Employment & Labor Law
When a contractor hires workers, a web of federal employment and labor laws applies. This topic covers worker classification, wage and hour rules, workers' compensation, and hiring paperwork. The federal baselines here apply nationwide, though states may add stronger protections on top of them.
Employee vs. Independent Contractor
Correctly classifying workers is critical because it drives taxes, overtime, and workers' comp obligations. The central test is control and independence: a worker the business directs (how, when, and where to work) and equips with tools looks like an employee, while an independent contractor controls their own methods, invests in their own tools, serves multiple clients, and can profit or lose based on their own decisions. Misclassifying employees as independent contractors to avoid payroll taxes, overtime, and insurance is a serious violation that carries back taxes and heavy penalties.
Wage and Hour Law (FLSA)
The federal Fair Labor Standards Act (FLSA) sets a minimum wage and requires overtime pay of at least 1.5 times the regular rate for covered nonexempt employees who work more than 40 hours in a workweek. The federal overtime standard is weekly, not daily — though some states add daily-overtime rules on top of it. The FLSA also restricts child labor. On many public works projects, prevailing-wage laws (such as the federal Davis-Bacon Act) require paying locally prevailing wage rates.
Workers' Compensation
Workers' compensation is a no-fault insurance system: an employee injured on the job receives medical care and partial wage replacement regardless of who was at fault, and in exchange the employer is generally protected from most injury lawsuits. Employers with employees are generally required to carry workers' comp coverage, and the cost is based on payroll and the risk class of the work. Failing to carry required coverage exposes a contractor to fines, stop-work orders, and personal liability for injuries.
Hiring Paperwork and Anti-Discrimination
For each new employee, the employer completes Form I-9 to verify identity and legal authorization to work in the United States, and a W-4 to set income-tax withholding (employees receive a W-2 at year end, while independent contractors receive a 1099). Federal anti-discrimination laws (such as Title VII, the ADA, and the ADEA) prohibit employment decisions based on protected characteristics like race, sex, religion, national origin, age, or disability. Keeping accurate payroll and employment records is both a legal requirement and a protection in disputes.