there’s no one law to look at. Instead, they’re scattered over a lot of sections of different laws. To make things more complicated, you’ll also have to follow employment related laws in your state as well.

Let’s take a look at the federal labor and employment laws first.

Major Federal Employment Rules and Regulations

Some of the major federal labor and employment laws include:

  • Fair Labor Standards Act (FLSA)
  • Federal Insurance Contributions Act (FICA)
  • Federal Unemployment Tax Act (FUTA)
  • Immigration and Nationality Act (INA)
  • Family Medical Leave Act (FMLA)
  • Title VII of the Civil Rights Act (Title VII)
  • Equal Pay Act (EPA)
  • Age Discrimination in Employment Act
  • Title I and Title V of the Americans with Disabilities Act (ADA)
  • Title II of the Genetic Information Nondiscrimination Act of 2008 (GINA)
  • Civil Rights Act of 1991
  • Occupational Safety and Health Act (OSH Act)
  • Employee Retirement Income Security Act (ERISA)
  • Affordable Care Act (ACA)

We already covered the FLSA, FICA, and FUTA when we talked about how to tell between a contractor and an employee, minimum wage, and overtime calculations.

As a small business, you’re not required to offer health insurance (ACA) or retirement benefits (ERISA) to your employees. With health insurance, as long as you stay under 50 employees, you won’t be penalized for not offering health insurance. But, if you choose to offer health insurance, you might be able to get a tax credit for your portion of the insurance payments.

You’re also not required to offer a retirement plan. But if you choose to offer it, you’ll be subject to ERISA rules. Note that some payroll software providers can help you get and administer health insurance and retirement plans. Check out our payroll software article for more information.

State Employment Rules and Regulations

Usually, there are additional laws in your state or local government that add to the federal laws. They either cover some aspects the federal laws don’t cover, or are sometimes more stringent than the federal laws. For example, recently, some states now require employers to post a salary range for their job ads. Not every state requires this, and the federal government doesn’t require this.

You’ll need to check with your state and local agencies to make sure you comply with local and state rules and regulations.

Employment Rules and Regulations Usually Have Exemptions for Very Small Businesses

Of the rules and regulations we listed above, 8 are related to making the workplace non-discriminatory. And these are just the federal laws. Each state often has an equivalent law covering additional details.

All this can seem overwhelming, and we get that. But here’s the good news:

A very small business is usually exempt from many of the employment rules and regulations.

So what is a very small business? The magic number starts at 15 employees, and with some laws, 20 or even 50 employees.

Hopefully, by the time you hire your 14th employee, you’ll have enough money to hire someone who understands HR practices to help you run your business. Or you’ll have money to hire a labor and employment lawyer to set up some best practices to help you deal with all the labor and employment laws.

For your state and local laws, typically, the 15-20-50 employees threshold still apply. But every state is different. Our advice is to first look through your state’s laws to see if you’re exempt. If you’re not, then do a deeper dive into what you need to do to comply with these laws.

The Equal Pay Act (EPA) and the Immigration and Nationality Act (INA) Do Apply to Very Small Businesses

There are two notable exceptions to the 15 employees threshold: one is the EPA and the other is the INA.

The EPA requires you to pay your employees equally for similar jobs and similar work, regardless of gender. The law works hand-in-hand with the Fair Labor Standards Act (FLSA). And, because the FLSA pretty much applies to all employers, the EPA applies to all employers too.

The INA prohibits employers from discriminating against a worker’s national origin when interviewing, hiring, and firing/laying off an employee. The same law also requires you to verify a potential employee’s eligibility for employment—i.e. you can’t hire unauthorized workers. The threshold of having to verify a potential employee’s work status is 4 employees.

To comply with the INA, you have to ask each prospective employee to fill out an I-9 Form and provide a document acceptable for verification to work. For the document they provide, you have to decide if the document “reasonably appears to be genuine and relates to the employee.”

You’re not obligated to investigate. You just have to be able to say that the document seemed real to you and does identify the potential employee. See this page from the US Citizenship and Immigration Services for additional information on how not to discriminate against applicants.

OSHA Laws Apply to Workplace Conditions

Another federal law that might apply before you hit the 15 employee threshold are the OSHA regulations. OSHA typically regulates workplace safety. They usually require you to report workplace injuries.

There are two exemptions under OSHA reporting requirements:

We skimmed the exempted industries for you. It seems that a lot of retail and professional services businesses are on the list. Note the exemption applies only to reporting requirements. You still have to follow the general OSHA safety regulations.

OSHA has prepared various guides for small businesses on these safety regulations. You can find the guides here. We skimmed the one called Small Business Handbook, which contains a checklist of things you need to keep safe. They’re pretty common sensical. For example, here are a few randomly picked requirements to illustrate our point:

  • Workplace floors are maintained in a dry condition.
  • Emergency telephone numbers are posted where they can be readily found in case of emergency.
  • Exposed wiring, and cords with frayed or deteriorated insulation, are immediately removed from service.

As of this writing, 22 states follow their own work safety plans. Here’s OSHA’s map on which state does what. Be sure to check where your state lands so you know which rules to follow.

Very Small Businesses are Exempt from the Family Medical Leave Act (FMLA)

The FMLA covers various medical related regulations. The medical leave protection most people have heard about is that if an employee who has worked for you for about a year takes a medical leave, you must keep their job open so they can come back to it. (There’s no requirement to pay them.)

