Protect Your Small Business: Employment Laws You Should Know

“You should start a business – it will be fun!” 

Solving problems with your product or service or showcasing your unique talent is the fun side of being a small business owner.

But running a small business involves more than just delivering a great customer experience. There are employment laws and government regulations covering everything from workplace safety to employee rights that every small business owner must know and follow.

Being out of compliance could be costly. Not only can the government fine you, but you could expose your small business to costly lawsuits. The last thing any small business owner wants is to see their business close because they weren’t in compliance with an employment law.  

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Keeping your small business in compliance  

While employment laws and government regulations may feel like a nuisance – who really wants another rule to follow? – these laws and regulations exist for a reason. At one point in this country, it was okay to have young children working in factories, require people to work six days a week with no time off, and discriminate against someone because of their race or gender. 

Employment laws were enacted to change those dangerous and harmful practices and protect the health and safety of American workers. They also protect your best interests. As long as you follow the laws and regulations, you can run your business how you choose. 

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5 categories of employment law and regulations  

While the U.S. Department of Labor administers and enforces more than 180 different federal laws that cover issues related to employment, the most common ones fall into five categories: 

1. Hiring practices and anti-discrimination laws
2. Employee classification and wage laws
3. Workplace safety and health regulations
4. Employee rights and protections
5. Compliance and risk management

1. Hiring practices and anti-discrimination laws

As a small business owner, you want to surround yourself with people who are passionate and see your vision. But when recruiting talent, it’s important to know the employment laws that cover hiring so you don’t say or do something in the interview process that could get you into trouble.  

Many of the employment laws that cover hiring practices also include anti-discrimination elements, which cover all workplace interactions. 

Equal Employment Opportunity laws

Equal Employment Opportunity (EEO) laws make it illegal to discriminate against a job applicant or an employee because of their: 

• Race 
• Religion 
• Sex (which includes gender identity and sexual orientation) 
• National origin 
• Age
• Disability 
• Genetics 

EEO laws also protect certain veterans and women who are pregnant. 

These laws apply to hiring, terminating, promoting, and training your team members. They also cover harassment, wages, and benefits. Because these laws can be difficult to understand, Homebase offers a few tips on the ins and outs of promoting employees and protecting pregnant employee’s rights.

In a nutshell, it is illegal to hire, fire, or promote anyone based on the categories listed above. It is also illegal to set wages and offer benefits to employees based on those categories. 

Americans with Disabilities Act

Another anti-discrimination law that is important to understand is the Americans with Disabilities Act (ADA). In addition to not discriminating against a person with a disability, you must also make reasonable accommodations for individuals with disabilities so they can perform their job duties. 

What about background checks? 

As you go through the hiring process, you may want to run a background check on potential applicants. There is no law that says you can’t do that, but there are laws that protect the applicant. You must first get permission to run a background check, which candidates can refuse. If they do refuse, you don’t have to hire them. 

Homebase offers a checklist to follow if you would like to run a criminal background check during the hiring process. 

2. Employee classification and wage laws

EEO laws make it illegal to determine wages based on the same protected categories noted above. It’s also important to understand the Fair Labor Standards Act (FLSA), which covers employee classification.

H3: Non-exempt vs. exempt employee classification    

Employee classification laws cover the requirements related to employee wages. There are two types of employee classification – exempt and non-exempt.

• Exempt employees are typically paid an annual salary for their services. They are exempt from federal minimum wage and overtime pay requirements, but must meet other requirements to qualify as exempt, which include being paid a fixed salary of at least $684 per week regardless of the quality or quantity of their work.
• Non-exempt employees are typically paid an hourly rate. They are required to be paid at least the federal minimum wage or state minimum wage if it is higher. Non-exempt employees are also entitled to overtime pay of 1 ½ times their hourly rate for any work over 40 hours per week.

For non-exempt employees, it’s important to accurately track the time that they work each week. Homebase’s online timesheets can help you stay compliant with tracking hours.

Contract workers and freelancers 

As you are growing your team, you may consider hiring independent contractors or freelancers. These types of workers are vendors just like any other supply vendor you do business with. 

Because of that, you don’t have to follow employment law because they are not your employees – they are suppliers. However, you must still follow EEO laws when awarding their contracts. There are also tax laws to follow, specifically regarding issuing a 1099 for any payment made to a contract worker or freelancer over $600 in a calendar year. 

3. Workplace safety and health regulations

Keeping your team safe while they are on the job is your responsibility as a small business owner. Workplace safety and health laws and regulations mostly fall under the Occupational Safety and Health Administration (OSHA) standards, which include:

• Recording serious work-related injuries and illnesses. As a small business owner, you must record any injury or illness that occurred when employees were working. Injuries or illnesses include fatalities, loss of consciousness, broken bones or teeth, and needle sticks for people in medical professions. Records must be kept for 10 years.
• Reporting severe injuries. OSHA requires business owners to report any worker fatality or hospitalization due to a work-related injury within eight hours of the incident.
• Identifying hazardous materials. Business owners must conduct periodic inspections to identify and assess the risk of any potential hazardous material.
• Employee training and safety programs. OSHA requires business owners to provide training to employees who face hazards on the job.

4. Employee rights and protection laws 

Many employee rights laws are covered under the EEO laws. These include the right to not be harassed or discriminated against based on the protected categories we noted above. Employees also have the right to receive equal pay for work, reasonable accommodations for medical conditions or religious beliefs, and have their medical information kept confidential. Other employee rights laws include:

Family and Medical Leave Act

The Family and Medical Leave Act (FMLA) entitles employees to take up to 12 weeks of unpaid leave for defined reasons, which include the birth or adoption of a child, to get treatment for or recover from a serious illness, and to care for a sick relative.

There are specific rules that govern FMLA, and only small business owners that employ 50 or more employees are required to follow FMLA requirements.

Whistleblower protection laws

As a small business owner, under the whistleblower protection laws, it is illegal to retaliate against an employee who submits a complaint to government agencies including OSHA, the Wage and Hour Division, and the Office of Federal Contract Compliance Programs. 

Non-compete and non-disclosure agreements

Non-compete clauses can be a critical element of your relationship with your team members, especially subject matter experts. A non-compete clause is a contractual term between a business owner (employer) and an employee that blocks that employee from working for a competing employer or starting a competing business within a certain geographical area and for a certain period of time after employment ends. 

If you choose to have non-compete clauses with your team, we recommend hiring an employment attorney. 

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5. Compliance and risk management requirements

As a small business owner, you should inform your employees about your policies, procedures, and expectations. Your employees should also know their rights and protections under state and federal law.

This information should be consolidated into a written document like an employee handbook. While employee handbooks are not required by law, they’re a simple and effective way to communicate critical information. They are also great tools to share information that is required under the laws we’ve outlined in this article, which helps you stay compliant.

To mitigate risk for any employment law violation, it’s a good idea to host regular training with your team on the different employment laws. Your human resources team should keep current with all government laws and regulations.

When in doubt on anything, seek legal counsel and professional guidance. Not knowing or understanding the law is not an excuse in the eyes of government regulators!

Homebase makes staying compliant easy

From support with drafting job descriptions to tracking time and managing payroll, Homebase supports small business owners with staying compliant with employment laws and regulations. Make your work easier. See how you can get started with Homebase.

Hiring your first employee? Check out our New Hire Training Checklist and Onboarding Guide.

Get your new business up and running with Homebase.

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