Employment Laws All Entrepreneurs Should Know

Much is said of an entrepreneur's struggle with the market and with the competition. Little is said of a start-up business owner's legal responsibilities. As an employer, you must make sure everything you do is above board. While larger companies can survive employee lawsuits, for a small start-up it could spell doom. Here are a few employment laws and legal terms you should know.

  • Age Discrimination - prohibits employers from discriminating against qualified applicants and employees based on age for workers over 40.
  • Americans with Disabilities Act - prohibits employers from discriminating against qualified applicants and employees based on disability.
  • Equal Pay Act - prohibits wage disparity based on sex. Jobs of equal effort, skill and responsibility must be compensated equally.
  • Fair Labor Standards Act - sets federal minimum wage, overtime and other requirements for hourly workers.
  • Family and Medical Leave Act - for companies with 50 or more employees, sets up to 12 weeks of job-protected time-off for births, adoptions and medical conditions.
  • Occupational Safety and Health Act - requires employers to provide safe working conditions. See OSHA.gov for specific employer requirements.
  • Pregnancy Discrimination Act - prohibits employers from employment discrimination based on pregnancy.
  • Title VII / Civil Rights Act - prohibits employers from discriminating based on race, religion, sex or national origin.
  • Uniformed Services Employment and Reemployment Rights Act - protects the employment status of individuals volunteering for or called to military duty for a period of 5 years. 


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Legal Guide for Small Businesses

The Difference Between Independent Contractors and Employees 

Many entrepreneurs often opt to hire independent contractors rather than employees, and for good reason. Independent contractors are generally cheaper, reducing overhead costs. That's because they don't have hour or wage requirements, nor are they included in worker's comp or insurance. Legal problems arise when less than upfront entrepreneurs classify their employees incorrectly.


Independent contractors have a few critical traits. For one thing, their principal service is often distinct from your company's. Often they also supply their own equipment instead of being funded by your company. They're also on their own schedule most of the time and you have little control over how or when they perform their tasks.


An actual employee, on the other hand, is directly under your control. You direct how they do their jobs and when they do it. You're also responsible for providing them with the tools they need to complete the job. Their paychecks are also paid out over time rather than per project.


You should take great care to correctly categorize employees and contractors since mistakes can result in HUGE tax penalties from the IRS and/or state authorities.


Know Which Employees are Non-Exempt vs Exempt From Overtime

As the entrepreneur in a startup company, it is likely you will work overtime more often than not. It's your business. If you're not putting in the same or more hours than everyone else when you can, it may be taken as a lack of commitment, which can weaken company morale. Unfortunately, you may be forced to burn the candle at both ends alone, because some positions are exempt from overtime pay.


Employees whose jobs are regulated by the Fair Labor Standards Act (FLSA) are either "exempt" or "nonexempt." Nonexempt employees are entitled to overtime. Exempt employees are not. Consult the US Department of Labor's list of exemptions to determine whether or not your employees should receive overtime pay. 


This is something you should keep in mind when hiring employees. You cannot afford to make an exempt hire if you expect the person to repeatedly work overtime in that position. Since regulation can vary by location, earnings and job description, you should use a payroll provider to ensure that the correct payroll procedures are followed.


Draft Procedures to Protect the Business from Within 

Most offices supply their employees with computers, Internet access, and company email. Unfortunately, many offices fail to protect themselves from abuse of their own resources.


Rules must be in place to prevent workers from accessing restricted websites or sharing confidential information. Like any other rule, they must be properly communicated. Your employees must know that their use of company networks and technology can and will be monitored. Make it clear to them that their equipment is designed to help them work (not play), and clearly define what is expected of them in the workplace.


Implement clear employment policies and procedures by distributing an Employee Handbook to your workers.


Create Your Own Employee Handbook:

Employee Handbook Template for Small Business
Learn More


Protect Key Information with Non-Disclosure Agreements & Non-Competes

That which isn't explicitly forbidden will be done. That's a rule you must embrace as an entrepreneur. If you don't tell them it can't be done, employees will do it. That isn't to say all your workers are cutthroat human beings just looking for the next win, it just means you should protect your business and its assets from potential threats or misuse.

Trade secrets such as, formulas, code, designs, customer lists and other proprietary information are invaluable. Having them exposed to the competition can easily damage your company, with the worst case scenario being litigation from your own investors and partners. Have any candidate, employee, or contractor who is expected to access sensitive information sign a non-disclosure agreement (NDA) to keep you and your start-up safe from leaks. 

The Non-competition agreement is another tool that should be used to protect against unfair competition from current and former employees, contractors or business partners. Non-Competes are tricky to draft and implement correctly and are best handled by an attorney. Read this excellent primer on Non-Competes to learn how this important document should be used.  

Complying with key employment laws, using a payroll provider, and consulting with legal professionals when needed will ensure that your company's assets, employer status and relationships remain secure. 

Consult the Employment Law Guide at DOL.gov for specifics on these laws.


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