Federal Employment Law Guide for Small Business

Federal employment law is the floor, not the ceiling. This guide covers every major federal employment law that applies to a small business: what triggers each law, what it requires, and what changed in 2025-2026. Every state builds on top of these requirements, and some exceed them dramatically, so the federal layer is the baseline you check everything else against.

That floor is complicated on its own. Different laws switch on at different employee counts. The exempt salary threshold went through a court vacatur (a judge threw out the rule that raised it) and then a formal restoration. Executive Order 11246 was revoked outright. And the One Big Beautiful Bill Act (signed July 4, 2025) introduced tax deductions for overtime and tips that put new codes on the W-2 from tax year 2026.

I built FirstHR so small businesses can keep the paperwork these layered requirements create, from new-hire forms to signed policies, in one place. For state-specific rules that build on this federal baseline, see the individual state guides in our Compliance Hub.

What Is Employment Law?

Employment law is the body of federal, state, and local rules that governs the relationship between a business and the people who work for it: what you have to pay, how you may hire, discipline, and terminate, what conditions you have to provide, and what you have to document.

At-will employment survives underneath these rules rather than being replaced by them. You can still part ways with an employee for almost any reason, but not for a reason these laws put off limits.

Most employment law is grouped into five categories. Knowing which category a question falls into usually tells you which agency enforces it and which threshold decides whether it applies to you at all.

A few federal laws sit outside those five buckets: I-9 employment verification under IRCA, military leave and reemployment under USERRA, the polygraph ban under EPPA, and the WARN Act notice for large layoffs. The full list of federal employment laws, with the headcount that triggers each one, is in the comparison table further down this page.

Federal Employment Law Thresholds by Employer Size

The single most important thing a small business owner needs to understand about federal employment law is that different laws switch on at different employee counts. A business with 10 employees owes a very different set of federal obligations than one with 20 or 50.

Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act is the federal wage and hour law. It sets the minimum wage, overtime pay, the test for exempt employees, and the payroll records you have to keep.

Minimum Wage

The federal minimum wage is $7.25 per hour, unchanged since July 24, 2009. This is the longest period without an increase in FLSA history. The Raise the Wage Act of 2025 proposed increasing the rate to $17 by 2030, but the bill has not been passed.

Tipped employees may be paid a cash wage of $2.13 per hour if tips bring total compensation to at least $7.25. A youth wage of $4.25 per hour is available for employees under 20 during their first 90 consecutive calendar days. Full-time students in retail or service stores, agriculture, or colleges and universities may be paid 85% of the minimum wage under a Department of Labor (DOL) certificate.

FLSA coverage applies to enterprises with $500,000 or more in annual gross revenue, or to individual employees engaged in interstate commerce. Most employers meet one of these thresholds. In practice the federal floor rarely decides what you actually pay: according to the Department of Labor state minimum wage table (July 2026), 30 states plus the District of Columbia sit above $7.25, and employers pay whichever rate is higher.

Overtime

FLSA requires overtime pay at 1.5 times the regular rate of pay for all hours worked beyond 40 in a workweek. There is no daily overtime threshold under federal law (unlike California and a few other states). The workweek is a fixed, recurring 168-hour period that the employer designates.

Exempt vs. Non-Exempt Classification

To classify an employee as exempt from overtime, employers must meet both the salary basis test and the duties test. The salary threshold is $684 per week ($35,568 per year), and the highly compensated employee (HCE) threshold is $107,432 per year.

The $684 figure came through a long fight intact. The DOL issued a 2024 rule raising it in two phases ($844 a week in July 2024, then $1,128 a week in January 2025). A Texas federal court vacated (struck down) that rule in November 2024, and a DOL final rule effective May 15, 2026 restored 29 CFR Part 541 to its pre-2024 text.

The duties tests cover five categories: executive (manages enterprise or department, supervises 2+ employees), administrative (office or non-manual work related to management policies), professional (advanced knowledge in a field of science or learning), outside sales (customarily engaged away from the employer's place of business), and computer employees (systems analysis, programming, engineering). The primary duty test applies: the exempt duty must be the employee's primary function, but there is no specific percentage requirement.

OBBBA: Tax Deductions for Overtime and Tips

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, introduced two new federal income tax deductions, one for overtime and one for tips. The full rules are on the IRS OBBBA guidance page. The overtime deduction covers "qualified overtime," defined as the premium or half portion of FLSA-required overtime pay (not the base rate, and not state-only overtime).

