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According to the most recent US Census data, over five million new business applications were filed between 2021 and 2022. And it’s safe to say that many entrepreneurs probably don’t spend a lot of time thinking, “I wonder how my new venture will handle HR compliance?” when they get started. But it’s something that every small business with employees needs to get a handle on.
We pulled together this guide to help new small business owners understand HR compliance responsibilities. So, here are the basics you need to know (as well as links to more detailed resources) to help meet your requirements and get back to focusing on growth.
What is HR compliance?
Getting compliance right boils down to implementing policies and procedures that ensure that your business follows an array of federal, state, local, and even industry-specific rules and regulations. From how you recruit new employees to the point when you might terminate the employment relationship, the government wants to make sure you keep your people safe, treat them fairly, and give the tax man his share. That’s what we mean by HR compliance.
Note: If you aren’t keeping up with new HR and payroll laws as they change, you risk receiving a hefty fine — or a getting dinged reputation — for non-compliance. So, it’s important to stay informed about the rules that apply to your industry and business. This includes things like new annual posters required by the Department of Labor or other updates like local minimum wage notices or leave rules that may happen more often or after January 1.
Follow your payroll or HR software provider for updates and check your state government and the Federal Department of Labor websites regularly.
How do small businesses manage HR compliance?
Many small businesses don’t have a dedicated human resources manager — so it often falls to the owner to keep up with compliance. So, how do you add another must-do to your to-dos? In fact, our research shows that the median small business doesn’t hire an HR manager until it has about 50 employees.
To do things yourself, start by creating an HR compliance checklist. It should include the rules or regulations that your company needs to follow as well as the specific requirements to ensure compliance. Having everything in one place ensures that you keep on top of all the details — and that anyone else in your organization who handles HR tasks or documentation is on the same page. In the event of an issue, this checklist also gives you a document to refer back to.
Your checklist should include:
- The names of major rules, regulations, or requirements
- Who’s in charge of tracking each requirement
- Any essential dates or deadlines
- The required policies for record management and retention
- Contact information for the agency that enforces the regulation
Once you create your checklist, be sure to revisit it at least every six months. This way, you can make sure that regulations haven’t changed and that everything (and everyone) is still compliant.
What are some common small business HR compliance issues?
So, what should go on your list? Here’s an acronym-filled rundown of some of the most common things small business owners need to know. Please note that different businesses and different industries can have different requirements, so please consult with a labor law specialist if you have any questions about your responsibilities.
What anti-discrimination laws exist?
Before you even start hiring, you’ll want to make sure you don’t accidentally adopt any practices that could be deemed discriminatory. The Equal Employment Opportunity Commission (or EEOC) is a good place to start understanding most employers’ obligations. The EEOC enforces anti-discrimination laws in the workplace, ensuring you’re in compliance with laws that protect people from discrimination based on race, color, gender, age, disability, national origin, religion, age, or genetic information.
The EEOC enforces:
- Title VII of the Civil Rights Act of 1964 (Title VII)
- Age Discrimination in Employment Act (ADEA)
- Equal Pay Act (EPA)
- Titles I and V of the Americans with Disabilities Act (ADA)
- Title II of the Genetic Information Nondiscrimination Act of 2008 (GINA)
Employers must adhere to these laws, which prohibit discrimination related to hiring, firing, employee treatment, compensation, and any other employment-related actions. Specifically, the federal laws are intended to prevent employers from discriminating on the basis of:
- Sex (including pregnancy, childbirth, and related medical conditions)
- Age
- Race or national origin
- Religion
- Disability
And many states have additional anti-discrimination laws, which create employer responsibilities around sexual orientation and gender-based discrimination. In addition to treating employees equitably, employers also can’t retaliate against anyone who makes a claim under these laws.
Do EEOC laws apply to small businesses?
The short answer is, yes, but sometimes it depends upon the number of employees. If you have even one employee, you must adhere to the Equal Pay Act that requires equal pay for men and women doing the same work.
