Employment Laws for Small Employers

June 26, 2008

Employment Laws for Small Employers
From the PHCC Educational Foundation via third-party

A plethora of federal and state laws and regulations greet you with the first employee you hire.  By the time you reach 20 employees, the number and extent of these are significant.  Understanding and complying with them is important because it helps you and your managers do the right thing and it minimizes potential company and individual liability. 

But before we dig in, here are some common sense tips for avoiding legal problems with employees:

o Treat your employees with respect.
o Communicate honestly and regularly with your employees.
o Be consistent.  Apply the same standards of performance and conduct to all employees.
o Give regular performance evaluations and document them.
o Make job-related decisions.  Don’t be guided by non-work-related factors like gender or race.
o Don’t punish the messenger.  Take action to improve problems, not to punish whistleblowers.
o Adopt sound policies and follow them.  An employee handbook is indispensable.
o Keep good records.
o Take action when necessary—and do so promptly.
o Be discreet.  Give information on a need-to-know basis and avoid creating situations that are harassing or defaming.

If you follow these rules, you will very likely “do the right thing.” 

This article addresses federal employment laws for small businesses.  State laws where you operate also have an impact.  This list is not meant to be all-inclusive.  The number of employees you have often determines which laws apply to you, so review them periodically as your business grows.

* Minimum Wage and Overtime Pay
The Fair Labor Standards Act (FLSA) was passed in 1938 and has been updated periodically ever since.  It requires that you pay employees a minimum wage.  The federal minimum is now $5.85 per hour, but changes to $6.55 per hour effective July 24, 2008, and $7.25 per hour on July 24, 2009.  FLSA also requires that you pay some employees “premium time” (one and one half times their regular rate) for every hour that they actually work over 40 hours in a week.  The FLSA regulations explain which employees are covered by this aspect of the law.

* Wage Garnishments
Federal law protects employees from discharge by their employers because their wages have been garnished for any one debt.  This law applies to all employers and also limits the amount that can be garnished in a pay period to 25% of disposable earnings.  There are other rules if the garnishment is for non-payment of child support.

* Child Labor
Child labor laws protect children from abusive work environments.  Age 16 is the minimum age for most non-farm, non-hazardous work.  Youths aged 14 and 15 may work outside of school hours in limited, non-hazardous occupations.  Hazardous occupations include excavation and operating many types of power-driven equipment. The number of hours and times of work are also restricted.  As with most laws, child labor laws vary from state to state, so please consult your state department of labor for more information.

* Social Security and Medicare
You must keep a record of the name and Social Security number of each employee as shown on the employee's Social Security card.  In addition, you must obtain an employer identification number from the Internal Revenue Service (this number must be shown on your tax returns and earnings reports).

Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program limits the amount of earnings subject to taxation each year. This limit increases with the national average wage index.  For earnings in 2008, the maximum is $102,000. The OASDI tax rate for wages paid in 2008 is 6.2% for employees and employers, each. Tax rates of 1.45% for employees and employers, each, are applied to all earnings—without a taxable maximum—for Medicare.

* Equal Employment
Equal Pay laws prohibit discrimination in pay on the basis of gender where jobs are performed under similar conditions and require equal skill, effort and responsibility.  You are permitted to pay differentials between genders only if differences are based on seniority systems, merit systems, wage incentive plans, or factors other than gender.

If you have more than 15 employees, you also must adhere to Title VII of the Civil Rights Act of 1964 which prohibits discrimination in virtually every employment circumstance on the basis of race, color, religion, gender, pregnancy, or national origin and the Americans with Disabilities Act of 1990 which prohibits discrimination against qualified individuals with disabilities.

* Unemployment Tax
The Federal Unemployment Tax Act (FUTA) provides workers payments for a fixed number of weeks or until they find a new job if they are unemployed through no fault of their own.  Employers pay the full tax and receive a credit against the federal tax for any state taxes paid.

* Occupational Safety and Health
The Occupational Safety and Health Act (OSHA) regulates safety and health conditions in most private industries.  Employers must become familiar with standards applicable to their businesses and eliminate hazardous conditions to the extent possible.  The regulations cover hazards such as falls, explosions, electricity, fires and cave-ins, as well as machine and vehicle operation and maintenance.  Health standards regulate exposures to health hazards through engineering controls, use of personal protective equipment, and work practices. 

OSHA sets standards and conducts inspections to ensure that employers are providing safe and healthful workplaces.  The Act’s general duty clause requires you to “furnish…a place of employment which is free from recognized hazards that are causing or are likely to cause death or serious physical harm to employees."  It requires employers to train employees about safety and assure that they wear protective gear.  OSHA regulations also cover recordkeeping, reporting, and posting.  All employers must report any workplace incident that results in a fatality or hospitalization of three or more employees.  If your company has more than ten employees, you must keep OSHA injury and illness records, even if no workplace injuries or illnesses have occurred. Visit the OSHA Web site for more information.

* Employee Benefit Plans
The Employee Retirement Income Security Act (ERISA) regulates employers who have pension or welfare benefit plans.  This statute preempts many state laws and is administered by the Department of Labor’s Pension and Welfare Benefits Administration (PWBA). 

