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Understanding Employment Laws

Understanding Employment Laws

If your company has employees, you need to understand and comply with federal and state employment laws to minimize the chance that an employee will file a complaint or lawsuit against you.

The Equal Opportunity Employment Commission oversees federal workplace laws. Whether a particular law applies to your law firm will depend on the number of employees you have.

If you have any employees: You must comply with the Equal Pay Act (EPA), which guarantees that men and women receive equal pay for equal work.

If you have fifteen or more employees: In addition to the EPA, you must comply with the Americans with Disabilities Act (ADA); the Pregnancy Discrimination Act (PDA); and Title VII of the Civil Rights Act, which covers discrimination based on race, color, religion, sex or national origin. As of mid-2016, federal law does not prohibit discrimination based on sexual orientation, though some states’ laws do.

If you have twenty or more employees: In addition to the above, you must comply with all Consolidated Omnibus Budget Reconciliation Act (COBRA) requirements and all Age Discrimination in Employment Act (ADEA) requirements.

If you have fifty or more employees: In addition to all of the above, you must comply with all Family and Medical Leave Act (FMLA) requirements. If you have at least 50 full time or full time equivalent employees, you must comply with the Affordable Care Act’s requirements for offering employee health insurance or you may have to make employer shared responsibility payments.

In general, an employee is someone who has worked for an employer for at least 20 calendar weeks. That means a part-time or temporary employee may be considered an employee for purposes of the federal workplace laws, even if that person is not entitled to certain employee benefits. Independent contractors are not employees.

A company with federal contracts may be subject to the anti-discrimination laws regardless of the number of employees it has. In general, the laws apply to any company with federal contracts or subcontracts in excess of $10,000.

State Laws Vary

State and local employment laws also apply to your business. A number of states enforce anti-bias laws for companies with one or more employees. Some states have a definition of what constitutes an "employee" that differs from the federal definition. 

Other states follow a broader definition of "discrimination" and include categories not covered under federal civil rights laws. For example, some states prohibit discrimination based on marital status. Just under half the states prohibit discrimination based on sexual orientation, and most of those also prohibit discrimination based on gender identity.

In other words, you must know federal guidelines and your state's employment guidelines. You can get state-specific information from the Department of Labor website or from a local business law attorney.

Now let's look at a few of the most common employment law issues.

Employee Relations

The most common complaints made by employees are based on discrimination or harassment. Complaints may relate to (but are certainly not limited to):

  • Decisions about who should be offered employment (and how that process takes place)
  • The terms and conditions under which employment is offered
  • Decisions about who to promote, transfer, train, or provide other benefits to
  • Decisions about employee discipline, including the reasons for discipline and how it is administered
  • Decisions about when and under what conditions to fire an employee
  • Sexual or racial harassment

As an employer, how do you avoid discrimination or harassment? Here are some basic steps:

  • Develop clear policies stating harassment and discrimination will not be tolerated
  • Ask existing and new employees to read and sign a copy of the policies
  • Display your policies prominently
  • Provide training on discrimination and harassment
  • Establish a formal process for handling complaints (ensuring confidentiality as well)
  • Respond quickly and seriously to all complaints, and investigate those complaints thoroughly
  • Deal with offenses consistently and in compliance with your policies as well as with state and federal laws
  • Consider consulting with an experienced employment attorney to ensure your business not only meets current laws and guidelines but also has an effective process in place to quickly and fairly handle any complaints.

Employee Status

Employees are considered either exempt or non-exempt under the Fair Labor Standards Act (FLSA). Exempt employees do not qualify for overtime, nor does the FLSA limit the number of hours those employees can work. Non- exempt employees must be paid overtime.

The difference is critical because a failure to pay overtime can expose your company to complaints and lawsuits.

While many small business owners assume an employee is exempt if she or he is paid on a salary basis, salary is only one factor in an employee’s status. In general, to qualify as an exempt employee, the employee must make at least $455 for a 40-hour workweek, be paid on a salary basis, and perform exempt job duties. (The salary requirement will jump from $455 to $913 per week on December 1, 2016.) Exempt job duties include:

  • The employee works in a management role, with his or her primary responsibility being to manage, supervise, or oversee other employees. The employee must regularly manage at least two other employees. Typically, to be considered "management," the employee must have the authority to discipline, hire, and fire employees and to use judgment in making business decisions.
  • The employee works in an administrative role, handling office duties in support of general business operations, with some independent judgment and discretion required. This might include employees in human resources, budgeting, finance, and some computer-related jobs.
  • The employee’s work requires advanced knowledge gained through specialized study. Attorneys and accountants fall into this category.
  • The employee serves as an outside salesperson that regularly works away from the company’s place of business.

Employees vs. Independent Contractors

Employees are protected by anti-discrimination laws, they may be entitled to overtime pay or participation in company benefit plans, and their employer withholds taxes from their pay and pays half of their Medicare and social security tax.

An independent contractor is self -employed or employed by another company. Independent contractors are not entitled to overtime pay or company benefits, and taxes are not withheld from their pay. If an employer misclassifies an employee as an independent contractor, the employer can be liable to the IRS for back taxes and penalties.

In general, if a person works independently, he or she is considered an independent contractor. A person is more likely to be considered an employee if the employer controls the exact tasks they perform, manner in which they do their work, their work hours, the location where they can work, and the equipment they use to do their work. If you are unsure whether someone is an independent contractor or an employee, you should consult an accountant or business lawyer.