US labor laws: know your rights!

In these challenging times, it is more important then ever for employers and employees to know their rights and obligations. Employers should know their duties to employees and to federal and state agencies -  so as to protect themselves from lawsuits. Employees should know their rights and entitlements – so as to receive a fair treatment and a just compensation.

 1 – The interaction between federal & state laws

Labor laws in the United States are characterized by an interaction between federal laws and state laws. In general, federal laws establish minimum standards and state laws set higher standards.  When federal law and state laws conflict, the law most beneficial to the employee applies.
To know more about the US labor code: https://www.law.cornell.edu/uscode/text/29


2 – Is an employment contract required?

No - in the US, the relationship between employer and employee is "at-will": the employer can terminate the professional relationship at any time without notice or reason (except under illegal motives such as discrimination).  However, employers are advised to use written contracts to protect against possible lawsuits by employees for unfair dismissal. The tendency of US courts is to respond favorably to claims for damages brought by employees on the basis of unjustified dismissal. The risks of unfair dismissal lawsuits are significant and an employer should take precautions to protect themselves, such as communicating clear rules of conduct and work, applying the rules fairly, and establishing a performance appraisal system.

3- New hire reporting requirements

Form W-4, Employee’s Withholding Certificate  
Employers are required to withhold federal income tax from each wage payment according to the employee’s Form W-4 and correct withholding rate.
To know more about Form W4: https://irs.gov/Individuals/tax-withholding-estimator

Form I-9, Employment Eligibility Verification.
Employers must obtain Form I-9  for each new hire within 3 business days of the employee’s first day of work. The employer must examine the identity documents presented by the employee to determine whether the documents reasonably appear to be genuine and relate to the individual.
To know more about Form I9 - https://www.uscis.gov/i-9

Social Security Number.
Employers should verify employees’ names and Social Security Numbers by comparing with the employee’s Social Security card or verifying with the Social Security Administration (SSA) online at - https://ssa.gov/employer/verifySSN.htm

State new hire reporting.
Employers must report new employees to their designated state new hire registry.
To know more about state reporting: https://www.acf.hhs.gov/css/contact-information/state-new-hire-reporting-contacts-and-program-requirements

4 – How is overtime calculated?

Employers are required to pay employees overtime for all hours worked in excess of 40 hours in a work week at 150% of the regular rate of pay.

Federal law on overtime: https://www.dol.gov/whd/overtime_pay.htm
State law on overtime:http://www.ncsl.org/research/labor-and-employment/state-overtime-requirements.aspx


5 – What is the minimum wage?

The federal minimum hourly wage is $7.25 and is not indexed on inflation. Many states have enacted a minimum wage rate that exceeds the federal minimum wage. Employers must apply the state minimum wage if it exceeds the federal minimum wage.

Federal Law on minimum wage: https://www.dol.gov/general/topic/wages/minimumwage
State law on minimum wage: https://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx

Exception to minimum wages:

Youths under 20 years-old may be paid a minimum hourly wage of not less than $4.25 during the first 90 consecutive calendar days of employment as long as they do not displace other workers.
Tipped employees are considered to have their tips counted toward the employer meeting the minimum wage standard, and employers pay a direct hourly wage in addition to tips of at least $2.13.

6 – Vacation pay and sick pay

Vacation pay

Currently, there are no federal legal requirements for paid vacation.  These benefits are agreed between an employer and an employee. In practice, large companies offer 2 weeks of paid vacation per year after the first year of employment.
Federal Law on Paid Holidays: https://www.dol.gov/general/topic/workhours/vacation_leave

Sick pay

Currently, there are no federal legal requirements for paid sick leave for companies with less than 50 employees. In companies with 50 employees or more, the employee is eligible for up to 12 weeks of paid medical leave if he has worked for the employer for at least 12 months, and has worked for at least 1,250 hours over the previous 12 months.
Federal Law on sick pay: https://www.dol.gov/general/topic/workhours/sickleave
State law on sick pay: https://www.ncsl.org/research/labor-and-employment/paid-sick-leave.aspx


7 – Workplace safety standards

The Occupational Safety and Health Act laws (OSHA) requires employers to provide a workplace free from  serious hazards such as toxic products, excessive noise, mechanical hazards and unhygienic working conditions.
Federal law on safety: https://www.osha.gov/

In addition, employers must maintain a worker’s compensation insurance to cover work related injuries of their employees. Workers’ compensation insurance is regulated at the state level. Some states have severe penalties for not carrying workers’ comp insurance such as fines, jail time, or both.

Federal Law on worker’s compensation: https://www.dol.gov/general/topic/workcomp
State law on worker’s compensation: https://www.findlaw.com/injury/workers-compensation/workers-compensation-laws-by-state.html


8 – The employee handbook: protection against discrimination

US labor law protects employees from discrimination in hiring and in the course of their working lives. The Equal Employment Opportunity Commission (EEOC ) is responsible for the application and enforcement of these laws.  Employers should communicate in writing in the Employee handbook the rules regarding discrimination, harassment, leave, tobacco use, drug use, absenteeism, punctuality, violence at work, theft at work, as well as the protection of confidential information. The employee handbook should be given to the employee upon his hire.

Federal law on discrimination: https://www.dol.gov/dol/topic/discrimination/index.htm
State law: http://www.ncsl.org/research/labor-and-employment/discrimination-employment.aspx

The labor laws and their related tax laws are constantly evolving. For up-to-date rules applicable to your situation, do not hesitate to contact Karine Bauer at Kbauer Financials LLC. As always, the data presented in this article is not intended to replace the tax advice of a professional. For advice specific to your situation, contact Karine Bauer, EA, CCA at Kbauer Financials LLC. Karine Bauer, EA is an Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. She is an experienced professional with more than 20 years of international tax and accounting experience.

Bear in mind the date of this article as tax laws change over time.

Updated on 01/16/2021