Everything startups need to know about employment law
When starting your business, you have so many tasks at hand — licensing, product/service development, marketing, taxes, etc. As soon as you start hiring individuals to work for you, you open another world of compliance issues. Here is my best attempt to highlight the essential employment law concepts that you’ll need to know.
Employment relationships. New Mexico workers are considered employees at will, unless you sign a contract or otherwise promise them that they have a job for a set period of time. Being at will means that both you and the employee may terminate the employment relationship at any time without advance notice for any reason. Of course, there are some restraints on firing employees (e.g., discrimination, retaliation, etc.), but in the absence of legal prohibitions, you generally may fire at-will employees without cause.
Independent contractors. Startups often are tempted to label all of their workers as independent contractors rather than employees. You may think that doing so helps you avoid paying payroll taxes, complying with wage and hour laws, and otherwise avoid recognizing rights afforded to employees under various state and federal laws. But a label or a worker’s acquiescence alone do not make an employee into an independent contractor. Different factors determine whether a worker may be treated as an independent contractor, including but not limited to, the degree of control you exert over the worker, whether the worker is economically dependent on getting a paycheck from you versus being in business for him or herself, and the extent to which the work being done is integral to your business. Penalties for misclassifying workers are high, so be sure to research whether you may legally treat workers as independent contractors before doing so.
Federal versus state and municipal laws. New businesses need to understand that there may be multiple laws related to a particular issue with which you must comply. In the United States, we have many federal employment laws, but each state and some municipalities also have a myriad of related and overlapping employment laws. When federal, state and local laws intersect or overlap, you generally have to comply with all those that apply to you. And, if one applicable law, say on the state level, requires that you provide more protections or benefits than an analogous federal law, you’ll need to comply with the law that is more generous to your employees.
Covered employers. In most cases, each law will specify which employers are subject to the law. Often, the application of the law depends on how many employees you have. For example, the federal Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination on the basis of race, color, religion, sex and national origin, applies to employers with 15 or more employees. The federal Age Discrimination in Employment Act of 1967 (ADEA), which protects individuals who are 40 years of age or older from employment discrimination, applies to employers with 20 or more employees.
The New Mexico Human Rights Act, which makes it illegal for employers to discriminate on the basis of race, color, national origin, ancestry, religion, sex, age, physical or mental handicap, spousal affiliation, sexual orientation, gender identity, or serious medical condition, has varying thresholds for coverage of smaller employers in our state. The prohibition against employment discrimination on the basis of sexual orientation or gender identity applies to employers with 15 or more employees, and the spousal affiliation protection applies to employers with 50 or more employees. But the remaining protections kick in when a New Mexico employer has just four employees. Care must be taken to learn which laws apply to your business as you continue to add more employees.
Wage and hour laws. State, federal and local laws may dictate minimum wages, overtime pay and other payroll requirements. The federal Fair Labor Standards Act applies to employers whose annual sales total $500,000 or more or who are engaged in interstate commerce (e.g., sales outside of New Mexico, etc.). Our state minimum wage law, however, applies to employers with one or more employees, so it applies to practically all New Mexico employers. The city of Santa Fe passed a Living Wage Ordinance setting a minimum wage that is higher than both the federal and state minimum wage. Businesses who employ workers in multiple states and/or cities need to research and comply with the laws governing those locations.
Workers’ compensation insurance. Virtually all New Mexico employers are required by law to have worker’s compensation insurance. Although the requirement to pay premiums for such insurance may seem imposing, it limits your liability for workplace injuries and illnesses, and in most cases, prevents employees from being able to sue you for their work-related injuries.
Unemployment insurance. The unemployment insurance program pays benefits to eligible individuals who are out of work through no fault of their own. The program is funded through employer taxes. Each business entity doing business in New Mexico must inform the Unemployment Insurance Division within 10 days after beginning a business to determine reporting and contribution liabilities. New employers will be assessed a tax rate based on an industry rate. New Mexico uses an online self-service portal for administering its unemployment insurance program.
Vacation, sick time and other benefits. New Mexico does not require employers to provide vacation time, sick leave, holiday leave or bereavement leave. Similarly, our state laws do not require that you pay shift differentials for night or weekend work (as long as you meet overtime pay requirements for all hours worked over 40 in a workweek). However, if you decide to offer such discretionary benefits to your employees, you will be expected to follow your own policies and to do so in a nondiscriminatory manner.
Posters and recordkeeping. Employers are required to maintain certain records to show compliance with the laws, such as payroll records that specify the number of hours worked, and the amount of wages paid to each employee, including payroll deductions. In addition, as your business grows and you become subject to more employment laws, check that you are posting the proper notices in your workplace. Both state and federal laws require that certain posters be hung in a conspicuous place in the workplace to notify employees of their legal rights.
Complying with the complex and tangled web of employment laws may seem daunting, but many resources are available for new businesses to help manage workforce requirements. As you grow, consider adding a knowledgeable human resources professional and consult regularly with competent legal counsel. Proactive measures will help you focus on your business while keeping your employees productive and happy.
Little V. West is an employment attorney at the Santa Fe office of Holland & Hart LLP, where he focuses on advising new and established businesses on workforce-related matters.