There are many regulations imposed on small businesses. Once you start hiring employees, you will need to abide by these ever-changing laws. Not only do you have to keep your finger on the pulse of federal agencies’ requirements, but you must also track changes at the state and local levels. Although there are countless HR compliance challenges you can face, we’ve identified eight primary evolving employment and HR compliance regulations you’ll need to monitor.
The U.S. Equal Employment Opportunity Commission enforces laws that make it illegal to discriminate against candidates and employees based on a protected class (e.g., race, color, religion, sex, national origin, age, disability, genetic information). Asking for certain information on a job application may put you at risk for discrimination lawsuits. To protect yourself, avoid asking about the following.
Harassment happens in businesses of all sizes. This has always been the case, but the #MeToo movement has brought it into the spotlight. Because of this, many states have introduced legislation that increases penalties, mandates employee training or requires the implementation of anti-harassment policies. If you don’t take steps to protect your staff from harassment, you might face damage to your reputation and significant financial consequences.
You can protect your team by taking three steps:
When writing your employee handbook, include a detailed section about workplace harassment.
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You have different responsibilities for an employee versus an independent contractor. For example, you must withhold federal and state taxes from an employee’s paycheck and file a W-2 for them at the end of the year. When it comes to contractors, you don’t usually have to withhold taxes from their pay, but you will need to submit a 1099-MISC for them at tax time. To meet these different requirements, you must classify your team members correctly. Unfortunately, there’s no set definition of “contractor,” which can make this difficult.
To determine a worker’s status, examine three aspects of your relationship:
Some states are making the definition of “contractor” more stringent. For example, in California, you must use the “ABC test” to find out if someone is a contractor:
When you hire employees, you must classify them as exempt or nonexempt. There are a few differences between the two, including salary level, salary basis and duties.
The current federal minimum wage for covered nonexempt employees is $7.25 per hour. If you pay your workers less than that, you could be responsible for back wages and steep penalties.
Although the rate has been stagnant for over 10 years, there is a nationwide movement to increase the minimum wage to $15 per hour. In fact, more than half the states and several localities have set their minimum wages higher than the U.S. Department of Labor’s (DOL) standard.
If your state’s minimum wage differs from the federal limit, you will usually need to pay your workers the higher of the two.
Employers must abide by various overtime pay laws. According to the DOL, an employee is exempt from overtime if they meet all of the following criteria:
For all others, you will likely need to pay at least 1.5 times their hourly rate for any time worked over 40 hours in a single workweek.
As with most employment regulations, federal law is not the only law you must consider here. Several states have their own overtime rules. For example, in Alaska, you will need to pay your workers 1.5 times their regular hourly rate for any time worked over eight hours in a day.
To track overtime and ensure you’re accurately paying your employees, consider using payroll software that integrates with a timeclock.
The tax penalty for not having health insurance was eliminated at the beginning of 2019. However, under the Affordable Care Act, employers with 50 or more full-time equivalent employees (FTEs) must provide health insurance. An FTE is anyone who works an average of 30 hours or more per week. You might face steep penalties if you don’t offer health coverage when you should.
When you get close to 50 team members, start reviewing your options to ensure you’re prepared for the potential healthcare costs.
Federal rules do not mandate paid time off, and many employers don’t offer it. This means people must often choose between bringing home a smaller paycheck and going to work ill. To prevent this, several states have adopted paid sick leave laws and allow workers to use that time for themselves or a family member.
Under the Family and Medical Leave Act, employers with 50 or more employees must provide employees up to 12 weeks of unpaid, job-protected time off for qualifying family and medical reasons. The qualifying employee must have worked at least 1,250 hours during the 12 months prior. There may be exceptions to this law.
Several states have passed legislation that requires employers to provide retirement plan options. These include California, Colorado, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Vermont, Virginia and Washington.
For small businesses, it can be challenging to offer these benefits because of the associated costs and upkeep. If you’re required to provide retirement benefits, you may be able to use a state-run option to alleviate the administrative burden. For example, employers in Illinois can use the Illinois Secure Choice retirement savings program to manage their workers’ retirement plans. There are no fees associated with the program; you simply need to deduct each employee’s retirement contributions from their paychecks and submit the amount to Illinois Secure Choice through its website.
The HR challenges you face as a business owner can depend on factors such as how big your organization is, what type of HR management process you have in place, and what industry and state you’re in. The specific federal and state labor laws you need to follow will likely change as your business grows.
Regardless, most HR compliance challenges boil down to five key areas of HR.
Dennis O’Keefe contributed to the writing and research in this article.