Small Business Laws: Federal Government Regulations to Be Aware Of

Small business laws are the federal regulations that govern your state, and if you are thinking of becoming a business owner, you must know them. Avoiding receiving a court summons is easy when you know what the laws are. Remember that the lack of knowledge doesn't exempt you, and that's why here, we'll teach you about the different types of federal government regulations to be aware of and explain how you can avoid legal trouble as small business owners.

Table of Contents
1. What is government regulation of business?
2. Small business requirements
3. Government regulation of business that owners have to be familiar with
4. Top government regulations of business for 2022
5. List of regulations that hurt small businesses
6. Which regulations apply to your company?
7. What happens if regulatory policies for a business are violated?
8. FAQs on Small Business Laws

What is Government Regulation Of Business?

Federal and state governments have specific regulations to ensure that all businesses are essentially playing by the same rules.  The regulations are laws that all business owners must follow, even small business owners. And if they don't, they may have to pay significant penalties. While the specific government regulations your business will have to abide by will vary by your location and industry, most companies need to comply with eight general categories of rules. 

Types of Government Regulation of Business

The government regulation of small business and size businesses has eight categories:

• Taxes: All companies have to pay state and federal tax obligations. Some include income tax and employment tax.
• Labor: There are close to 200 labor laws that the U.S. Department of Labor sets. Some of these include requirements for wages and hours, workplace safety, and family leave.
• Employment: Employment regulations ensure companies don't discriminate against people based on race, religion, color, sex or sexual orientation, national origin, age, genetic information, or national origin.
• Antitrust: The government bans businesses from actively eliminating competition. This could include the formation of a monopoly or practicing deceptive or unfair acts.
• Advertising: There are federal laws regarding what businesses can do in their marketing and advertising.
• Environmental Regulations: Some businesses have to meet environmental standards. Examples include limits set on waste management and pollution.
• Privacy: There are federal privacy laws that companies must adhere to protect customers' privacy. Some states, such as California, have privacy laws that go even further.
• Licenses: Some businesses need to obtain specific local, state, or federal licenses. Any company that sells alcohol, for example, has to obtain a license.

Top Government Business Regulations for 2022

The small business guidelines can change quite often, so business owners need to stay on top of these changes as they happen.  As a result of the COVID-19 pandemic, there were even more regulation changes than usual in 2020, 2021, and 2022.

Federal tax code

One category that changes often is the federal tax code.  When the tax code undergoes significant changes, it can completely alter how much businesses must pay in taxes, as well as how they must report their taxes. The last major changes came under former President Donald Trump in 2017, but some more significant changes could be coming soon under current President Joe Biden.  No matter what the current tax code is, you must understand what, according to the IRS and your state government, your business needs to fulfill—and pay—. For example, you need to know how to file your annual return for income taxes, whether you owe excise or employment tax, and whether you're required to pay estimated taxes every quarter.

Employment and labor laws

Aside from taxes, employment and labor laws have perhaps the most significant day-to-day effect on businesses, especially those that have employees.  The Fair Labor Standards Act, for example, will set requirements for employee wages as well as their overtime pay.  If your company has at least 50 employees, you're required to provide all eligible employees with 12 weeks of unpaid leave so they can care for a loved one or the birth or adoption of a child.  This is a government regulation set by the Family and Medical Leave Act (FMLA) that states that business owners must protect these employees' jobs while they take the leave.

Licensing

Most of these regulations are set by your state government, though the federal government may play some part in it, too.  Depending on your industry—and the size of your company—you may need to obtain specific permits and licenses and renew them regularly. If you don't comply with these regulations, you could be operating your company illegally.

Insurance

Insurance is the other major category of government regulations that will impact the greatest number of businesses. Every state requires all companies that have employees to purchase workers’ compensation insurance—except Texas.  You might need other types of insurance, too, such as auto insurance, depending on the nature of your business.

Keep reading about the Worst Legal Mistakes that Small Businesses Make.

4 Government Regulation of Business that Owners Have To Be Familiar With

Trademark Law

One of the first types of law you will have to think about is trademark law. This is because, the first thing you do when starting a new business, is choosing a name. It often takes countless hours of brainstorming to come up with a great name for your business. Once you find the right one you may become so excited that you start using it immediately. But this can be problematic. Many times another company will already be using a logo, name, or motto that is too much like yours. If that company has already registered that name/logo/motto, you could find yourself subject to a cease and desist letter, or even a lawsuit. There are many ways you can avoid this. You can check if your potential name is available at your state's secretary of state website. There you can search for registered corporations. After that, you should file a DBA (Doing Business As) form in your county or state. All businesses should do this (unless the business title is your full name).

Learn here more about how to trademark your business.

Employment Law

Are you thinking about expanding your company or hiring new employees? Consult an employment law professional about the types of laws on employment in your state. Usually, this would be a lawyer. You must be aware of laws governing the federal minimum wage like payroll and withholding taxes, anti-discrimination laws, OSHA regulations, unemployment insurance, workers’ compensation, and more. If you end up breaking any of these laws and regulations, you could find yourself the subject of a lawsuit.

Tax Law

It is no secret that tax season is one of the worst times of the year for many individuals. Things get even more complicated and difficult when you are trying to run a business. That is why it is important to be aware of tax laws for small business regulations. Filing your taxes with the IRS the wrong way could lead to some serious ramifications. If this is your first time filing taxes as a small business owner, learn here all you need to know to pay federal taxes. The last two are not exactly types of law, but two legal procedures that are essential for your business.

