Perhaps one of the hardest adjustments for entrepreneurs to make is becoming an employer. It can be challenging to deal with the personality quirks of employees, but when you add the plethora of state and federal employment laws, it's almost enough to make a sane person want to work for someone else!
How do you determine what laws relate to your business - and what laws you can safely ignore? You could consult a good labor lawyer, but you probably don't want to spend your hard-earned initial profits on legal advice. A better suggestion would be to spend a little time at your state's labor department website. These websites are generally of high quality and, best of all, cost nothing. To save you valuable time spent searching the Internet, there are a few links at the end of this article to speed up your research.
Some Basic Information
It is easy to assume that all labor laws are applied equally. After all, aren't the laws there to protect the employees? If that's true, wouldn't the rules for a mom and pop shop with three employees be the same as those for General Motors?
Luckily, not all labor laws apply to all employers. The reason is simple: some businesses cannot afford to comply with the more onerous laws on the books. As an example, assume you have one employee who answers all your phone calls, does the billing and pays the bills, leaving you free to take care of your customers. If that employee is off work for an extended period of time because of a back injury, how will you do business? True, you could hire a temporary person, but what if you can't predict when your employee will return? Is it fair to require you to hold the job open for that person under the Family and Medical Leave Act? The answer, of course, is no - and that's why the FMLA applies only to employers with 50 or more employees.
However, the employee cutoff for other laws is NOT the same as for the FMLA. Here are a few of the more widely applicable ones:
Fair Labor Standards Act (FLSA)
The FLSA regulates minimum wage and overtime pay, as well as recordkeeping and child labor standards. No doubt you have heard of the current move in Congress to increase the minimum wage from its present level of $5.15 per hour, but how much more do you know about the FLSA?
The FLSA regulates underage workers and what jobs youths under age 18 can perform. Without going into details, the age cutoffs you need to consider are youths under age 16 and youths age 16-17. Occupations and work hours are, of course, more restrictive for youths under age 16, but there are still fairly important requirements that apply to those who are age 16 or 17. Given the attention that is focused on children's issues, child labor laws are certainly ones you do not want to violate.
The FLSA also regulates overtime standards. You may think it is easy to choose between employees who qualify for overtime and those whom you are not required to pay it to, but the experience of many small employers proves otherwise. Not only is it difficult to determine who is - and is not - exempt from overtime pay, but simply calculating that pay properly can be difficult. Make sure you review the rules before you have a Fair Labor Standards Act complaint lodged against you.
According to the United States Department of Labor, "The FLSA applies to enterprises with employees who engage in interstate commerce, produce goods for interstate commerce, or handle, sell or work on goods or materials that have been moved in or produced for interstate commerce." The good news is that most very small employers (those with gross revenue under $500,000) are not subject to the provisions of the FLSA, although there are some employers who are subject to the Act regardless of size.
The Occupational Safety and Health Act (OSH Act) is administered by the Occupational Safety and Health Administration (OSHA). As the name implies, the OSH Act prescribes the maintenance of health and safety standards designed to protect workers. If your company has more than 10 employees, and is not in a designated 'low-hazard' industry, it's safe to assume you have certain recordkeeping, reporting and posting obligations under the OSH. The Department of Labor designates those industries that qualify as 'low-hazard'. For more information, see the DOL's web site
Health Benefits and Retirement Standards
The Employee Retirement Income Security Act (ERISA) is a far-reaching law that regulates the nation's employee health, welfare and retirement plans. In addition, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) added certain provisions to ERISA and protects specific employee privacy rights. If you are an employer who offers retirement and/or health benefits to your employees, it's safe to assume you are covered to some extent by ERISA. You would be wise to ask your advisors about the possible pitfalls when you offer employee health and retirement benefits.
One good bit of news is that the requirement under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) to continue to offer health benefits to separated employees applies only to those who employ 20 or more people. Generally, COBRA requires covered employers to allow separated employees the option to continue their coverage under the employer's health plan for up to 18 or 36 months, depending on the reason for loss of health benefits. The employer is allowed to charge the employee 102% of the cost of the applicable premiums. The notification requirements under COBRA are stringent and failure to meet the Act's requirements can literally put a company out of business.
Other standards of which you should be aware are:
- Family and Medical Leave Act, which applies to employers with 50 or more employees;
- Whistleblower Protections Provisions, which apply to all employers;
- Worker Adjustment and Retraining Notification Act (WARN), which relates to notification when a large-scale layoff or work reduction is planned and applies to employers with 100 or more employees;
- Uniformed Services Employment and Reemployment Rights Act (USERRA), which covers employees who are called to duty in the armed services and certain other disaster response occupations. Nearly all employees are covered under this Act.
The reality of life is that it can be nearly impossible to keep up with all the rules covering employment, at both the federal and state levels, unless you are an HR professional. The following links will be helpful for those of us who just want to run a business and hopefully make a profit without being sued:Parting Thoughts
The world of employment law is fraught with traps that can cause significant damage to your business. Take the time to review the preceding links as they apply to you - and avoid falling into a hole from which there is no escape. Give us a call if we can help you. Nothing gives us greater pleasure than to see our clients succeed.
Have a profitable February.