Have you ever worked in an office with a poster that said “Employee Rights Under the Fair Labor Standards Act,” or maybe one that said “Equal Employment Opportunity Is the Law”?
Did you wonder why it was there?
It wasn’t just for wall decoration: Employers are often legally required to place these posters in plain sight, depending on the structure and type of their business. That’s just one of the many regulations—meaning a legal rule issued by a government agency—that can affect a small business.
Consider this: The Code of Federal Regulations, a document published each year by the federal government that lists all areas subject to regulation, is divided into 50 broad subsections. It’s no surprise that small business owners often feel overwhelmed and disheartened about the number of governmental regulations imposed on their business!
We’ve put together a guide to 16 of the most common types of regulations that you need to consider when setting up and running your small business, from overtime pay to health insurance to antitrust laws.
(Plus, check out and share our infographic down at the bottom!)
First of all, you need to determine whether your small business is actually a small business in the eyes of the federal government.
Why does that matter?
Because all the programs created by the Small Business Act in 1953 to help small businesses, like loans, counseling, and contracts, are only available to businesses that fit the size standards.
These standards differ from industry to industry: Some are based on number of employees, while others are based on the business’s finances. You can see a full table of size standards according to industry here.
Does your business sell alcohol or firearms, operate oversize vehicles or planes, import or export animals, plants, or animal products, or broadcast information via radio? You’ll need to apply for a federal permit.
If none of those apply to you, you’re not necessarily off the hook: Depending on your state, you may need to apply for a state license or permit. Selling goods often requires a sales tax license, for example, while operating a veterinary clinic or a hair salon might require a professional license.
Almost every business needs some sort of license or permit to operate legally—the tricky part is figuring out which ones you need. Check out the SBA’s directory of state license requirements and their guide to federal licenses for more information.
The Fair Labor Standards Act ensures that non-exempt white-collar workers must be paid time-and-a-half for any hour worked in excess of 40 per week. And in 2016, the salary threshold that separates exempt from non-exempt workers basically doubled: It’s now $47,476.
This means that any employee (although not independent contractors) who makes $47,476 or less must be paid for their overtime hours. (This same law makes it illegal to hire workers under the age of 18 for any work deemed “dangerous,” and restricts the number of hours that children under the age of 16 can work per week.)
And yes, this is the same act that’s responsible for those posters! If you have employees who are protected by the FLSA, you also have to display the poster where everyone can see it.
If you employ more than 50 people, then they’re each entitled to have up to 12 weeks of job-protected, unpaid leave during any year for maternity or paternity leave, medical leave, or medical leave for a family member, thanks to the Family and Medical Leave Act.
If the medical leave is for a family member who’s in the military, then the employee can take 26 weeks to care for him or her.
Okay, this is an obvious one, but we’ll put it out there anyway: You’re required to pay your employees, and you’re required to pay them at least $7.25 an hour, which is the federal minimum wage established by the Fair Labor Standards Act. (There are a couple of exceptions to this: Tipped employees can be paid a lower base rate, and employees in states with a higher state-level minimum wage must be paid the higher rate.)
One of the provisions of the Affordable Care Act is that small businesses that employ more than 50 people are required to provide health insurance for their employees, according to the Employer Shared Responsibility Provisions. Those businesses are also required to report, at tax time, basic information about the insurance they’ve offered their employees to the IRS. (There are plenty of reasons why you should offer health insurance even if you employ fewer than 50 people, too!)
As soon as you hire your first employee, you’re legally obligated to purchase insurance for workers’ compensation, also known as “workers’ comp.”
Although workers’ comp is an extra expense, it protects both you and your employee in the case of an accident on the job: The employee will receive medical care and compensation for some of the income they lose while injured, while you will be protected from a lawsuit from the injured worker.
Specific workers’ comp systems vary from state to state, so you need to visit your state’s office (find a directory here) to find more detailed information.
Of course, thanks to the safety standards and requirements set in place by the Occupational Safety and Health Administration, you and your workers are much less likely to ever cash out on your workers’ comp.
Even if your workplace is a 9-5 office, where the most dangerous thing that happens every day is replacing the jug in the water cooler, you’re subject to OSHA requirements like having action plans in place for fires or emergencies in the buildings.
You’ll also need to have a first-aid kit and make sure that your walking surfaces are safe. (Yes, we’re serious: Falls, whether from heights or flat ground, are a leading cause of serious work-related injuries and deaths, reports the OSHA.)
If you’re in the construction or health care field, you’re subject to much more stringent requirements, like standards for the stability of scaffolding and procedures to limit exposure to blood. (There’s an OSHA poster, too.)
