Employment Laws You Must Understand if You Have a Small Business


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Small businesses are a great option for many individuals who want to be their own bosses and harness their creative energies. However, owning your own business comes with great responsibility. Many small businesses must comply with a number of federal, state and local employment laws when they hire staff to assist them in fulfilling their dreams.

Failing to comply with these important laws can result in serious consequences to the business. In some cases, this may result in being fined several thousand dollars. Other situations may result in an expensive lawsuit that can financially cripple a business. Some important employment laws are discussed below:

Fair Labor Standards Act

This is the cornerstone of employment laws. The federal law discusses proper recordkeeping, highlights child labor prohibitions, establishes the minimum wage and requires overtime pay. Small businesses may not have as much cash flow when starting out, potentially making them run into issues regarding payroll. They may misclassify employees as independent contractors. They may not keep proper records and may not be able to justify certain action.

Anti-Discrimination Laws

There are a number of anti-discrimination laws that employers may have to comply with. Many of these laws pertain to employers with a certain number of employees, such as 15 or more. This is the case for Title VII of the Civil Rights Act. However, many states have lower requirements, with some states imposing these laws even if the employer hires a single employee.

Title VII prohibits employment discrimination on the basis of national origin, religion, race and color. It also prohibits discrimination on the basis of sex, which has been interpreted by the EEOC to also prohibit discrimination on the basis of sexual orientation and gender identity.

Additional federal laws prohibit discrimination on the basis of someone’s genetic information, age if the employee is age 40 or older or disability. Anti-discrimination laws often prevent outright discrimination as well as unintentional discrimination that occurs due to a facially-neutral employment policy that causes a disparate impact. Some anti-discrimination laws impose a higher burden on the employer, such as requiring it to provide reasonable accommodations to applicants or employees with disabilities.

Some states provide even more protections for other characteristics, such as not permitting discrimination on the basis of height or weight or prohibiting age discrimination for any age group.

Occupational Safety and Health Act

This law requires employers to provide a safe working environment. If employers do not comply with these regulations, they can face significant fines. Employers also have a duty to report serious work injuries and deaths. Employers with more than 10 employees are required to maintain records regarding these accidents for five years.

Immigration and Nationality Act

Employers must ensure that they only hire employees who have legal immigration status. The main mechanism to ensure compliance is to use an I-9 Form and to comply with its requirements. Employers must check employee documents to confirm that they have legal immigration status. The E-verify program allows employers to track their I-9 verifications. Confirming documents should be kept separate from other employee documents. All businesses must comply with this law.

Fair Credit Reporting Act

Another important law for small business owners to understand is the Fair Credit Reporting Act. If an employer obtains an applicant or employee’s credit report, it must comply with this law. A credit report may be part of the background check process. The law requires employers to only procure this information if it is for employment-related purposes. The employer must get the employee’s written permission. Additionally, he or she must provide a disclosure to the employee that informs the employee of his or her rights.

Tax Laws

Employers should understand tax laws that may impact them. This includes knowing what type of employment taxes that they have to collect and remit to taxing authorities.

Wage Garnishment Laws

Employees must also have a good understanding about wage garnishment in the event that an employee’s wages are garnished. Employers should understand what percentage of an employee’s paycheck may be withheld and when these amounts differ, such as a judgment creditor versus child support. Additionally, employers should know where to remit payments in these situations.

Legal Assistance

Small business owners may decide to contact an employment lawyer in order to understand their rights and responsibilities. An employment lawyer may explain local, state and federal laws and how they may impact the business. He or she may also discuss compliance measures to keep the business owner on the right track.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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