5 Labor Law Compliance Requirements Small Businesses Should Know About

In today’s dynamic regulatory landscape, it’s hard even for a seasoned HR administrator to keep informed of labor law compliance requirements across federal, state, and local governments. Staying ahead of, rather than keeping up with, labor laws can save you money and hassle in the long run. The more quickly you can respond to changes coming down the pipe, the better. And yet, according to ComplyRight Research, only about one in four businesses is “very confident” in their full awareness of employment laws and regulations, a decline from previous years.

The Cost of a Labor Law Compliance Violation

A labor law compliance violation can bring penalties and other costs for small businesses that need to stay focused on operations. Even if you avoid outright non-compliance and fines, a scramble to comply at the last minute can be resource- and time-costly and create other business complications, especially if a candidate or employee feels their rights have been violated.

Here are five labor law compliance requirements that small businesses had to face in 2020, with 2021 and beyond certain to bring new regulations in these areas.

1. Medical Marijuana, Drug Testing, and Prior Convictions

Screening is an important step in the application process, but it is important to remain compliant with new labor laws changing how information is handled.

On Election Day, voters in seven states approved new laws legalizing both recreational and medical marijuana. One big 2020 trend limited pre-employment marijuana tests, with both New York and Nevada prohibiting pre-employment marijuana testing, with some exceptions for jobs regulated by federal programs that mandate drug testing for safety reasons. Some states that allow employers to refuse to hire applicants who fail drug tests may require compliance with specific steps in the application process.

Likewise, many states are taking steps to protect those with prior criminal convictions and arrests from discrimination. California, Connecticut, Hawaii, Illinois, Maryland, and Minnesota have all created legislation that may affect screening, along with some cities and municipalities, including the District of Columbia. These laws prevent companies from asking about an applicant’s background before deciding whether they are qualified and otherwise limit how the information is used.

Businesses can look for more labor law compliance requirements regulating what information employers can gather in the application process, with some states enacting a ban on requesting salary and compensation histories and similar regulations in the works.

2. Medical Claims and Disability Protection

The Americans with Disabilities Act (ADA) requires businesses to offer reasonable accommodations for employees who have disabilities, but what about cases when the disability is a mental or emotional issue? How about workers who catch COVID-19 and claim it happened on the job? These are some ways the ADA could be expanded beyond its current, sometimes narrow, interpretation as a matter of access.

Medical claims and disability is an area that has been rapidly changing over the past years to accommodate more conditions. The Family Medical Leave Act allows working parents 12 weeks of leave to take care of children, but only recently did some companies update their policies to make it clear this law applies to fathers, too. As younger people come into the workplace, they often bring more nuance to these regulations. Another thing to consider is workers’ compensation requirements.

3. Employment at Will and Other Definitions of Work

One of the most important distinctions made by labor law is what employment or work actually is. For example, some business owners interpret employment at will to mean they can fire employees for any reason, not realizing that employees could sue them for wrongful termination if they claim the business discriminated against them. This is why it is important to document performance issues leading up to disciplinary action, including termination, in order to remain compliant with labor laws.

What determines employment versus an independent contractor is also changing. In September 2019, California Governor Gavin Newsom signed AB-5 into law, which defined what an employee is according to the “ABC” test and expanded this to the entire California Labor Code. Overnight, California reclassified entire labor pools, causing many businesses to either move to another state or revamp their business model.

As work continues to change and companies turn to remote workers and contractors, it’s important to know when to classify labor as an employee and what changing laws are coming down. A new proposed rule from the Department of Labor could ease classification burdens for businesses if approved, making it easier for companies in some states to classify temporary workers as contractors. The last time the DOL changed the rule was 2014, and before that 2008, and the new changes could take effect in 2021. Again, employers should keep accurate records that show compliance with the new standard. You could be liable for back taxes and benefits if you misclassify workers as contractors instead of employees.

4. Union Organizing, Section 7 Rights, and Social Media

The National Labor Relations Act applies even if your business does not employ union workers. This law grants employees the right to organize, collectively bargain, and discuss the terms and conditions of their employment, such as wages and benefits. These rights are known as Section 7 rights, and they may extend to what employees can post on social media.

Although many employers have rules about what employees can post on social media sites such as Twitter and Facebook, they have to be careful when crafting these policies to not run afoul of Section 7 rights by restricting lawfully permitted activity.

5. Labor Code Violations and the Private Attorney General Act (PAGA)

The Private Attorney General Act began with a 2019 California law that allows employees to file lawsuits to recover civil penalties for labor code violations on behalf of themselves, other employees, and the state of California. For a small filing fee, PAGA allows employees to act as a private attorney general and empowers them to file claims against their employer on the behalf of any employee. Recent legislation further expanded its potential scope and impact, while a few other states intend to follow California with similar legislation.

The best protection is preparation. Business owners can prepare by staying current on existing, new, and emerging regulations, and carefully documenting their company’s compliance with local, state, and federal labor and employment laws.

How America’s Back Office Can Help

Some small business owners fall into the trap of thinking the government only enforces labor laws with larger organizations, but small businesses can incur stiff fines and costly litigation if they don’t comply. This can end up being more expensive for a smaller company than a larger organization. Test your compliance knowledge here!

America’s Back Office is a reputable Professional Employment Organization (PEO) that works with businesses of all sizes to take administrative tasks and compliance reporting off your plate.

Wondering if a PEO could help your business? Take the PEO quiz and find out!