8 Government Regulations Business Owners Need to Know
The government regulations and laws you’re expected to follow as a business owner depend on your industry and location. However, there are a few common categories of business regulations that all business owners can expect to encounter at one point or another. We’ll walk you through some of the standard laws and regulations you’re required to comply with to avoid getting into hot water.
Major types of business regulations
Here are several laws to consider when starting a business, no matter what type of operation you plan to run.
The IRS requires businesses to pay an assortment of federal taxes. Your business entity, such as a sole proprietorship, limited liability company or corporation, determines which taxes you have to pay and how you pay them. However, there are a few general taxes that all business owners can anticipate paying, regardless of their business structure:
- Income tax: All businesses except partnerships have to file an annual income tax return. Businesses that do not file a separate tax return report income on the personal tax returns of their owners or shareholders.
- Estimated tax: If you expect to owe tax of $1,000 or more — $500 for corporations — on your annual return, you’ll need to make payments throughout the year as you receive income.
- Self-employment tax: Your self-employment tax contributes to your Social Security and Medicare benefits.
- Employment tax: If your business has employees, you must pay employment taxes, which include your workers’ Social Security and Medicare taxes, federal income tax withholding and federal unemployment tax.
- Excise tax: You may be required to file excise tax forms if you manufacture or sell certain products, such as motor fuel, or use certain kinds of equipment, like trucks that travel on public highways.
Your state will impose its own taxes. Local property taxes to your city or county may also apply if your business owns real property such as vehicles, land or buildings.
The Department of Labor (DOL) enforces more than 180 federal laws regulating the labor landscape in the U.S. Here’s an overview of the major mandates that are applicable to business owners:
- Wages and hours: The Fair Labor Standards Act (FLSA) requires employers to pay workers at least the federal minimum wage of $7.25 per hour (your state may have a higher one), unless an employee is otherwise exempt. The law also mandates that overtime pay is one-and one-half-times the regular pay rate.
- Workplace safety: The Occupational Safety and Health Act (OSHA) establishes safety and health requirements for most private industries and some state programs. Business owners must pass workplace inspections and investigations to remain compliant.
- Employee benefits: The Employee Retirement Income Security Act (ERISA) regulates pension or welfare benefit plans. If your business provides them, you’ll have to meet reporting requirements and fund an insurance system to protect these benefits.
- Family leave: The Family and Medical Leave Act (FMLA) mandates that employers with 50 or more workers provide up to 12 weeks of job-protected leave upon the birth or adoption of a child or the serious illness of an employee or their spouse, child or parent. Employers are not typically required by the federal government to provide paid leave but some states have mandated it.
Under the Affordable Care Act, companies with more than 50 full-time employees must report their health insurance offerings to the IRS on an annual basis. Employers must provide affordable, minimum essential coverage to remain compliant.
Employees vs. contractors
Federal law governs the way businesses classify their workers, but several states have tightened their rules making it more likely that workers would be considered employees instead of independent contractors or increased the penalties for violating federal standards.
The U.S. Equal Employment Opportunity Commission prevents discrimination from occurring in the workplace, but your state may impose further regulations. Business owners must follow anti-discrimination laws based on the number of employees they have. Here are few of the EEOC laws business owners face:
- Equal pay: Male and female employees are entitled to equal pay for equal work.
- Anti-discrimination: Employers are prohibited from discriminating against employees or job applicants based on race, color, religion, sex, sexual orientation, disability, national origin, age or genetic information.
- Accommodations: Business owners must provide reasonable accommodations to employees based on their disabilities or religious beliefs.
- Anti-retaliation: Business owners cannot retaliate against employees or job applicants for reporting any type of discrimination or participating in a discrimination lawsuit against the company.
- Reporting data: The EEOC requires companies with at least 100 employees to submit a yearly report outlining the ethnicity, race and gender of the staff.
Federal antitrust laws prohibit businesses from reducing competition in the marketplace. Preserving competition gives businesses an incentive to maintain quality and keep prices down, ultimately benefiting consumers. States may enforce additional antitrust laws that are based on the federal statutes. Federal antitrust laws ban the following business behavior:
- Conspiring to fix prices. Businesses cannot work together to fix prices, divide markets or rig bids.
- Unfair or deceptive acts. Businesses are not allowed to use competitive strategies that are unfair or deceptive in nature.
- Forming a monopoly. Companies are prohibited from initiating mergers or acquisitions with the intent to reduce competition by forming a monopoly.
The Federal Trade Commission (FTC) enforces laws regulating advertising and marketing. Businesses must remain truthful in advertisements and cannot adopt deceptive practices. Business owners must adhere to a number of requirements related to the following marketing aspects:
- Health claims: Businesses that market food, over-the-counter drugs, dietary supplements and other health-related products must support their advertising claims with solid proof.
