4 Laws to Keep Your Hiring Compliant

Over the years, we’ve written a thing (or two) about how to hire great talent with some hiring best practices. There is Hiring 101: Everything You Need to Know,  Hiring: The Phone Screen, 10 Minutes to Make It or Break It, and Hiring? Your Guide to Creating a Positive Employee Onboarding Experience, just to name a few. 

But since the hiring landscape is ever-changing let’s take another look at the topic, this time from a more compliance-related perspective. 

Ready for a fun fact? The moment you welcome your first employee, you must comply with 54 federal laws and regulations (and probably additional state laws, depending on where you reside). Yikes!

Today, I will give a quick overview of some of these laws and how they can (and should) influence your hiring! Though all laws mentioned here are federal laws, there might be state laws that will supersede them.

1. Fair Labor Standards Act (FLSA)

Generally, you will fall under the FLSA if your business produces an annual gross of $500,000 through sales. But even if you do not meet this threshold, your employees may still be covered if they are engaged in interstate commerce or in the production of interstate commerce, or in any closely related process or occupation directly essential to such production. (View the full definition here). 

That said, it is a fair assumption that most businesses will meet these definitions. The FLSA establishes a minimum wage (currently at $7.25, but again, many state laws have higher requirements), overtime pay, recordkeeping, and youth employment standards. So, when hiring, we now have to establish if our position meets minimum pay (let’s hope it does) and if the position should be overtime exempt or non-exempt. (We also need to keep time and pay records of our employees.) While some positions might meet exemption requirements, some may not. Suppose we cannot establish an exemption for our position. In that case, we will generally need to pay overtime at 1.5 times the regular rate after a 40-hour week is accomplished (again many state laws have stricter overtime requirements, for instance, California). For that, we have to determine how our workweek is defined (and then keep it consistent). Is your work week starting on Monday and ending the following Sunday? Or starting on Saturdays and ending on Fridays? From there we can monitor and record compensable hours and calculate overtime pay as it occurs at a rate of 1.5 of the regular rate. Usually, a job posting will indicate whether a position is eligible for overtime pay. The other requirement I will state is youth labor regulations will also apply. However, generally speaking, minors age 16 and older may perform a nonhazardous job for unlimited hours, while younger minors will have hour limitations. 

2. Equal Pay Act

The Equal Pay Act is an amendment to the FLSA that requires men and women in the same workplace to receive equal pay for equal work. Yup - it is that simple. 

3. Fair Credit Reporting Act (FCRA)

The FCRA governs how employers (and other agencies for that matter) obtain and handle consumer reports. A consumer report is defined as any written, oral, or other communication of any information by a consumer-reporting agency bearing on a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. In the context of hiring this will pertain to your pre-employment background check conducted via a third-party vendor. These checks include information such as driving records, credit reports, criminal history reports, etc. Under the FCRA, you will have to obtain written permission to run a pre-employment background check and inform the applicant that it will be used to make an employment decision. 

If you are now making an adverse action because of these records (for example, deciding not to hire an applicant because of bad credit, a DUI, etc.) you will need to provide the candidate with a notice of a pre-adverse action (including handing out a summary of right under the FCRA). This notice allows the candidate to review the information you based your decision on and give their version of events/tell you if the information is correct. If you continue the adverse action you need to provide the candidate with an adverse notice in writing. This notice must include information about the consumer reporting company, a statement that the company is not responsible for the adverse action, and a notice of the candidate’s right to dispute the accuracy or completeness of any information the consumer reporting company furnished and to get an additional free report from the company if the person asks for it within 60 days. Many background check vendors will have appropriate workflows and templates for these actions within their service offering, but when selecting such a vendor, the ease of completing these actions within their software should be one deciding factor in your selection process. I also recommend ensuring the vendor will account for applicable state law, since state laws can change your background check process significantly. Certain states have adopted “ban the box” laws, making inquiries regarding applicants' criminal histories unlawful during the initial hiring process; other states have adopted clean slate laws. Having the right background check vendor can be very helpful in navigating different scenarios. 

4. Immigration Reform and Control Act (IRCA) 

This act is the first law that requires new hires to prove their identity and eligibility to be legally employed in the US. The Form I-9 was created to accomplish and record this requirement, and since the law came into effect in 1986, the form has been updated multiple times. The link above guides you to the USCIS page, which has the most updated version for you to use. There are detailed instructions on how to fill out the form on the web page as well. Just a reminder- you must do so within three days of the candidate’s start date. It is essential to know that you cannot discriminate against job applicants based on national origin or citizenship status nor specify which documentation an employee presents during I-9 verification (as long as it is listed in the acceptable documents). Federal law also prohibits employers from completing Form I-9 before the employee accepts a job offer. So with this form, timing is everything! Based on the state you reside in, you may also need to enroll with E-Verify, a web-based tool through which the information gathered within the I-9 is electronically compared to records available to the U.S. Department of Homeland Security (DHS) and the Social Security Administration (SSA). Since using E-Verify can have certain perks (you may verify documents remotely when participating in the program, which otherwise is not permitted), you can choose to enroll voluntarily. Be aware, once enrolled, you will need to process all new hires within E-Verify, and you will need to create cases within the 3-day period of allotted time to process an I-9. 

Recordkeeping 

Last but not least, let's talk about some recordkeeping measures related to the items discussed above. Starting with the recruiting process- the best practice is to keep all records such as job applicants (yes, everyone who applied, not only the ones selected for interviews, etc.), resumes, job ads, screening tools/tests, and interview notes for at least 1 year after the hire/no hire decision. For background checks, the recommendation is to retain such reports for five years, although there are no specific retention requirements under the FCRA. Payroll records (under the FLSA) should be retained for three years. Under the Equal Pay Act, employers should keep records that explain the basis of paying different wages to employees of opposite sexes for at least two years. Finally, I-9 records need to be kept for three years after the date of hire or one year after the date of termination, whichever is later. 

Thanks for staying with me through this summary of hiring-related laws for small firms. As I mentioned before, when employing 1-14 employees, over 50 federal laws and regulations may apply to your firm, plus applicable state laws. The list above highlights certain aspects but is by no means comprehensive. 

Lastly, while keeping all these regulations in mind, don’t forget that hiring can be (and should be) fun and engaging! As Richard Branson said: “Hiring the right people takes time, the right questions, and a healthy dose of curiosity.” 

Happy Hiring! 

*The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. This blog contains links to other third-party websites. These links are only for the convenience of the reader; XYPN does not recommend or endorse the contents of the third-party sites.*