HR Compliance Checklist: Federal and State Requirements

Compliance Isn't Optional

There's no grace period for being a small business. From the day you hire your first employee, you're subject to a stack of federal, state, and local employment laws. Violating them -- even accidentally -- can result in fines, lawsuits, back pay awards, and in some cases, criminal penalties.

This checklist covers the major compliance areas every small business with employees needs to address.

Hiring Compliance

Federal Requirements

• EIN obtained: Required before hiring any employees (IRS Form SS-4)
• I-9 Employment Eligibility Verification: Completed for every employee within 3 business days of start date. Retained for 3 years after hire or 1 year after termination, whichever is later
• W-4 collected: Federal tax withholding elections for every employee
• New hire reporting: Reported to your state within 20 days (some states require sooner)
• E-Verify: Check whether your state requires it or whether federal contracts mandate it

State Requirements

• State tax withholding registration and forms
• State new hire reporting
• Background check compliance (ban-the-box laws, restrictions on criminal history inquiries)
• Salary history ban compliance (if applicable in your state/city)

Wage and Hour Compliance

Fair Labor Standards Act (FLSA)

• Minimum wage: Paying at least federal minimum wage ($7.25/hour) or your state/local minimum, whichever is higher
• Overtime: Paying non-exempt employees 1.5x regular rate for hours over 40 per workweek
• Employee classification: Correctly classifying workers as exempt vs. non-exempt and as employees vs. independent contractors
• Child labor: Complying with restrictions on hours and types of work for minors
• Record-keeping: Maintaining accurate time and pay records for at least 3 years

State Wage Laws

• State minimum wage compliance (many states exceed federal)
• State overtime rules (some states have daily overtime or different thresholds)
• Meal and rest break requirements (varies by state)
• Pay frequency requirements
• Pay stub requirements (what must be listed on each pay statement)
• Final pay timing (ranges from immediate to next regular payday by state)

Tax Compliance

• Federal income tax withholding: Calculated per W-4 elections, deposited per IRS schedule
• FICA (Social Security and Medicare): Withheld from employees and matched by employer (7.65% each)
• FUTA: Filed annually (Form 940), paid quarterly
• State income tax withholding: Where applicable
• State unemployment tax (SUTA): Paid as required by state
• W-2s: Furnished to employees by January 31 of the following year
• 1099s: Issued to independent contractors paid $600+ by January 31

Workplace Safety (OSHA)

• General duty clause: Providing a workplace free from recognized hazards
• OSHA poster displayed: "Job Safety and Health: It's the Law" poster
• Injury and illness recording: OSHA 300 Log maintained if you have 11+ employees (some industries exempt)
• Hazard communication: Written program, safety data sheets, and employee training for chemical hazards
• Industry-specific standards: Construction, manufacturing, and other industries have additional requirements
• Reporting: Fatalities reported within 8 hours, hospitalizations/amputations/eye losses within 24 hours

Anti-Discrimination Compliance

Federal Laws by Employee Count

These laws apply based on the number of employees:

• 1+ employees: Equal Pay Act (equal pay for equal work regardless of sex)
• 15+ employees: Title VII (race, color, religion, sex, national origin), ADA (disability), GINA (genetic information), Pregnant Workers Fairness Act
• 20+ employees: ADEA (age 40+), COBRA
• 50+ employees: FMLA (family and medical leave), ACA employer mandate

Requirements

• EEO poster displayed
• Anti-harassment policy in place with reporting procedures
• Reasonable accommodation process for disability and religion
• No discriminatory job postings, interview questions, or employment decisions
• EEO-1 report filed (100+ employees or federal contractors with 50+)

State Laws

Many state anti-discrimination laws kick in at fewer employees than federal law. Some states prohibit discrimination based on additional protected classes (sexual orientation, gender identity, marital status, etc.). Check your state's civil rights agency for specific requirements.

Leave Requirements

• FMLA compliance (50+ employees): Up to 12 weeks unpaid leave for qualifying reasons
• State family/medical leave laws: Many states have their own family leave laws with lower employee thresholds
• Paid sick leave: An increasing number of states and cities require it
• Military leave (USERRA): Job protection for employees serving in the military
• Jury duty leave: Most states prohibit penalizing employees for jury service
• Voting leave: Many states require time off to vote

Benefits Compliance

• ACA compliance (50+ FTEs): Offer minimum essential coverage or pay penalty
• COBRA administration (20+ employees): Offer continuation coverage after qualifying events
• ERISA compliance: If you offer a retirement plan, health plan, or other employee benefit plan
• Section 125 plan documentation: If you offer pre-tax benefits
• State-mandated benefits: Disability insurance (CA, HI, NJ, NY, RI, PR), paid family leave, etc.

