Key takeaways
- Some federal laws apply from your first employee. Others switch on at 15, 20, 50, and 100.
- State and local laws often apply at much lower headcounts than federal ones.
- Count employees the way each law counts them. The methods are not all the same.
- Posters, recordkeeping, and classification are the most common gaps in small businesses.
- An annual compliance review, plus a check whenever you cross a threshold, catches most problems.
HR compliance means following the federal, state, and local employment laws that apply to your business, including rules on pay, hiring, leave, safety, benefits, and recordkeeping. Which laws apply depends largely on how many employees you have and where they work.
A family-owned construction company grows from 18 employees to 26 in a busy summer. Nobody notices that crossing 20 employees means COBRA now applies to its health plan. When an employee leaves in October and asks about keeping his insurance, the owner says the plan doesn't offer that. It does now, by law.
Small business compliance problems almost always look like this. Owners aren't ignoring the law. They just don't know which rules switched on as the company grew. This guide maps it out by headcount.
Federal laws by employee count
Here is a simplified map of major federal employment laws by size. Each law has its own counting rules, so treat this as a starting point.
| Employees | Laws that commonly apply |
|---|---|
| 1 or more | FLSA (minimum wage, overtime, recordkeeping), Equal Pay Act, Form I-9, federal tax withholding, OSHA's general duty, USERRA, NLRA for most private employers |
| 15 or more | Title VII, the Americans with Disabilities Act, the Pregnant Workers Fairness Act, the Genetic Information Nondiscrimination Act |
| 20 or more | Age Discrimination in Employment Act, COBRA continuation coverage |
| 50 or more | FMLA, ACA employer mandate and reporting (full-time employees plus equivalents) |
| 100 or more | EEO-1 Component 1 report, WARN Act notice for covered plant closings and mass layoffs |
Federal contractors have additional obligations, such as affirmative action requirements, at various thresholds.
How to count employees
Each law defines who counts. Title VII and the ADA count employees who worked for you in each of 20 or more calendar weeks in the current or preceding year. The FMLA counts employees on the payroll for each working day during 20 or more workweeks. The ACA counts full-time employees plus full-time equivalents based on hours. Part-time employees count under most of these laws. Independent contractors generally don't, which is one more reason to classify workers correctly.
State and local laws often apply sooner
Many states apply their own anti-discrimination laws to employers with far fewer than 15 employees, and some cover employers with just one. Paid sick leave laws in many states and cities apply to small employers too. California's family leave law, CFRA, applies at five employees. State wage and hour rules, final pay deadlines, meal and rest break requirements, and pay transparency laws often apply regardless of size.
For every state where you have even one employee, check the state labor department's website for its employer obligations.
Required workplace posters
Federal law requires employers to display certain notices where employees can see them, including information about minimum wage, equal employment opportunity, job safety, and, for covered employers, FMLA and USERRA rights. States require their own posters. For remote employees, provide the notices electronically in a place they can easily access. The Department of Labor's poster advisor helps identify which federal posters apply to you.
Recordkeeping basics
- Payroll records: at least three years under the FLSA, and at least four years for employment tax records under IRS guidance.
- Timecards and wage rate tables: at least two years under the FLSA.
- Form I-9: three years after hire or one year after termination, whichever is later, stored separately.
- Personnel and employment records: at least one year under EEOC rules, longer if a charge is filed.
- Medical information: kept confidential and separate from personnel files.
- OSHA injury logs: employers with more than 10 employees in most industries must keep injury and illness records, unless their industry is partially exempt.
State rules can require longer retention. Keeping most employment records for at least four years is a sensible default.
The most common gaps in small businesses
Across small businesses, the same handful of issues show up again and again. Misclassifying employees as independent contractors, or non-exempt employees as exempt. Missing or incomplete I-9 forms. Not registering for payroll taxes after hiring in a new state. Outdated or missing posters, especially for remote workers. No written anti-harassment policy or complaint process. Final paychecks paid late under state rules. And not noticing when a headcount threshold is crossed.