- Environmental advertising: Scientific evidence has to back up any mention of “green” products or packaging.
- Made in America: Before promoting products that are made in the U.S., businesses must disclose how much of their product is actually made within the country.
- Online advertising: Companies must maintain truthful standards on the internet. The same would apply to what you might include on physical marketing such as mailers or catalogs.
- Telemarketing: The FTC prohibits fraudulent telemarketing calls and bans most forms of robocalling.
Additionally, the CAN-SPAM Act sets requirements for commercial communication and protects recipients’ right to opt out of messaging. Any business that uses email marketing must comply with this law.
Many states also enforce laws to regulate advertising. Regulations are typically in the form of consumer fraud or deceptive practices statutes. State or local officials may take legal action against unlawful ads.
The U.S. Environmental Protection Agency (EPA) requires businesses to meet environmental standards based on the industry in which they operate. For example, automotive businesses may have to follow pollution and waste management regulations. Find the regulatory information for your sector on the EPA’s website.
Companies must adhere to federal business regulations protecting the privacy of their customers. Here are a few examples of when business owners may need to take extra steps in the name of privacy:
- Children’s privacy: The Children’s Online Privacy Protection Act (COPPA) regulates what information companies can collect from kids. Websites must provide parents with the opportunity to consent to the collection of their child’s personal information.
- Credit reporting: Businesses that evaluate customers’ creditworthiness must follow proper procedures when using and disposing of credit reports.
- Employee privacy: Many businesses are legally obligated to protect employees’ personal data.
- Financial services: The Gramm-Leach-Bliley Act requires companies that offer financial products or services to disclose their information-sharing practices.
State privacy laws
States may enact their own privacy laws. The California Consumer Privacy Act (CCPA) of 2018, for example, gives consumers the right to delete certain personal information that businesses may collect from them.
Business owners may be required to maintain federal, state or local small business licenses, permits or certificates to remain legally compliant, depending on industry and location.
For example, businesses selling items like tobacco or alcohol may have to regularly renew their sales permits because those products are heavily regulated. Professional service providers like plumbers or nurses may have to obtain special certification and licenses.
Check with your local business licensing office to see what documents you need to obtain, as well as the renewal requirements. You may also be required to register your business with a federal agency or department based on your industry, such as the Alcohol and Tobacco Tax and Trade Bureau or the U.S. Department of Agriculture.
Reasons for government regulation of business
The U.S. government enforces regulations to protect employees’ rights and to preserve the environment. These regulations also keep businesses accountable for their power and influence in society.
Extensive regulations can help or hurt companies. But either way, all businesses are held to the same standards and must comply with similar rules to protect health and safety, and maintain fair competition in the market.
However, several groups, such as the U.S. Small Business Administration (SBA) and the Chamber of Commerce, advocate for regulatory reform. This reform aims to reduce federal agency overreach and minimize the cost of various compliance requirements.
Impact of government regulations on small business in 2020
Here are a few regulatory changes you may have missed this year.
- Minimum wage increases: The minimum wage rose in several states this year, including Arizona, California and Florida. You can find your state’s minimum wage requirements on the DOL’s website.
- State tax changes: Taxes related to corporate income or general business income underwent adjustments in 2020 in a handful of states, including Connecticut and Florida. You can find a summary of state tax changes from the Tax Foundation which also tracks each state’s business tax climate.
- Workplace harassment prevention: New legislation in a number of states, including California, Connecticut, Illinois and New York, aims to expand employer requirements to stop sexual harassment in the workplace. You can find more information on federal harassment policies from the EEOC.
- Paid sick leave extension: In response to the coronavirus pandemic, the DOL enacted temporary regulations to provide emergency paid sick leave to workers affected by the COVID-19 crisis. You can read more about the temporary rule on the DOL’s website.
- Overtime eligibility expansion: The DOL expanded the thresholds necessary to qualify for overtime pay. More than 100,000 workers have become eligible for overtime pay due to increased compensation requirements.
Business regulations constantly change and it’s important for business owners to stay ahead of these updates to remain compliant. Be sure to monitor the federal and state agencies that regulate your specific industry to avoid falling behind.
FAQs about government regulations
How are government regulations established?
Congress passes laws that affect nearly all aspects of American life, including U.S. businesses. Federal agencies have the power to enforce those laws through regulation. State lawmakers, in turn, make laws that typically supplement federal legislation. State government regulation examples include setting a higher minimum wage than the federal requirement.
What are the benefits of government regulation?
Government regulations by definition are rules that we all must follow or face penalties. They may often seem onerous to small business owners, but there are benefits as well. Regulation can sometimes create new industries to help other businesses stay in compliance. It can often protect businesses in dire economic conditions. Plus, in both good times and bad, it offers assistance in the form of government loans, information and services.