Most of the other federal employment laws enforced by the EEOC apply to companies employing 15 people or more, including the Americans with Disabilities Act requiring employers to allow for reasonable accommodations for people with disabilities.The Age Discrimination in Employment Act (covering age discrimination of those over 40) applies to companies with more than 20 employees.
What requirements must be met when hiring an employee?
There are several things small businesses must take care of before they hire an employee or right after an employee is on board. From verifying employment eligibility and collecting tax information to making sure employees are covered by your workers’ compensation policy, there are multiple steps involved.
For a more detailed compliance resource, review our employee onboarding checklist to see employer obligations, review necessary governmental forms, and find out more about what’s needed to stay compliant. Additionally, our article on employee preboarding may come in handy if you’re considering HR initiatives before a new hire’s first day on the job and are looking for ideas.
What labor and wage laws apply to small businesses?
There are a few compensation-related laws you’ll need to keep track of as a small business owner. Let’s start with the Fair Labor Standards Act (FLSA) that covers the minimum wage, overtime pay, child labor, and recordkeeping standards applicable to most private and public employees. It ensures that covered, non-exempt workers are entitled to a federal minimum wage of $7.25 per hour and that tipped employees are paid at least $2.13 an hour in direct wages.
Some states have minimum wages higher than the federal minimum. The Department of Labor has resources with the most current information.
Employees can sometimes be “exempt” from the minimum wage or the overtime pay requirements outlined in the FLSA. Exempt employees are typically salaried and in executive, administrative, and professional jobs — or are outside sales employees or employees in certain computer-related occupations. Check out our article about employee classification for more.
Next, there’s the Family and Medical Leave Act (FMLA). For companies with at least 50 employees, it entitles eligible employees to 12 weeks of unpaid, job-protected leave for certain family and medical reasons. It covers things like the birth of a child, bonding time with an adoptive child or foster child, time to provide care for an immediate family member, or caring for the employee’s own injury or serious health condition.
Employees are eligible for FMLA leave if:
- they have worked for a covered employer for at least one year, and
- for at least 1,250 hours over the previous 12 months, and
- if there are at least 50 employees of the company within 75 miles
If you have an employee who needs to use FMLA, they can be required to provide advance notice (when possible) and medical certification to remain compliant. While the employee is on FMLA leave, you must maintain the employee’s health coverage under your group health plan. When the employee returns from leave, they must be restored to their original job or to an equivalent role with equivalent pay, benefits, and other employment terms. For a more detailed rundown, review our article on state by state paid leave rules.
And don’t forget OSHA. The Occupational Health and Safety Administration ensures that all businesses create a safe and healthy working environment. All employers must post an OSHA workplace poster in a prominent place that informs employees of their rights and responsibilities. Most employers with more than 10 employees are required to keep a record of serious work-related injuries and illnesses. And, as a business owner, there are several additional workplace safety laws you’ll need to track and comply with. If you have questions about OSHA requirements and regulations specific to your business or industry, call your local OSHA office or visit the OSHA website.
It’s also a good idea to keep informed about the Affordable Care Act and COBRA, National Labor Relations Act (even if your business isn’t unionized), and updates to immigration laws. And don’t forget to check your state and local laws — they might have additional requirements.
Do all employers have to withhold payroll taxes?
If you have employees, it also means you’ll need to withhold payroll-related taxes, and file a series of forms with the IRS and state tax agencies. Even if you don’t have employees, you’ll need to think carefully about how you pay yourself.
You’ll also be on the hook for providing employees with personal tax forms (typically W-2s) that help them file their own taxes. The key threshold question is whether someone you pay is an internal employee or an independent contractor. Once you’ve made that determination, here’s everything else you need to know about payroll tax withholding.
We hope this HR compliance overview has given you a good look at the important laws to keep in mind and some time-saving best practices to prevent human resources headaches down the road. To find out more about what you need to keep in an employee’s personnel file, we’ve put together this guide.
This article is for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors for formal consultation about your HR compliance responsibilities.
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Erin Ellison is the former Content Marketing Manager for OnPay. She has more than 15 years of writing experience, is a former small business owner, and has managed payroll, scheduling, and HR for more than 75 employees. She lives and works in Atlanta.