Human Resources Compliance for Small Businesses

Overview

This session covers the critical employment laws that small to medium-sized businesses must follow to avoid devastating lawsuits and audits. It clarifies common misconceptions regarding independent contractors, salaried employees, and required accommodations, emphasizing that HR compliance is about business survival.

Core concepts

• Employee Classification (The Biggest Trap)
• 1099 vs W-2: There is no such thing as a "1099 employee." 1099s are independent contractors who set their own hours, use their own tools, and take on their own financial risk. W-2s are employees whose schedule, tools, and work are controlled by you.
• Getting this wrong triggers severe penalties from both the Department of Labor and the IRS.
• Exempt vs. Non-Exempt (Overtime Rules)
• Paying someone a salary does not automatically make them exempt from overtime.
• To be exempt, an employee must meet a minimum salary threshold (currently $684/week or $35,568/year) AND pass a "duties test" (e.g., executive, administrative with decision-making power, learned professionals, outside sales).
• Non-exempt employees must be paid time-and-a-half for hours over 40 in a static workweek. If they work unauthorized overtime, you must still pay them (though you can discipline them).
• Accommodations and Leave
• ADA (15+ employees): You must engage in an "interactive process" to find reasonable accommodations for disabilities, unless it causes undue hardship to the business.
• Pregnant Workers Fairness Act: Requires reasonable accommodations for pregnancy and childbirth-related conditions (e.g., a stool to sit on, extra bathroom breaks).
• PUMP Act: Employers must provide reasonable break time and a private space (not a bathroom, preferably with a sink) for nursing mothers to pump milk for up to one year after birth.
• FMLA (50+ employees within 75 miles): Provides 12 weeks of unpaid, job-protected leave. Managers should not contact employees to ask when they are returning while on FMLA.
• Documentation and Record Keeping
• I-9 Forms: Mandatory to verify work authorization. Keep them in a separate binder, not in regular employee files. Purge old ones legally. Use E-Verify to double-check documents safely.
• Do not dock pay for unreturned equipment without prior written authorization.

Action steps

• Conduct a Pay and Time Audit: Ensure all 1099s are truly independent contractors and all exempt salaried staff meet the threshold and duties test.
• Update your Employee Handbook to clearly set rules, expectations, and disciplinary procedures.
• Start using the free federal E-Verify system for all new hires to prevent I-9 audit penalties.
• Train your managers on basic laws (especially not harassing employees on FMLA leave).
• Ensure your OSHA 300 logs are posted annually (if you have 11+ employees).
• Post the required federal and state labor law posters where applicants and employees can see them.

Key terms

• Undue Hardship: A legal standard meaning an accommodation is too difficult or expensive for the business to provide, excusing them from doing so.
• Interactive Process: The mandatory, documented discussion between employer and employee to find a reasonable ADA accommodation.
• Full-Time Equivalent (FTE): A calculation used for the Affordable Care Act (ACA); e.g., two 20-hour/week employees equal one FTE.

Examples

• Texting after hours: If you text or call a non-exempt employee with a work question after hours or on vacation, that is compensable time and you must pay them for it.
• The "Administrative" Exemption: A receptionist making $100,000 a year still cannot be exempt because their job duties are prescriptive and lack independent, high-level decision-making.
• Workers Comp: In Florida, if you are in construction and have 1 employee, or non-construction and have 4, you must carry workers comp, or the state can physically shut down your business.

Cautions & verification

• Salary Thresholds: "The Department of Labor is looking at raising these thresholds." (Verify the current federal and state salary minimums for exempt employees, as they change frequently).
• State vs. Federal: Federal minimum wage is $7.25, but state wages (like Florida's $14 rising to $15) override it. Always follow the law that is most generous to the employee.
• OSHA Heat Standards: Federal heat safety standards are currently being finalized. Verify your requirements for providing water, shade, and rest if your employees work outdoors.

Further considerations

• At-Will Employment: Recommendation: Ensure your employee handbook explicitly states that employment is "At-Will" (if applicable in your state) so employees understand they do not have a permanent contract.
• Harassment Training: Recommendation: Many states mandate annual sexual harassment training for all staff. Verify your state's requirements.

Review questions

• Can I hire an employee as a 1099 contractor to save on taxes? No. Misclassification is illegal and carries massive IRS and DOL penalties.
• If an hourly employee clocks in early without permission, do I have to pay them? Yes, you must pay for all time worked, though you can write them up for violating policy.
• What two tests must an employee pass to be salaried exempt? They must meet the minimum salary threshold AND pass the job duties test.
• Where should you store employee I-9 forms? In a separate, dedicated binder, apart from their regular personnel files.
• What does the PUMP Act require? It requires employers to provide reasonable break time and a private space (that is not a bathroom) for nursing mothers to pump for up to a year after birth.