Legal Entities

When you first begin to build your business, you will have to decide what type of legal entity your business will become. The most common types of business are sole proprietorships, partnerships, C corporations, Limited Liability Companies (LLCs), and S corporations. The legal entity you choose will affect the amount of taxes you pay and the amount you can be liable for the actions and consequences of your business. Here you'll find a detailed definition of each type of business legal structure. Hopefully, this gives you a general idea of the types of laws you should be aware of when starting up your business.

List of Regulations that Hurt Small Business

While laws and regulations the government means to help businesses and customers, they can sometimes end up doing otherwise. There are many regulations that are burdensome to small businesses and can hold them back from achieving more. Here are four regulations that small business owners dislike the most.

Affordable Care Act

Also known as Obamacare, the government passed ACA years ago but still profoundly impacts small businesses. Any business with at least 50 employees has to offer their employees options for health care or face penalties. The issue isn't that the businesses have to offer health insurance to their employees (that’s a good thing). The real problem is that premiums are increasing so fast that it becomes financially burdensome.

Tax Code

The federal tax code imposes a significant burden on small businesses. First, it requires companies to pay taxes—in some cases, exorbitant taxes on top of state and local taxes. But the most considerable burden of the federal tax code is the administrative aspect.  A majority of small business owners have said that the administrative aspect of complying with the federal tax code is the biggest headache.  It's so complicated that many small businesses choose to pay a third-party payroll company to handle it for them.

Classifying Workers

Federal regulations set standards for how companies must classify those who work for them.  First, they must determine who is an actual employee and who is an independent contractor. The federal Department of Labor will set these standards, but they are sometimes difficult to understand.  In recent years, there's been a lot of scrutiny on small businesses, which tend to want to classify as many people as possible as independent contractors. In addition, business owners classify some employees as exempt while others are non-exempt.   This classification is important because it determines things such as working hours and whether a small business needs to pay overtime or not.

Overtime Pay

Regarding overtime, federal regulations set who must receive overtime pay and who is exempt from getting it.  The local government can provide standards according to an employee's annual salary first and then what their job duties are if they earn above that threshold. Major changes to these rules could be coming soon, too, which would significantly increase the number of workers eligible for overtime pay—which would increase the cost to small businesses in the process.

Which Regulations Apply to Your Company?

How can you determine which regulations apply to your company so that you are compliant?  This is a question many new business owners ask themselves. It can be daunting to start a new venture, but it's even more stressful when you know you're unsure of what regulations you must follow. The two determining factors to knowing which regulations apply to you are your business structure and the industry in which you operate.

Business structure

While all businesses must pay federal and state taxes and file the proper paperwork, not all businesses have to do the same things. In general, corporations have the strictest requirements, while LLCs have the least amount. Still, all businesses have to comply with state filing requirements.

Industry

Depending on your industry, there may be other regulations with which you must comply. These would include obtaining the proper certificates, permits, and licenses to operate in your city, county, or state.  Some of these regulations could revolve around health and safety or be more specific environmental standards set by the U.S. Department of Agriculture. If you are unsure of the regulations you need to comply with, check with your local chamber of commerce or the U.S. Small Business Administration (SBA).

Keep reading: How to Get a Business Lawyer, Plus Free Options.

Small Business Requirements

Entrepreneurs need to understand that there are various legal requirements that they have to abide by when they are starting a new business.  The federal government sets some of these requirements, local and state governments do others. Once you have all of these in place, the government will allow you officially to start operating your business legally. This may sound like a lot, but it's not as difficult to achieve as you may think. You should consider hiring a business lawyer to make easier this part of the process. Here's a list of the small business legal requirements you must follow:

Business structure

The Internal Revenue Service (IRS) requires that all businesses choose a specific business structure.  For legal purposes, this means you'll either need to start your business as a Limited Liability Company (LLC), a Sole Proprietorship, an S Corporation, or a C Corporation. The business structure that you choose will ultimately determine your tax obligations under federal tax law, plus what specific forms you'll have to use when you report your taxes to the federal government. There are different specifics for each business structure, so make sure you research which structure would be best for the entity you're creating. Often this is different from the business model you choose to develop your product or services.

Register the name

Once you've landed on a business structure, you have to register your business name. You can do this process with the state government where you are.  Registering the name of your business will allow you to use it for branding purposes, as well as to conduct business under that name. Usually, you can register your business' name online.

Employer Identification Number

Next, you'll obtain an Employer Identification Number, or EIN, through the IRS.  In essence, an EIN will be your company's Social Security number. It's used for tax purposes with the IRS and allows you to conduct financial transactions, such as opening a bank account or credit card for the business. You can get an EIN entirely online in most cases.

Discover options to fund your new business.

Licenses and permits

Depending on the type of business you're running, you may need to obtain the necessary licenses and permits even before you can operate. Every business owner should be aware of these requirements in their field. Local and state governments offer some of these licenses, while the federal government does others. Licenses include things such as general business operation licenses, a sales tax license and zoning, and land use permits. Depending on the field your business is in, you might also have to get health department permits or certain occupational permits. Most states and localities have different types of required licenses and permits on their official website. Some quick research online will let you know what you need to get to run your business without getting shut down by local, state, or federal authorities. Getting the proper licenses and permits typically takes a long time, so get started as soon as you can.

Read more about DBA and Businesses License. 

What Happens if Regulatory Policies for a Business Are Violated?

Most times, businesses receive a warning the first time they violate a government regulation. Repeat offenders face increasing financial punishments as well as potential sanctions.  For example, restaurants that don't comply with local health ordinances could see their kitchens shut down until they meet the standards. During the COVID-19 pandemic, the government fined and shut down businesses that violated local lockdown orders and restrictions. Some of these businesses eventually lost their license to operate after multiple violations. It's never a good idea to be non-compliant with official government regulations. It can be very expensive and it could even lead to you permanently closing your business, in the most extreme scenarios.

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