Our guides on exempt status, contractor classification, and Form I-9 cover the biggest of these in depth.
Training and policies
Several states require harassment prevention training, including California and New York, with specific content and frequency rules. Even where training isn't required, it reduces risk and helps managers respond correctly to complaints. Put core policies in a handbook, get signed acknowledgments, and train managers on the basics: harassment, leave requests, accommodation requests, and wage and hour rules. Our handbook guide and harassment prevention guide go deeper.
Your first employee: the compliance starter kit
The jump from zero to one employee brings the most new obligations at once. Before the first paycheck, a new employer typically needs an EIN, state withholding and unemployment registrations, workers' compensation coverage, a completed Form I-9 and W-4, a new hire report to the state, the required federal and state posters, and a payroll system that handles tax deposits and filings. Many states also require a written wage notice at hire and paid sick leave from day one.
That list feels long, but most of it is a one-time setup. Using a full-service payroll provider or a PEO from the start handles a large share of it, and our payroll guide walks through each step.
Events that should trigger a compliance check
Headcount isn't the only trigger. Review your obligations whenever you hire your first employee in a new state, open a new location, start offering a group health plan or retirement plan, begin using contractors regularly, plan a layoff or restructuring, or start using AI tools in hiring. Each of these brings new rules that are easy to miss in the excitement of growth. Building a short checklist for each trigger, and assigning someone to own it, prevents most surprises.
When to get outside help
Small businesses don't need an employment lawyer on retainer, but some situations call for a call to counsel: terminations involving a recent complaint or leave, a government agency inquiry, an EEOC charge, a wage claim, a planned layoff, or a decision to reclassify workers. A one-hour consultation before acting is far cheaper than defending a claim afterward. For day-to-day questions, PEOs and many HR platforms include access to HR advisors.
Running an annual HR compliance audit
- Confirm your current headcount under each law's counting method.
- List every state and city where employees work, and check each one's requirements.
- Review worker classification for every role and contractor.
- Audit a sample of I-9 forms.
- Check payroll tax registrations in every state.
- Confirm posters and electronic notices are current.
- Review the handbook and state supplements.
- Check that required training is completed and documented.
- Confirm benefits compliance, such as COBRA and ACA reporting where applicable.
- Review recordkeeping and retention practices.
Repeat the relevant steps whenever you cross a threshold or hire in a new state. HR software with compliance alerts, or a PEO, can carry much of this load for small teams. See our HRIS guide and PEO guide.
Small business HR compliance audit
Work through this list with your team. The printable PDF version has space to tick each item off.
- Count employees under each law's counting method
- List every state and city where employees work
- Check state and local laws that apply at your size
- Review worker classification for every role and contractor
- Audit a sample of Form I-9 records
- Confirm payroll tax registrations in every state
- Display current federal and state posters, and provide them electronically to remote staff
- Confirm COBRA obligations at 20 or more employees
- Confirm FMLA and ACA obligations at 50 or more employees
- File EEO-1 if you have 100 or more employees
- Check OSHA recordkeeping obligations
- Review the handbook and state supplements
- Complete and document required harassment training
- Confirm record retention practices
Where to go from here
Wherever you are in the process, there is a next step that fits.
Keep reading
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Email templates for this topic
Ready-to-edit emails with subject lines, compliance notes, and a free PDF.
- Form I-9 documents reminder email templateRemind new hires of Form I-9 deadlines and their choice of documents, without overstepping.
- Employee handbook acknowledgment request email templateAsk employees to read and sign the updated handbook, with a deadline and a simple way to do it.
- Background check notice email templateTell a candidate a background check is coming and send the separate FCRA disclosure and authorization.
- Policy update announcement email templateAnnounce a new or changed workplace policy with what changed, why, when, and what employees need to do.
Frequently asked questions
At what size does Title VII apply?
When does FMLA apply?
Do small businesses need workplace posters?
How long should employment records be kept?
Does COBRA apply to small employers?
Sources
We checked the facts in this guide against these primary sources. Laws and thresholds change, so confirm current rules before you act.
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.