Small Business Employment Laws: Most Important Compliancy Issues

Employers with enough employees and managers to cause problems, but without enough employees to justify a dedicated human resources department of their own, should consider outsourcing the functions to an external service provider. As a convoluted and complicated aspect of doing business, HR is often handled by off-premises professional employer organizations such as Midwest HR PEO Services which can offer dedicated management of the more difficult staffing nuances.

When dealing with new employees, small business owners should pay attention to the following three important regulations:

Avoid Discrimination Against Members of a Protected Class

Unlawful discrimination is a significant human resources problem. Small business owners will quickly land themselves in hot water by discriminating against members of protected classes. Companies with 15 employees or more are subject to the Civil Rights Act of 1968, which creates several protected classes. Many states have statutes that are more restrictive and apply similar rules to companies with even a single employee.

Other statutes like the Equal Pay Act and the Pregnancy Discrimination Act have expanded the scope of protected classes over the years. Protected classes are groups of individuals or certain traits that individuals possess. Legally protected classes include age, disability, genetics, national origin, pregnancy, race, religion, gender and the employee’s history of filing complaints for unequal treatment due to protected class characteristics.

Discrimination simply means unequal treatment in the terms or conditions of employment due to that employee’s membership in a protected class. This can include significant employment-related decisions such as granting raises, making hiring decisions and changing job assignments. However, employment discrimination also includes harassment due to a protected characteristic. Small business owners often inadvertently harass employees by making frequent off-color jokes and engaging what they believe is casual teasing.

Employers may discriminate based upon protected characteristics in the hiring process under certain circumstances. If there is a bona fide occupational qualification that excludes members of a protected class, managers and business owners may decline to hire someone based upon those protected characteristics. Additionally, if the job involves working in another country and hiring that protected person would violate the laws of that country, employers may discriminate based upon that protected characteristic.

Correctly Withhold Taxes

Employers are legally obligated to withhold federal income taxes, Social Security taxes and Medicare taxes in addition to paying the employer’s share of the taxes. Employees must provide their employers with a Form W-4 to determine the amount of federal income tax that the employer is to withhold from their paychecks. The employer must not only withhold the employee’s share but also file its share of the taxes.

Correctly withholding employee taxes and filing one’s own taxes is vital. Individuals who fail to file or withhold correctly will be subject to civil penalties and possible criminal charges if the employer intended to evade taxation. Internal Revenue Service penalties can be substantial in their own right and relieve the employer of valuable investment capital. To make matters worse, noncompliance with the tax code can trigger an audit from the Internal Revenue Service. An audit is a major concern for a small business, as many small business owners comingle assets and many deductions will not stand up to close scrutiny.

Carry Workers’ Compensation

All states require employers to carry workers’ compensation insurance. Workers’ compensation insurance provides benefits to employees in the event that they are injured on the job, including lost wages and compensation for medical bills. Any disputes are handled through various levels of appeals, ensuring that neither party bears the burden of paying for litigation. Like other violations of the law, failing to insure workers may result in fines and other statutory penalties on top of the cost of coverage.

The penalties vary by state, but they pale in comparison to what occurs when an employee is injured on the job. Workers’ compensation coverage protects employers from excessive jury awards and expensive litigation arising from injuries sustained on the job. Without coverage, employees may sue for additional damages and demand attorney’s fees and even punitive damages. In such a case, the employer is looking not at elevated rates, but at high-paying the full value of a jury award.

The foregoing is not an exhaustive list of concerns for small business owners. New employees bring a new potential set of problems to an organization. Discrimination against members of a protected class and failing to obtain workers’ compensation coverage can result in both costly lawsuits and statutory fines and problems with the Internal Revenue Service can result in fines and an audit. While business owners must abide by all local, state and federal laws, some pitfalls are larger than others.

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