Labor Laws Small Business Owners Should Know

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by Advice Chaser
by Advice Chaser

When you own your own business, you get to make the rules—except when you don’t. The limits to what you can do, even in your own business, are spelled out in labor law. It’s vital to stay abreast of current labor laws and follow them. Your business could be at stake.

Labor law doesn’t only protect your employees; it also protects you. Having clearly enumerated laws makes it easy for all parties to know their legal duty. Don’t see labor law as a restriction—see it as a simple way to know you’re treating your employees right.

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Fair Labor Standards Act

Much of what you need to know about running a business is spelled out in the Fair Labor Standards Act (FLSA). This sets standards for wages, overtime, recordkeeping, and child labor limits. A few important provisions:

  • You must pay the minimum wage to every employee. Currently, the federal minimum wage is $7.25 per hour, but your state may have a higher minimum. Tipped employees may make less, but if so, you must make sure their total hourly pay reaches the minimum wage by making up the difference if they don’t make enough tips.
  • Employees who work over 40 hours in a week must receive overtime pay, which is one and a half times their usual pay. To avoid this, make sure you have enough staff to cover all necessary shifts, including covering for absent workers.
  • You must keep records of the hours your employees work. Keep timecards for at least two years.
  • If you employ minors, there are limitations on the hours they can work and the types of jobs they can do. Before hiring minors, make sure you know the rules.

Even if you normally follow these rules, there are special circumstances that could result in you falling afoul of them. For instance, you may have occasions when you normally deduct from an employee’s paycheck, for instance, to cover the cost of their work uniform. That’s legal to do only so long as it doesn’t reduce their total paycheck to below minimum wage. You also aren’t allowed to stop the time clock for breaks under 20 minutes.

While contractors are exempt from many of these rules, misclassifying an employee as a contractor could land you in trouble. If you control how, when, and where a person works, the government considers that person your employee and non-exempt.

Nondiscrimination Laws

No business wants a reputation for being discriminatory. Creating a more just society requires giving equal pay for equal work and giving everyone an equal chance at a job. Of course it can be very difficult to prove that all decisions were made without bias. So the law dictates things like the reasons you can’t fire someone and the questions you can’t ask. Even in an at-will employment state, you may find yourself having to demonstrate you fired someone for an actual reason, not because they’re a member of a protected class.

You cannot discriminate based on:

  • Sex: Under the Equal Pay Act, you must pay men and women the same pay if they do substantially the same work. So, taking into account duties and seniority, check for any gender imbalance in pay at your company. Companies of any size can be sued for breaking this law.
  • Race, religion, color, sex, or national origin: Under the Civil Rights Act, you can’t preferentially hire people based on any of these traits. This law covers all businesses with fifteen or more employees.
  • Pregnancy: Never ask potential employees if they are or plan to become pregnant. When you find out an employee is pregnant, you cannot fire them or cut their hours for this reason.
  • Disability: Under the Americans with Disabilities Act, you may not discriminate on the grounds of disability, and you must make reasonable accommodations. A lawyer versed in the ADA will be a useful resource for determining what accommodations you should make.
  • Age: The Age Discrimination in Employment Act prohibits companies of more than 20 workers from discriminating against workers over 40.

You also can’t fire an employee for discussing their pay with other employees, complaining about work while offsite, or organizing for change at work. These are all protected free speech.

Labor Laws About Benefits

Depending on the size of your business, there are a number of benefits you may be legally required to offer.

  • Under the Family and Medical Leave Act, companies with over 50 employees must offer 12 weeks of unpaid leave for employees to care for a newborn, adopted child, or sick family member. You can, of course, have a more generous leave policy than this.
  • All businesses must allow employees to leave for military service and return to their jobs when their term of service is up.
  • Under the Affordable Care Act, every business with over 50 full-time employees must provide a qualifying health insurance plan.
  • Businesses of every size must pay for unemployment insurance for each employee—including yourself.
  • Businesses with at least five employees must provide workers’ compensation. Usually you do this with insurance; otherwise, you would have to cover an employee’s expenses out of pocket.

Don’t Try to Navigate Labor Law Alone

This article is only a brief overview of the labor laws you have to know in your business. To be sure you’re following the law, educate yourself as best you can and seek out professional advice. The Department of Labor is one free resource to help you learn your responsibilities under the law. It’s also useful if you need to report a violation. For more in-depth advice, you may find it helpful to consult with a labor attorney.

When starting your business and writing up your company’s policies, you need guidance. A business financial advisor is a good person to help you get started. Contact us today to find the right advisor for your needs.

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