The overtime deduction is capped at $12,500 per year ($25,000 for joint filers) and phases out at modified adjusted gross income (MAGI) of $150,000 single / $300,000 joint. The tips deduction covers "qualified tips" up to $25,000 per year for employees in IRS-listed tipped occupations, with the same income phaseout.

The reporting mechanics are the part that lands on payroll rather than on the tax return. Per the IRS General Instructions for Forms W-2 and W-3 (2026), code TT carries the total qualified overtime compensation, code TP carries total cash tips reported to the employer, and Box 14b carries up to two Treasury Tipped Occupation Codes. Your payroll system has to isolate the premium half of overtime to populate code TT correctly.

Recordkeeping

FLSA requires employers to retain payroll records for 3 years and time cards or wage computation records for 2 years. Form I-9s run on a separate clock set by immigration law: keep each one for 3 years after the date of hire or 1 year after the date of termination, whichever is later.

Family and Medical Leave Act (FMLA)

FMLA applies to private employers with 50 or more employees for at least 20 workweeks in the current or preceding calendar year. Public agencies are covered regardless of size. The DOL Wage and Hour Division FMLA page sets out coverage and employee rights in full.

Individual employees must also meet three eligibility requirements: 12 months of employment, at least 1,250 hours worked in the preceding 12 months, and working at a location where 50 or more employees are employed within a 75-mile radius.

Employers must maintain group health insurance during FMLA leave on the same terms as if the employee were working. The employee must be restored to the same or an equivalent position upon return. Employers must provide a general notice (poster), an eligibility notice within 5 business days of a leave request, and a designation notice.

Many states have family leave laws with lower employer thresholds: D.C. at 20 employees, Vermont at 10 or 15, Oregon at 25, and California at 5. When both the federal FMLA and a state leave law apply, the employee is entitled to whichever law provides the greater benefit.

Federal Anti-Discrimination Laws

Federal anti-discrimination laws govern how you hire, pay, promote, and terminate. Title VII, the ADA, GINA, and the PWFA apply once you reach 15 employees.

Title VII of the Civil Rights Act (15+ Employees)

Title VII prohibits discrimination based on race, color, religion, sex, and national origin. Since Bostock v. Clayton County (2020), sex includes sexual orientation and gender identity. The Pregnancy Discrimination Act is an amendment to Title VII. The Equal Employment Opportunity Commission (EEOC) enforces Title VII, and employees must file a charge within 180 days (300 days if a state or local agency has jurisdiction).

Americans with Disabilities Act (15+ Employees)

The ADA requires employers to provide reasonable accommodations for employees with physical or mental disabilities that substantially limit a major life activity. The interactive process is required: employer and employee must engage in good-faith dialogue to identify effective accommodations. The employer can assert an undue hardship defense if the accommodation would cause significant difficulty or expense.

Disability-related questions are prohibited before a conditional job offer. Under 29 CFR 1630.14, a medical examination is permitted only after the offer, must be given to every entering employee in the same job category, and its results go in a separate confidential medical file. Examinations of current employees must be job-related and consistent with business necessity.

Other Key Anti-Discrimination Laws

The Age Discrimination in Employment Act (ADEA, 20+ employees) protects workers aged 40 and over. The Older Workers Benefit Protection Act (OWBPA) adds specific requirements for severance agreements and reduction-in-force (RIF) waivers: a 21-day consideration period (45 days for group terminations) and a 7-day revocation period. The Genetic Information Nondiscrimination Act (GINA, 15+ employees) prohibits using genetic information, including family medical history, in employment decisions.

The Pregnant Workers Fairness Act (PWFA, effective June 27, 2023) requires reasonable accommodations for pregnancy, childbirth, and related conditions from employers with 15 or more employees, according to the EEOC. This is separate from both Title VII pregnancy protections and the ADA. Employers cannot require an employee to take leave if a reasonable accommodation is available.

The PUMP Act (2022) extends FLSA break time for nursing to nearly all FLSA-covered employees, exempt staff included. Employers must provide reasonable break time plus a private space (not a bathroom) for one year after birth. According to DOL Fact Sheet 73, airline crewmembers are exempt, and an employer with fewer than 50 employees is excused only if compliance would impose an undue hardship.

The Equal Pay Act applies to all employers, whatever their size, and requires equal pay for equal work regardless of sex. EEO-1 reporting, the annual filing of workforce demographic data, is described by the EEOC as covering private employers with 100 or more employees and federal contractors with 50 or more.