Welfare plans must meet a wide range of fiduciary, reporting and disclosure requirements.  The Health Insurance Portability and Accountability Act (HIPAA) imposes privacy and portability requirements if you provide benefits.  In addition, employers with 20 or more staff must notify employees about continuing their group health care benefits at their own cost should they leave your employment under provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).   Several states have similar provisions that apply to smaller employers.

Pension and profit sharing plans must also meet a wide range of fiduciary and reporting and disclosure requirements, with regulations defining such concepts as the value of plan assets, adequate consideration for the sale of assets, and participant control over assets in plans. 

* Work Authorization for Non-Citizens
The Immigration and Nationality Act (INA) includes provisions addressing employment eligibility, employment verification, and nondiscrimination. These provisions apply to all employers.  Under the INA, employers may hire only persons who may legally work in the United States (i.e., citizens and nationals of the U.S. and aliens authorized to work in the U.S.) You must verify the identity and employment eligibility of anyone hired, which includes completing the Employment Eligibility Verification Form (I-9). Employers must keep each I-9 on file for at least three years, or one year after employment ends, whichever is longer.

The INA protects U.S. citizens and aliens authorized to accept employment in the U.S. from discrimination in hiring or discharge on the basis of national origin and citizenship status.

* Lie Detector Tests
The Employee Polygraph Protection Act (EPPA) applies to most private employers and prohibits them from using lie detector tests, either for pre-employment screening or during the course of employment.

* Whistleblower Protection
Generally, “whistleblower protection” provisions listed in many different laws prohibit an employer from discharging or discriminating against any employee regarding compensation, terms, conditions, or privileges of employment because the employee engaged in "protected" activities including 1) initiating proceedings under any of the statutes; 2) testifying in any such proceeding; 3) assisting or participating in any proceeding or in any other action to carry out the purposes of the statutes; or 4) complaining about a violation. OSHA, for example, administers the employee protection or "whistleblower" provisions of fourteen statutes.

* Uniformed Service Members
The Uniformed Services Employment and Reemployment Rights Act (USERRA), signed in 1994, applies to virtually all U.S. employers, regardless of size, and covers nearly all employees, including part-time and probationary employees.  It applies to people who perform duty, voluntarily or involuntarily, in the "uniformed services," which include the Army, Navy, Marine Corps, Air Force, Coast Guard, and Public Health Service commissioned corps, as well as the reserve components of each of these services. In addition, under the Public Health Security and Bioterrorism Response Act of 2002, certain disaster response work is considered "service in the uniformed services."

The pre-service employer must reemploy service members returning from service or training if the service members meet five criteria:
* The person must have held a civilian job;
* The person must have given notice to the employer about the service;
* The cumulative period of service must not have exceeded five years;
* The person must not have been dishonorably discharged; and
* The person must have reported back to the civilian job in a timely manner.

Employers are required to provide employees with a written notice of rights, benefits, and obligations of employees and employers under USERRA.

* Government Contracts
The Davis-Bacon and Related Acts require that all contractors and subcontractors performing on federal contracts in excess of $2,000 pay their laborers and mechanics not less than the prevailing wage rates and fringe benefits, as determined by the Secretary of Labor, for corresponding classes of laborers and mechanics employed on similar projects in the area.  Apprentices who are in formal training programs may be employed at less than predetermined rates.

Executive Order 11246 and its implementing regulations cover employers with federal contracts or subcontracts that exceed $10,000 or that accumulate to more than $10,000 in any 12-month period.  These regulations require covered employers to refrain from discrimination and to take affirmative action to ensure that applicants and employees receive equal employment opportunity regardless of race, color, religion, sex, and/or national origin. Covered employers must make good faith efforts to achieve goals for employment of women and minorities in all crafts and trades in their area. These contractors must pursue goals on all their construction work, whether or not federal or federally assisted. They must also include a specific equal opportunity clause in each of their nonexempt contracts and subcontracts.

Covered contractors and subcontractors, regardless of company size, are barred from using exclusionary policies that treat men and women differently. They may not depend on state "protective" laws to deny employment to qualified female applicants.   In addition, covered contractors and subcontractors that qualify as "employers" under Title VII of the Civil Rights Act of 1964 are required to comply with the Pregnancy Discrimination Act of 1978.
Equal Opportunity for Individuals with Disabilities Section 503 of the Rehabilitation Act of 1973, as amended, requires employers with federal contracts or subcontracts that exceed $10,000 to take affirmative steps to hire, retain, and promote qualified individuals with disabilities and to refrain from discrimination against qualified individuals with disabilities.

* More Information
Federal laws and regulations (and state laws, also) have different posting and record-keeping requirements.  To see which posting requirements apply to your establishment, check out the U.S. Department of Labor “elaws” web site FirstStep Poster Advisor. The DOL site also provides detailed information on employment laws for small employers and has Links to state web sites.

This content was provided by a third party via the PHCC Educational Foundation. Please consult your HR professional or attorney for further advice, as laws differ in each state.

The PHCC Educational Foundation, a partnership of contractors, manufacturers and wholesalers was founded in 1987 to serve the plumbing-heating-cooling industry by preparing contractors and their employees to meet the challenges of a constantly changing marketplace.

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