The federal tax code is a highly complex and constantly changing system, but as a small business owner, you’ve got no choice but to pay up.
You’re responsible for paying federal taxes, including tax on the income that your business brings in, self-employment tax if you’re self-employed, and employment tax if you employ others, plus additional excise taxes depending on your industry. You’re also responsible for state and local taxes, which differ by state.
You can find more information about the taxes for which your business is responsible here, but our advice is to hire an accountant—preferably a CPA.
One of the biggest causes for tax roll audit of a small business is that an employee has been misclassified as an independent contractor, which brings us to our next regulation: classifying your employees correctly.
This can actually be a lot trickier than you might think! Generally, independent contractors are considered self-employed, but that classification can be vague—especially when you bring full-time interns or temporary workers into the mix.
The IRS uses three categories—financial, behavioral, and relational—to determine whether someone who works for you is an employee or a contractor. If you misclassify an employee as an independent contractor (which can be tempting, since employers don’t need to pay taxes on independent contractors), you can be subjected to fines.
If you employ more than 100 people (or more than 50 if you’re a federal contractor), you’re required to report how much you pay each of them, broken down by their race/ethnicity, job category, and gender, to the Equal Employment Opportunity Commission each year.
This is to ensure that you’re complying with federal nondiscrimination laws (i.e., that you’re not paying a woman significantly less than a man with exactly the same job title and responsibilities). The report, which is known as the EEO-1 form, has to be submitted by the end of each September. Find out more here. (This one’s got a poster, too.)
The Environmental Protection Agency regulates the ways in which small businesses release pollutants and deal with hazardous materials.
Think about how every aspect of your business affects the environment: Are you using toxic materials to fix, clean, or improve something for a customer? How are you disposing of those materials afterward? Are you pouring anything down a drain that feeds into a body of water? This one’s pretty complex, so let’s break it down into a few major acts with regulations that affect small businesses:
For more information on any of these, you can check out the Small Business Administration’s environmental regulation resource page.
If you operate an e-commerce site, the way in which you collect sales tax is regulated differently than for someone who runs a brick-and-mortar store.
Instead of charging someone both local sales and state tax, as you would in a store, you may only need to collect state tax. It depends on whether your business also has a physical presence, whether a state, office, or warehouse (known, in legal terms, as a “nexus”).
If your business has a nexus, you need to collect sales tax; otherwise, you’re responsible only for state tax. Of course, if you live in Alaska, Delaware, Hawaii, Montana, New Hampshire, or Oregon, you wouldn’t need to collect sales tax anyway—those states don’t have sales tax—and depending on what you’re selling, you may be exempt to begin with.
You might think that “antitrust” only has to do with major companies, like Microsoft or Apple, but this is a common misconception. Small businesses are responsible for following antitrust laws, too, especially if there aren’t that many competitive products or services.
You’re not allowed to fix prices, divvy up markets, or boycott suppliers, according to antitrust laws, nor can you make any attempt to monopolize your marketplace through practices like predatory pricing or “tying,” which means that you force a customer who wants only one product to buy two instead.
As an example: If you run one of two landscaping companies in your town, and you know the woman who runs the other landscaping company, the two of you are not allowed to decide together on a minimum price for your services (no matter how friendly it might seem!). That would be a violation of the Sherman Act, which is the country’s main antitrust law.
You can read more about antitrust laws on the Federal Trade Commission’s website.
If you market or advertise your product—and you probably do!—then you’re not allowed to lie about what it does.
The FTC oversees marketing and advertising law, and customers who suspect that a product is being dishonestly advertised can report it to the FTC.
On their website, they provide a list of ways to make sure that you’re complying with the law. For example, medical and health claims, as well as claims that a product is “green,” have to be backed up by science.
In general, the two main tenets of advertising law are that 1) you’re telling the truth and not misleading consumers, and 2) you can substantiate your claims with proof.
If all your advertising passes those tests, you’re probably good to go.
Similarly, if you use email marketing tactics, make sure you’re complying with the CAN-SPAM Act for commercial emails. (Yes, that’s the real name of the act.)
This act includes a number of regulations. For example, you have to include your physical address in the email, and you must honor “opt-out,” or “unsubscribe,” requests from recipients.
It may seem as though there’s no end to the number of regulations placed on small businesses, but if you don’t comply, you can be fined, closed down, or even prosecuted.
A good place to start is the Small Business Administration’s roundup; a better place to continue is with a professional, like a CPA or a lawyer, who can help you navigate the Code of Federal Regulations.
Trust us: It is very worth an initial investment of time and money to figure out which regulations apply to your business. It’ll save you major trouble later on.