Hiring an employee for your business opens up the floodgates for government regulations. These regulations stem from laws on the federal, state and often local levels. Here are some of the regulations small business employers need to become familiar with.

Generally Speaking...

The two key departments and agencies you’ll deal with for regulations are the labor and revenue departments. At the federal level you’ll deal with the Department of Labor, and some of its agencies, including the Equal Employment Opportunity Commission (EEOC), the Occupational Safety and Health Administration (OSHA) and the National Labor Relations Board (NLRB). You’ll also have to work with the IRS, which is an agency within the Treasury Department. At the state level, you’ll find a labor department and a finance, revenue or tax department.

When the rules on the federal and state level are different, you must follow the more stringent one. For example, the federal minimum wage is $7.25 per hour. However, 29 states plus the District of Columbia have higher minimum wage rates, so you must adhere to the higher rate if you operate in one of these jurisdictions. And there are even some municipalities with rates exceeding their state’s rate. For example, Berkeley, Chicago, San Francisco, Santa Fe and Seattle all have minimum wage rates that are higher than the rates for their states. And starting in December 2015, New York City is phasing in a minimum wage increase specifically for fast food workers. (For more on minimum wage trends, see Can A Family Survive On The U.S. Minimum Wage?)

Labor Laws

There are many different labor laws, all of which have regulations impacting employers. It is important to recognize that some of these rules apply to all employers, regardless of the number of employees. Other rules affect employers only if they have more than a set number of workers. Here is a rundown of some major federal laws that you may be subject to:

  • Age Discrimination in Employment Act (ADEA) prevents employers from discriminating against workers age 40 and older in terms of hiring, promotion, pay, etc.
  • Americans with Disabilities Act (ADA) bars you from discriminating against a person because of a disability. It also makes you provide reasonable accommodations for a disabled employee. The ADA applies to a business that employs 15 or more workers for 20 or more work weeks during the year (part-timers are taken into account).
  • Title VII of the Civil Rights Act of 1964 (which has been amended several times) now bans discrimination in the workplace on the basis of race, color, religion, sex and national origin.
  • Equal Pay Act requires employers to pay men and women the same for doing the same work.
  • Fair Labor Standards Act (FLSA) governs minimum wages and overtime rules. The FLSA applies to all employers. The regulations govern which employees are subject to or exempt from overtime rules.
  • Family and Medical Leave Act (FMLA) requires companies with 50 or more employees to grant unpaid leave time for serious illness in the family, and for the birth or adoption of a child. Some states now require paid leave time.
  • Unemployment laws and workers’ compensation. These state-level laws require employers to provide coverage for workers (although owners may be able to opt out for their own coverage).
  • Uniformed Services Employment and Reemployment Act (USERRA) requires all employers to reemploy those who left the company for military duty after they return from service. Not only must they be rehired but they must also be given back benefits, such as promotions and retirement plan contributions that they would have received but for their service.There are special requirements with respect to disabled veterans.
  • Workplace safety rules under the Occupational Safety and Health Act. You must provide a safe workplace and report accidents and deaths. While every business should be safe, reporting requirements depend on the number of workers in the business.

This is just the tip of the iceberg. For example, there are regulations governing federal contractors, general rules for providing accommodations to nursing mothers and more. Be prepared to review all of the federal, state and local regulations that may apply to your business.

Tax Law

As an employer you have to:

  • Determine whether workers are actually employees or can be treated as independent contractors (which alleviates employer responsibilities).
  • Obtain an employer identification number (EIN)
  • Withhold income tax and the employee share of Social Security and Medicare taxes (FICA) (For more about this, see Small Business Tax Obligations: Payroll Taxes)
  • Deposit employees’ withholding along with the employer share of FICA
  • Issue W-2 forms each year to workers
  • Report annually on health coverage (unless exempt)
  • File employer tax returns; some are annual while others are quarterly

You may be required to provide health coverage to employees under the employer mandate in the Affordable Care Act (ACA). This entails compliance with IRS, DOL and Health and Human Services (HHS) regulations. Also, companies with 20 or more employees that have health coverage must also offer COBRA continuation coverage to workers who leave the job (COBRA stands for the Consolidated Omnibus Budget Reconciliation Act). This allows workers to pay for the group coverage for up to 18 months. Forty states and the District of Columbia have “mini COBRA”; in Vermont, for example, it applies to companies with as few as two employees, but only for six months. 

Currently employers are not required to provide other benefits, such as retirement plans. However, if they do, there are a slew of regulations on coverage and reporting under the Employee Retirement Income Security Act (ERISA); regulations for this law are issued by both the IRS and DOL.

The Bottom Line

To learn more about your employer responsibilities, go to the DOL’s FirstStep Employment Law Advisor, an online tool designed for small businesses that are starting to hire. It covers basic federal labor law rules, recordkeeping and required employee notices, plus gives you access to federal posters that you must display in the workplace. Your state can also provide you with a guide on your employer responsibilities. An IRS landing page gives you a jump-start on employer responsibilities, including obtaining an employer identification number and understanding employment taxes. When you have questions about regulations concerning the hiring of an employee for your business, consult with an employment law attorney.

Small business employers may also be interested in reading The Purpose Of 1099 FormsThe Purpose Of The W-9 Form and The Purpose of Form 941.