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Employment Law for Small Business: A Comprehensive Guide

Employment Law for Small Business: A Comprehensive Guide

Your weeks have become so packed that you’re frantically running from task to task, attempting to check off as much of your to-do list as possible, and yet somehow still ending each week feeling like you didn’t get enough done. AND that you have an entirely new mountain to climb the next week. 

Congratulations! You know it’s time to make a hire and get some help, but you want to make sure you do it by the book and employment law? It feels like another mountain in and of itself.

overwhelmed toddler

Good news! We’re here to help. First, before we dig into employment law for small business, we need to take a moment to ensure we understand who is considered an employee, and who isn’t. 

Employees vs Independent Contractor Employment Law for Small Business

An employee is someone who is required to work set hours, at their employer’s place of business, are on payroll, and have taxes withheld by their employer. If someone doesn’t meet those qualifications, they’d be considered an independent contractor instead of an employee. 

What difference does this make? As an employer, you’ll want to make sure that you’re following employment law for anyone you work with. And the laws vary depending on whether someone would be considered an employee by the IRS, or an independent contractor. 

8 Mistakes You Might Be Making When Working with Independent Contractors

Taxes

If you hire employees, you’ll need to make sure that you’re withholding taxes from their paychecks. These taxes include Social Security and Medicare, as well as Fededral and State Income Tax. However, if you work with Independent Contractors, they are responsible for paying their own taxes. 

When working with an Independent Contractor, you’ll need to ensure that you file a 1099-NECcome tax time. That is, assuming you paid them more than $600 in the year. If so, file the 1099-NEC with the IRS, and then send a copy to the Independent Contractor for their own records. 

Fair Labor Standards Act 

The Fair Labor Standards Act (FLCA) is a federal law that applies to employees, but Independent Contractors do not fall under federal employee law, and thus are not subject to FLSA. In particular, the FLSA covers minimum wage and overtime pay requirements for employees.

The federal minimum wage (effective July 24, 2009) is $7.25 per hour. However, individual states each have their own minimum wages as well, and the employee is entitled to whichever is higher. You’ll want to double check the minimum wage in your state to ensure you’re complying. 

In addition to minimum wage, employees must receive overtime pay for hours worked over 40 hours per workweek, and the rate must not be less than one and a half times the regular rate of pay. 

Independent Contractors, on the other hand, tend to work by project, so they set their own rates and do not receive overtime pay.

Related Post: Hiring & Firing Legally

Anti-Discrimination Employment Law for Small Business

Federal Equal Employment Opportunity Laws include protections against discrimination based on race, color, religion, sex, or national origin, sex-based wage discrimination, age discrimination and more. 

Once again, employees are covered under these laws, but Independent Contractors are not. However, we think it’s best practice to follow these regardless of who you’re working with. 

Contracts

And, of course, regardless of whether you’re hiring an employee or an independent contractor, you’ll want to ensure you have a contract in placeEspecially for Independent Contractors, it’s important to have a contract in place. Not just to set expectations between you and the Independent Contractor, but also the contract itself can be used to prove an individual is working as an Independent Contractor when tax time rolls around. 

When it comes to hiring, the first step is to determine if you’re going to want to work with an employee, or an independent contractor. From there, you can get a better understanding of exactly what you need to do to ensure you’re complying to federal and state law employment law for small business.

And, while you’re thinking about hiring - you should check out our Ultimate Hiring BundleInside, you’ll snag our Independent Contractor Contract Template and our Non-Disclosure Agreement. Plus, 4 exclusive bonuses that aren’t available anywhere else!

  • 7 Secrets to Successful Hiring - aka, everything we’d tell our past selves when it comes to adding members to the team.

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  • The How to Fire Gracefully Guide - because sometimes things just don’t work out, no matter how much you want them to.

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This bundle will guide your way as you hire independent contractors to grow your team.

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Amanda Warfield
Amanda Warfield

Amanda Warfield is a simplicity-focused content marketing and launch strategist, author of the book Chasing Simple Marketing, and host of Chasing Simple - a podcast to help creative entrepreneurs uncomplicate their marketing and business. She traded in her classroom lesson plans for speaking and educating creative entrepreneurs on sustainably fitting content marketing into their business, without it taking over their business - so that they have time to grow their business.

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