The EEO-1 requirement is in flux, though. A Department of Labor final rule published August 21, 2026 rescinds the Executive Order 11246 regulations behind the contractor prong, effective October 26, 2026. The EEOC has also proposed removing the EEO-1 requirement entirely (July 2026, not final), and the 2025 collection has not opened.

Workplace Safety (OSHA)

OSHA, the Occupational Safety and Health Administration, covers virtually all private employers with one or more employees. The general duty clause requires employers to maintain a workplace free from recognized hazards likely to cause death or serious physical harm.

Jurisdiction is split between federal OSHA and the states: according to OSHA, 22 State Plans (state-run, OSHA-approved programs) cover both private sector and state and local government workers, and seven more cover state and local government workers only (Connecticut, Illinois, Maine, Massachusetts, New Jersey, New York, and the Virgin Islands). In those seven, private employers stay under federal OSHA.

Serious incidents carry short reporting deadlines: fatalities within 8 hours; in-patient hospitalizations, amputations, or loss of an eye within 24 hours. Under 29 CFR 1904.1, employers that had more than 10 employees at any time during the last calendar year must maintain OSHA 300 injury and illness logs (with industry-specific exemptions for low-hazard industries).

Key OSHA standards for small businesses include hazard communication under the Globally Harmonized System (GHS), fire safety and emergency action plans, electrical safety, walking-working surfaces (fall protection), and personal protective equipment (PPE) requirements. OSHA offers a free On-Site Consultation program specifically for small businesses.

Immigration: I-9 and E-Verify

Form I-9 is required for all employers and all employees (citizen and non-citizen). Section 1 must be completed by the employee on or before the first day of work. Section 2 must be completed by the employer within 3 business days of the start date.

Completed forms must be retained for 3 years from the date of hire or 1 year from the date of termination, whichever is later. U.S. Citizenship and Immigration Services (USCIS) sets out the deadlines and the document lists in the M-274 Handbook for Employers.

E-Verify is not federally mandated for all private employers. It is required for federal contractors and subcontractors whose contracts carry the FAR E-Verify clause (FAR is the Federal Acquisition Regulation). States layer their own mandates on top: the E-Verify program history counted 21 states, as of September 2024, with contracting or business licensing laws that require some or all employers to enroll.

A few states require E-Verify from the very first hire. Arizona is the clearest example: under ARS 23-214, every employer in the state must verify each new hire through E-Verify and keep the record for the longer of the employment period or three years.

E-Verify users follow two rules of their own: cases must be created within 3 business days of the hire date, and the system cannot be used to pre-screen applicants before a job offer.

The Immigration Reform and Control Act (IRCA) runs on a different threshold from the rest of the anti-discrimination statutes. Under 8 U.S.C. 1324b, the ban on citizenship status and national origin discrimination reaches any employer with four or more employees, and it also prohibits document abuse: demanding specific I-9 documents, or more documents than the form requires.

Benefits Continuation (COBRA)

COBRA (the Consolidated Omnibus Budget Reconciliation Act) applies to employers with 20 or more employees on more than 50% of business days in the preceding calendar year. It covers group health plans including medical, dental, and vision.

Qualifying events for employees include termination (other than gross misconduct) and reduction in hours. For spouses and dependents, qualifying events also include divorce, death of the covered employee, Medicare eligibility, and a child aging out of coverage.

The two notice deadlines get confused constantly, and the general notice is the one small employers miss. Under 29 CFR 2590.606-1 the plan administrator furnishes it within 90 days of coverage starting, which means it belongs in the new hire benefits packet rather than in the exit packet.

Employers with fewer than 20 employees are not subject to federal COBRA. State mini-COBRA laws vary widely: the District of Columbia gives three months, while California's Cal-COBRA gives 36 months to employees of employers with 2 to 19 employees.

WARN Act (100+ Employees)

The Worker Adjustment and Retraining Notification Act applies to employers with 100 or more full-time employees (excluding part-time workers under 20 hours per week). It requires 60 days of written advance notice for plant closings (affecting 50 or more employees at a single site) or mass layoffs (500 or more employees, or 50-499 if they make up 33% or more of the workforce).

WARN notice must go to affected employees, the state dislocated worker unit, and local government. Exceptions cover a faltering company (actively seeking capital, where notice would jeopardize the effort), unforeseeable business circumstances, and natural disaster. The penalty is back pay plus benefits for each day of violation, up to 60 days.

