Employment Law Basics Every Employer Should Know
Employment law in the United States is a complex web of federal, state, and local regulations that govern every aspect of the employer-employee relationship. From the moment you post a job listing to the day an employee leaves your organization, you are navigating a legal landscape that carries significant consequences for missteps. Understanding the basics is not optional for employers—it is a fundamental business requirement.
Hiring: What You Can and Cannot Do
The hiring process is one of the most legally sensitive areas of employment law. Federal law prohibits discrimination based on race, color, religion, sex, national origin, age (40 or older), disability, and genetic information. These protections come primarily from Title VII of the Civil Rights Act, the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and the Genetic Information Nondiscrimination Act (GINA).
Many states and cities have additional protected categories. California, for instance, prohibits discrimination based on sexual orientation, gender identity, marital status, and political affiliation. New York City protects employees based on their status as victims of domestic violence, their immigration status, and their credit history. As an employer, you must comply with the broadest applicable law.
In practice, this means your job postings should focus on essential job qualifications rather than personal characteristics. Interview questions must be job-related. Background checks must comply with the Fair Credit Reporting Act (FCRA), which requires written consent before obtaining a consumer report and specific procedures if you decide not to hire based on the report.
Wage and Hour Laws
The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers. The current federal minimum wage is $7.25 per hour, but many states and cities have significantly higher minimums. As of 2024, California's minimum wage is $16.00 per hour, and several cities exceed that figure.
Overtime rules are particularly important and often misunderstood. Non-exempt employees must be paid overtime at one-and-a-half times their regular rate for all hours worked over 40 in a workweek. The distinction between exempt and non-exempt status depends on duties tests and salary thresholds, not job titles. Simply calling someone a "manager" does not make them exempt from overtime if their actual duties do not meet the legal criteria.
Employee Classification
Misclassifying employees as independent contractors is one of the most common and costly employment law violations. The stakes are high: the Department of Labor, the IRS, and state agencies all have their own tests for worker classification, and the penalties include back taxes, unpaid benefits, overtime, and significant fines.
The IRS uses a three-factor test focusing on behavioral control, financial control, and the relationship between the parties. The Department of Labor has recently adopted an "economic reality" test that looks at whether the worker is economically dependent on the employer. California's AB5 law created an even stricter "ABC test" that presumes worker status as employee unless the hiring entity can demonstrate three specific conditions.
Anti-Discrimination and Harassment
Beyond hiring, anti-discrimination laws protect employees throughout their tenure. Title VII prohibits discrimination in all terms and conditions of employment, including compensation, promotions, training, discipline, and termination. The Equal Employment Opportunity Commission (EEOC) enforces these laws and processes thousands of complaints each year.
Workplace harassment is a form of discrimination, and sexual harassment in particular has received increased attention in recent years. The landmark #MeToo movement led to changes in state laws nationwide, with many states now requiring anti-harassment training, extending statutes of limitations, and prohibiting non-disclosure agreements that silence harassment victims.
Every employer should have a clear anti-harassment and anti-discrimination policy, a complaint procedure that allows employees to report issues without fear of retaliation, and regular training for all employees. The cost of ignoring these requirements can be devastating: jury verdicts in employment discrimination cases routinely exceed six figures, and some have reached tens of millions of dollars.
Leave and Accommodation Requirements
Several federal laws require employers to provide leave or accommodate employees' needs. The Family and Medical Leave Act (FMLA) requires employers with 50 or more employees to provide up to 12 weeks of unpaid, job-protected leave for qualifying reasons including the birth or adoption of a child, a serious health condition, or caring for a family member with a serious health condition.
The Americans with Disabilities Act requires employers to provide reasonable accommodations to qualified individuals with disabilities, unless doing so would impose an undue hardship on the business. Accommodations can include modified work schedules, ergonomic equipment, reassignment to a vacant position, or modified job duties. The interactive process between employer and employee to identify appropriate accommodations is key to ADA compliance.
Termination and Final Pay
Most employment in the United States is "at-will," meaning either the employer or the employee can terminate the relationship at any time, for any reason—or for no reason at all. However, there are important exceptions. You cannot fire someone for an illegal reason (discrimination, retaliation, exercising a legal right), and you must comply with any contractual or collective bargaining obligations that modify at-will employment.
When an employee is terminated, federal law does not require severance pay or advance notice (except under the WARN Act for large layoffs). However, many states have "final pay" laws that require immediate payment of all earned wages upon termination. In California, for example, an employee who quits must receive their final paycheck within 72 hours, and an employee who is fired must be paid immediately on the day of termination.
COBRA (Consolidated Omnibus Budget Reconciliation Act) requires employers with 20 or more employees to offer continued health insurance coverage to terminated employees for up to 18 months. Proper COBRA notices must be provided within specific timeframes, and failure to comply can result in significant penalties.
Building a Compliance Foundation
The most effective approach to employment law compliance is proactive, not reactive. Start with an employee handbook that clearly communicates your policies, including anti-discrimination and anti-harassment policies, leave procedures, disciplinary processes, and safety rules. Have all employees acknowledge receipt and understanding of the handbook.
Implement regular training programs covering anti-harassment, workplace safety, and any industry-specific requirements. Maintain accurate records of hours worked, wages paid, and personnel actions. Consult with an employment attorney to review your practices periodically, and address issues promptly when they arise. Prevention is always less expensive than litigation.