Running a business can sometimes feel like walking on eggshells. After all, you need to follow federal, state and local government regulations for small businesses or else you could face penalties and fines.
To help you stay above board, we’ve outlined the most common and important laws that could apply to your company.
Your small business may need a license from your local, state or federal government before you can operate. This will depend on your industry and where you are located.
Contact your city and state licensing office or a local attorney to see what small business regulations apply. If you’re supposed to have a license but try operating without one, the government could fine you and even shut down your business.
Let’s take the case of Allen, who wants to open a plumbing business. Since construction is highly regulated, he’ll have to get an operating license and make sure his paperwork is in order before he can start working on projects.
2. Business Taxes
All small businesses are required to file a federal tax return with the IRS and pay taxes. You may also need to pay taxes to your state and local government. Some of the taxes you’ll need to pay are:
- Income tax – This is the tax you owe on your business profits. If you don’t file a tax return each year and pay your taxes on time, the IRS and state/local governments could charge you interest and penalties.
- Employee payroll taxes – If your business has employees, you must pay the employer share of their payroll taxes for programs like Social Security, Medicare and unemployment insurance.
- Estimated taxes – The government asks that you estimate how much your business will owe throughout the year so you can pay them quarterly. You’ll owe an extra late-payment penalty if you don’t pay quarterly and only send in the taxes along with your return.
To figure out what specific taxes, deductions and government regulations for small businesses might apply to you, consider working with tax software or an accountant.
3. Sales Tax
Most states require that you collect sales taxes from your customers; Alaska, Delaware, Montana, New Hampshire and Oregon are the only states that don’t. You need to register your business with the state sales tax office for a license to collect these taxes from your customers; this also applies to online sales.
If you ship to out-of-state customers, you may not need to collect sales taxes unless you make a large number of sales. For example, New Jersey only requires sales taxes from out-of-state vendors if they make more than 200 transactions or $100,000 in total sales per year.
Take the case of Liz, a flower shop owner in New York, for example. She registers with the New York government and collects sales taxes on her store and online sales. She only makes the occasional sale to out-of-state customers. In the future, she’ll likely expand to other states but for now she only needs to collect sales tax from her New York customers.
4. Wage Laws
The government regulates how you pay your employees with rules like:
- Minimum wage and overtime – The federal minimum wage requires that you pay your employees at least $7.25 per hour. On top of that, your state and local government may require that you pay an even higher minimum wage. If you use tipped workers, their base salary plus tips must reach at least the minimum wage or you need to make up the difference.
- Overtime for hourly workers – Hourly workers that put in over 40 hours per week must be paid 1.5 times their wage for time worked over the 40-hour limit. However, certain salaried workers can go over this limit without being owed overtime if they are classified as exempt.
- Employees vs. contractors – When you hire someone, you need to classify them as either an employee or an independent contractor. The federal and state government are on the lookout for companies that misclassify employees as contractors.
5. Labor Laws
Your small business will need to follow labor laws including:
- OSHA and workplace safety – All employers must provide a safe workplace free of serious hazards to meet the conditions under the Occupational Safety and Health Administration (OSHA). The government could inspect your workplace for problems.
- Verify employee’s status to work – Before hiring an employee, employers must verify they are legally allowed to work in the U.S.
- Equal opportunity – Another federal law, the Equal Employment Opportunity Commission (EEOC), makes it illegal for businesses to consider factors like gender, race and age in their hiring practices.
- Labor posters – The federal Department of Labor (DOL) may require you to put up their posters throughout the workplace for your employees, like ones explaining their rights for minimum wage laws or reminding them to wash their hands.
6. Environmental Regulations
The government is also concerned about protecting the environment and there are numerous federal, state and local small business regulations in this category. Keeping track of them all isn’t easy because they depend on your industry and location. The Environmental Protection Agency (EPA) offers resources and support to help business owners stay compliant.
For instance, Jamal owns an auto shop and is unsure how to deal with disposing of oil and other chemicals properly, so he signs up for a consultation at his local EPA compliance office. They will help him figure out which environmental government regulations for small businesses apply to him.
There are a few forms of small business insurance required by law. For instance, nearly every state — except Texas — requires that businesses with employees buy workers’ compensation insurance. This covers employees in case they get hurt or sick while on the job. Each state has slightly different rules, like the number of employees you need before you’re required to buy insurance, so check with your state’s DOL.
For health insurance, the Affordable Care Act requires that businesses with 50 or more full-time equivalent employees provide health insurance for their employees or else the company would owe a tax penalty. Small businesses with fewer than 50 employees do not need to provide health insurance unless they so choose.
When it comes to marketing your business, you need to watch out for the government advertising regulations. The federal government oversees this through the Federal Trade Commission (FTC). Your state and local government will have their own regulations for how you can advertise as well.
Generally speaking, you cannot make claims that are false, untruthful or purposely misleading. The government also has additional rules for advertising by email and on the internet. For example, if you send out marketing emails to customers, you need to make it clear how they can opt-out of future messages. The FTC features a guide on small business advertising best practices.
Paying a government fine can feel like throwing your hard-earned money away. If you do get in a jam, short-term business loans can help you offset the expense, but your best bet may be toeing the line. Sticking to government regulations for small businesses comes down to preparation, effort and a little common sense. By following rules like these and working with the right advisers when you have questions, you can keep your business safe.