State mini-WARN acts are where a business below 100 employees still gets caught. California triggers at 75 employees and New York at 50, both under the federal count. New Jersey keeps the 100-employee threshold but demands 90 days of notice and one week of severance for every year of service, which is a far heavier obligation than the federal act imposes.

Federal Payroll Tax Requirements

Federal payroll taxes come in four parts: Social Security, Medicare, federal unemployment tax (FUTA), and federal income tax withholding. Social Security and Medicare together make up FICA.

The Social Security wage base for 2026 is $184,500, up from $176,100 in 2025, per the Social Security Administration contribution base table. The FUTA wage base remains at $7,000, unchanged since 1983. The gross FUTA rate is 6.0%, but employers in states with approved unemployment insurance programs receive a 5.4% credit, resulting in a net rate of 0.6%.

OBBBA changes for 2025 through 2028 affect employee tax returns rather than employer withholding. The overtime and tip deductions are claimed on the individual return, so nothing changes at the payroll run unless the employee files a new W-4. What does change on your side is the reporting, which is why the W-2 codes above matter more than the deduction math.

Other Federal Requirements

Four more sets of federal rules round out the picture: military leave, the polygraph ban, employee organizing rights, and the extra obligations that come with a federal contract.

USERRA (Military Leave)

The Uniformed Services Employment and Reemployment Rights Act (USERRA) applies to all employers regardless of size. It provides up to 5 years of cumulative military leave with reemployment rights to the same or an equivalent position, and it prohibits discrimination based on military service.

Health coverage can continue during that leave. According to the DOL USERRA Pocket Guide, an employee may elect to continue employer health coverage for up to 24 months during military service, paying no more than 102 percent of the full premium.

Employee Polygraph Protection Act (EPPA)

The EPPA prohibits most private employers from requiring, requesting, or suggesting that employees or applicants take a polygraph test, according to the DOL Wage and Hour Division. Government employers fall outside the Act. Among private employers, exceptions exist for security service firms; pharmaceutical manufacturers, distributors, and dispensers; and employers conducting ongoing investigations with reasonable suspicion and specific procedural safeguards.

National Labor Relations Act (NLRA)

The NLRA covers all private employers (excluding government, agriculture, railroads, and airlines). Section 7 protects employee rights to organize, bargain collectively, and engage in concerted activity. This applies to non-union workplaces too: when employees discuss wages, working conditions, or workplace concerns with coworkers, that is protected concerted activity. Section 8 defines unfair labor practices. When you draft your employee handbook, make sure no policy restricts Section 7 rights.

Federal Contractor Requirements

Federal contractors face additional obligations, and the biggest one has been removed. Executive Order 11246, the source of the affirmative action program for contractors with 50 or more employees and contracts of $50,000 or more, was revoked by Executive Order 14173 on January 21, 2025. The Department of Labor rule rescinding the order's implementing regulations takes effect October 26, 2026.

Two affirmative action duties survive that revocation, both still enforced by the Office of Federal Contract Compliance Programs (OFCCP): Section 503 of the Rehabilitation Act, covering individuals with disabilities, and the Vietnam Era Veterans' Readjustment Assistance Act (VEVRAA), covering protected veterans.

The Drug-Free Workplace Act applies under 41 U.S.C. 8102 to two kinds of federal contract: every contract above the simplified acquisition threshold (the dollar cutoff for streamlined federal purchasing), other than contracts for commercial products or services, and every contract with an individual.

Two prevailing wage laws apply by contract size. Davis-Bacon requires prevailing wages on federal construction contracts over $2,000, and the Service Contract Act requires prevailing wages on federal service contracts over $2,500.

Union Organizing and Collective Bargaining

The NLRA has no headcount threshold. A small shop is covered the same way an enterprise is, which surprises most owners who assume labor law is a big-company problem. If your employees start talking to a union, the rules below decide whether your response is lawful.

Unfair Labor Practices

An unfair labor practice is conduct the Act prohibits, and Section 8(a) sets out five for employers: interfering with Section 7 rights, dominating or financially supporting a labor organization, discriminating in hiring or job terms to encourage or discourage union membership, retaliating against someone for filing a charge or testifying, and refusing to bargain with a certified representative (29 U.S.C. 158). Section 8(b) sets out the parallel list for unions, including coercing employees and refusing to bargain in good faith.

