Compliance. Now that’s a word that can frighten even the most experienced business owner. As scary as compliance may sound, business owners need to follow government regulations in order to avoid severe penalties, fines and even lawsuits. There’s a lot of trial and error that goes into building even the smallest business, but payroll, benefits and business taxes must be on-point from the very beginning.

Here’s a quick guide to understanding your legal responsibilities as a business owner.

Payroll

As an employer, you have certain legal responsibilities to your employees when it comes to their pay. For instance, federal law states:

  • An employer must pay at least the minimum wage (unless the employee receives tips or is somehow not subject to minimum wage)
  • An employer must pay overtime at 1 ½ times the employee’s hourly wage for all hours worked over 40 in any week (unless that employee is categorized as exempt – i.e., managerial, professional, supervisory, etc.)
  • An employer must provide a statement that shows gross pay, deductions, withholding tax, and net pay for the pay period and the year to date along with each paycheck
  • An employer must provide employees with a yearly statement of earnings (form W-2), withholding, and deductions, no later than the last day of January of the next year
  • An employer must deliver an employee who leaves or is terminated a final paycheck no later than 30 days after their last day at work (and in some states the day of termination)

Failing to meet these basic requirements or mismanaging an employee’s pay can result in an employee filing a workplace claim against your company. Yikes.

Benefits

Providing your employees with a range of benefits allows you to attract and retain talented employees, but you are also legally required to offer certain benefits. The big one is health insurance. With the Affordable Care Act set to start on January 1, 2014, but delayed until 2015, small businesses with 50 full-time employees or more will now be legally required to offer health insurance to their employees.

Another federally mandated benefit that companies with 50 or more employees must provide is Family and Medical Leave. This entitles employees to take up to 12 weeks of unpaid leave during any 12-month period for certain medical reasons, including: recovering from a serious health condition, caring for an immediate family member’s serious health condition, or taking care of an eligible employee’s child. While on Family and Medical Leave, the employee’s job is protected.

Along with providing health insurance and family medical leave benefits, employers also need to carry unemployment insurance, workers’ compensation insurance, and disability insurance.

Taxes

Not only do you have to deposit and report employment taxes on-time, and on a monthly or quarterly schedule, you also have to ensure the amounts you’re withholding from employee paychecks are accurate. Federal income tax, social security tax, Medicare tax, and federal unemployment tax (FUTA) are just a few of the taxes employers are responsible for. Tax rates also change every year, so you need to keep up and adjust have employees adjust withholdings accordingly.

More Resources for Business Owners

  • The U.S. Small Business Administration offers a handy 10-step checklist for starting a small business.
  • It’s a good idea to familiarize yourself with other labor laws that may apply to you, such as: wage garnishments, termination issues, contractors classification, etc. A great place to start is the Department of Labor Employer Guide.
  • The IRS produces an annual Employer’s Tax Guide called the IRS Circular E. This publication explains your tax responsibilities, requirements for withholding, depositing, reporting, paying, and correcting employment taxes, as well as the forms you must give your employees.
  • ZenPayroll helps companies ensure compliance across the board by calculating and paying your State and Federal payroll taxes, and automatically submitting your filings. You don’t need to be an expert, we’ll take care of the details for you.

About the author

Matt Faustman

Matt Faustman

Matt is the co-founder and CEO at UpCounsel. Matt believes in the power of online platforms to change antiquated ways of life and founded UpCounsel to make legal services efficiently accessible. He is responsible for our overall vision and growth of the UpCounsel platform. Before founding UpCounsel, Matt practiced as a startup and business attorney.

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