But the FMLA applies only to businesses with 50 or more employees. So, we expect our readers won’t have to adhere to this.

Other Employment Rules and Regulations Related to Non-Discrimination

Even though you don’t have to follow some of the anti-discrimination laws when you’re a very small business, we think it’s still good practice to start complying with them as early as possible. This way, you become used to the requirements. When you do hit the minimum employees threshold, you’ll already be used to following the legal requirements. In any event, not discriminating is the right thing to do. But, if you do make a mistake here and there, you’re technically still exempt so you can correct your mistakes without paying a penalty.

The anti-discrimination laws come into play when you hire, employ, and terminate workers. To make sure you follow these laws, first identify whether a worker falls in a protected class.

Protected Classes Under Various Employment Rules and Regulations

Under US labor and employment law, the legally protected classes typically include:

  • Race
  • Color
  • Religion
  • Sex
  • National origin
  • Disability
  • Genetic information
  • Age (40 or older)

When do You Have to Pay Attention to the Protected Classes?

In general, here are where you can’t discriminate:

  • Job postings
  • Interviewing
  • Hiring
  • Background checks
  • Assignments
  • Promotions
  • Pay and benefits
  • Discipline
  • Firings

To Avoid Discrimination, Focus on Job Description and Qualifications

Discrimination isn’t always a conscious thing. We all grow up with certain things we take for granted as facts, but these “facts” can sometimes accidentally lead to discriminatory practices, even when we don’t mean to discriminate.

To avoid getting into trouble with employment rules and regulations related to non-discrimination, your best bet is to start with a good job description. When someone applies, focus on their ability to do the job and don’t make any assumptions.

For example, maybe you’re a working mom who owns a physical store that stays open until 10:00 pm every night. You decide to hire someone to cover that shift because you want to be home to tuck your children in bed. You know that working until 10:00 pm can be stressful to someone’s home life and that women often take up most of the child rearing responsibilities. But you can’t ask a female candidate if they have children. As long as they’re willing to work until 10:00 pm every night, then you must consider them in the same way as any other candidate.

Or, maybe the job requires the employee to move 50 lbs. bags many times a day, and you get an applicant who looks like they’re 70. But they say they’re willing to move the bags. In that case, you have to consider them for the job. Of course, if the job is a delivery driver and the older applicant doesn’t have a driver’s license, then you don’t have to hire them. But the reason for not hiring is because they don’t have a driver’s license, not because of their age.

So, interview potential employees based on the job description, not anything you assume about them that may or may not be related to the job description.

You’re Not Obligated to Bend Over Backwards to Accommodate an Employee

With some of the employment rules and regulations, you need to make reasonable accommodations for the employee. But the accommodations don’t have to be so onerous that it creates “undue hardship” on your business.

Undue hardship happens when the accommodation is significantly difficult or expensive in relation to your business’s:

  • Size,
  • Financial resources, and
  • Nature and structure of your operations

The Equal Employment Occupational Commission (EEOC) Enforces the Non-Discrimination Laws

The EEOC, often working with state agencies, enforces most of the non-discrimination laws. If you would like more guidance from them, check out EEOC’s pages on the major federal laws and policies and practices.

For your state laws, there’s usually a new or small employer’s guide at the same place where you sign up for and pay your state unemployment insurance. Be sure to check the employee threshold for these laws first, so you understand at what point you’ll have to follow the state laws.

You Have to Put Up Posters about Employment Rules and Regulations

Most federal and state employment rules and regulations require you to notify your employees about their basic rights and where to file complaints. Even when you have less than 10 employees, you’ll still have to put up notices on minimum wage, equal pay, and non-discrimination on national origin.

Typically, these notices are posted in a break area. But you can also post them online such as in a folder accessible by all employees or in a virtual room like those available on Slack.

Both your state and the federal government provide these posters for free. You can download the federal law posters for free here. You should be able to find the free state posters on your state employment commission, labor department, or similar’s website.

What Happens If You Fail to Comply with Various Employment Rules and Regulations?

If you’re a very small business with fewer employees than the 4-10-20-50 minimum thresholds, you’re still OK if you fail to comply with most of the employment rules and regulations we cover in this article. Nothing will happen to you because you’re exempt.

But once you go above the employee threshold, you could be fined or even jailed if you break these laws. And, of course, sometimes the wronged worker can sue you for monetary damages.

At the End of the Day, if You Follow the Golden Rule, You’re Less Likely to Run into Trouble

Employment rules and regulations can and do get very complicated. It’s impossible to cover all the laws and nuances in an article on the internet like this one. If you have questions about a specific aspect of labor and employment law, it’s best to contact an employment lawyer and ask for guidance.

But, at the end of the day, employees are people. And employment law can be pretty common sensical. If you do your best to treat people right, they’ll be less likely to sue. So, ask yourself how you’d like to be treated in a similar situation. Your answer will probably fall well-within the legal requirements.

Interested in starting and running a small business? Here’s the beginning of our step-by-step guide: What to do right after getting that great business idea.

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DISCLAIMER: This article does not constitute legal or accounting advice. Instead, it contains general information. The information gives you the background you’ll need to hit the ground running when you do go get advice from a lawyer or accountant. Only lawyers and accountants properly licensed in your state/country are qualified to give you legal or accounting advice.

Questions? Comments?