Charges are filed with a regional office of the National Labor Relations Board (NLRB), and Section 10(b) bars a complaint built on conduct more than six months old. Remedies are make-whole rather than punitive: reinstatement, back pay, and a notice posted in the workplace. There are no fines to the government, but a reinstatement plus back pay order for two employees is a real number for a small business.

Union Authorization Cards and Elections

A union authorization card is a signed statement in which an employee designates a union as their bargaining representative. Cards do two jobs. They can support a request that you voluntarily recognize the union, and once signed by at least 30% of the proposed bargaining unit, they let the union petition the NLRB for a secret-ballot election.

Voluntary recognition on a card majority is lawful but not required. Under the NLRB's Cemex framework (2023), though, declining is not the same as doing nothing. An employer that receives a demand for recognition backed by a card majority must either recognize the union or promptly file its own election petition with the Board.

Cemex also raises the stakes of how you behave before the vote. Committing an unfair labor practice that would require setting the election aside can convert the outcome into a bargaining order, which obliges the employer to recognize and bargain with the union.

Cemex is Board law that the courts are still contesting. The Sixth Circuit held in Brown-Forman Corp. v. NLRB (March 2026) that the new standard cannot support a bargaining order. The Ninth Circuit enforced the order in Cemex itself in April 2026 on the older Gissel grounds (the bargaining-order test that predates Cemex) and did not reach the new standard.

The election itself is decided by a majority of the votes actually cast, not a majority of the unit, so turnout matters more than headcount. Do not ask to see the cards, and do not ask employees whether they signed one.

What an Employer Can Legally Do to Prevent Unionization

You may argue against a union. You may not threaten, interrogate, promise, or surveil, which owners are usually taught as TIPS. The line is not about tone. It is about whether the employee could reasonably read your conduct as a threat, a bribe, or a way of finding out how they intend to vote.

Collective Bargaining Agreements (CBA)

A collective bargaining agreement, shortened to CBA in most business conversations, is the written contract between an employer and the union representing a unit of its employees. It covers wages, hours, and other terms and conditions of employment, and it usually carries a grievance and arbitration procedure plus a no-strike clause for the life of the contract.

CBA negotiations run on a duty to bargain in good faith over those subjects, which the law treats as mandatory. Good faith means meeting at reasonable times, exchanging the information the other side needs to bargain, and making no unilateral changes to covered terms while bargaining. It does not mean agreement: Section 8(d) is explicit that neither side is compelled to accept a proposal or make a concession.

Open Shop, Union Security, and Salting

An open shop is a workplace where employees are not required to join the union or pay it dues to keep their job. Union security clauses that require dues payment are lawful under federal law, but Section 14(b) lets a state ban them, which is what a right-to-work law does. Whether your workplace can be an open shop by contract is therefore a state question.

Salting is a union placing trained organizers into open jobs at a non-union employer to organize from the inside. The Supreme Court held in NLRB v. Town & Country Electric (1995) that a paid union organizer is still an employee under the Act. Refusing to hire an applicant because you believe they are a salt is discrimination under Section 8(a)(3).

Required Federal Workplace Postings

Federal posting requirements vary by employer size and which laws apply. Download every required federal poster free from the DOL workplace posters page. Remote and hybrid employers must distribute notices electronically to employees who do not have regular access to a physical posting location.

There is one discrimination poster, not several. The EEOC consolidated its notices into Know Your Rights: Workplace Discrimination Is Illegal, which covers Title VII, the ADA, the ADEA, GINA, the Equal Pay Act, and the PWFA in a single sheet. Failing to post it carries a fine of up to $698 per separate offense under 29 CFR 1601.30, adjusted for inflation.

Federal Threshold Comparison Table

This table is the reference every small business owner should bookmark: as your headcount grows, new federal obligations switch on. State law often starts much lower. Anti-discrimination rules in D.C., Vermont, and Alaska cover employers from 1 employee, numerous states require paid sick leave from 1 employee, and family leave starts at as few as 5 employees in California.

Recent Key Federal Changes

Four of these change what a small employer actually does. OBBBA reporting puts new codes on the W-2 of every employee with qualified overtime or tips. The Social Security wage base rise to $184,500 changes payroll withholding. The revocation of Executive Order 11246 removes an entire compliance program for contractors. And the May 2026 restoration of Part 541 ends the uncertainty around the exempt salary threshold: $684 a week is the settled figure, not a placeholder.

Your next step: find your headcount in the threshold table, list the federal laws that already apply to you, and note the next threshold you will cross. Then check your state rules, which often start at a lower headcount.

Frequently Asked Questions