Record-Keeping Requirements

Different records have different retention requirements:

• Payroll records: 3 years (FLSA), 4 years (IRS)
• I-9 forms: 3 years after hire or 1 year after termination, whichever is later
• Tax records: 4 years after tax is due or paid
• OSHA injury logs: 5 years
• Employment applications: 1 year (EEOC)
• Personnel files: Varies by state, but 3-7 years after termination is a safe target
• Benefits records: 6 years (ERISA)

Workplace Posters

Federal posters required for most employers:

• FLSA Minimum Wage poster
• OSHA Job Safety and Health poster
• EEO "Know Your Rights" poster
• EPPA Employee Polygraph Protection Act poster
• USERRA Your Rights Under USERRA poster
• FMLA poster (50+ employees)

All federal posters are available free from DOL.gov. Your state will have additional required posters.

Annual Compliance Calendar

Month	Task
January	Distribute W-2s and 1099s. Update minimum wage if changed
February	File W-2s and 1099s with government
March	File OSHA 300A summary (post Feb 1 - April 30)
April	Q1 payroll tax filings (Form 941)
July	Q2 payroll tax filings
October	Q3 payroll tax filings. Open enrollment planning for benefits
November	Review employee handbook for updates
December	Year-end payroll reconciliation. Plan W-2/1099 distribution
Ongoing	New hire reporting, I-9 completion, workplace safety, regular pay cycles

Don't Try to Do This Alone

This checklist is comprehensive but not exhaustive -- your state and local jurisdiction will have additional requirements. Build a compliance team even if it's informal:

• Payroll provider: Handles most tax filing and deposit obligations
• Employment attorney: Review your handbook, handle complex issues, and keep you updated on law changes
• Insurance broker: Manage workers' comp, health insurance, and other benefits
• CPA or tax professional: Year-end filings, tax strategy, and audit support

The cost of these professionals is a fraction of the cost of a compliance violation. Invest accordingly.

The Cost of Non-Compliance: Real Penalty Amounts

Understanding the financial risk of non-compliance makes the case for investing in proper HR practices:

Violation	Agency	Penalty Range	Notes
Failure to display required posters	DOL	$189-$21,663 per violation	Updated annually for inflation
I-9 violations (first offense)	ICE	$272-$2,701 per form	Knowingly hiring unauthorized: $627-$25,076
FLSA minimum wage/overtime violations	DOL	Back pay + liquidated damages (2x) + $2,203 per willful violation	Class action risk multiplies exposure
OSHA serious violation	OSHA	Up to $16,131 per violation	Willful violations: up to $161,323
OSHA failure to abate	OSHA	Up to $16,131 per day	Continues until violation is corrected
FMLA violation	DOL/Private suit	Back pay + benefits + liquidated damages + attorney fees	No cap on damages in some cases
Title VII discrimination	EEOC	$50,000-$300,000 depending on employer size	Plus back pay, front pay, attorney fees
ADA violation	EEOC	Same as Title VII	Plus reasonable accommodation costs
ERISA violation	DOL	$110-$250 per day per participant	For failure to provide required notices
Missing or late W-2s/1099s	IRS	$60-$310 per form	Intentional disregard: $630 per form, no cap
Workers comp non-compliance	State	Varies: $1,000-$100,000+ fines, criminal charges, business shutdown	Personal liability for all injury costs

Real-world example: A 20-person construction company in California was audited by the DOL and found to have misclassified 8 workers as independent contractors. The result: $340,000 in back wages and overtime, $340,000 in liquidated damages, and $40,000 in penalties -- a total of $720,000. The company was forced to close.

Federal Employment Law Trigger Points: When New Laws Apply to You

As your business grows, new legal obligations kick in at specific employee thresholds. Know exactly when each law applies:

Employee Count	Laws That Apply	Key Requirements
1+ employees	FLSA, OSHA, EPPA, USERRA, Equal Pay Act, NLRA, IRCA, COBRA (state mini-COBRA in many states)	Minimum wage, overtime, workplace safety, military leave, equal pay, I-9 verification
4+ employees	Immigration Reform (IRCA sanctions)	E-Verify may be required in some states
11+ employees	OSHA record-keeping	Must maintain OSHA 300 Log of injuries and illnesses
15+ employees	Title VII, ADA, GINA, Pregnant Workers Fairness Act	Anti-discrimination, disability accommodation, no genetic information discrimination
20+ employees	ADEA, COBRA, OWBPA	Age discrimination protection, health insurance continuation, severance release rules
50+ employees	FMLA, ACA Employer Mandate, Affirmative Action (federal contractors)	12 weeks unpaid leave, offer health insurance or pay penalty
100+ employees	WARN Act, EEO-1 reporting	60-day notice for mass layoffs, annual diversity reporting

Important: These are federal thresholds. Many states have lower thresholds. For example:

• California's FEHA applies at 5+ employees (broader protections than Title VII)
• New York's Human Rights Law applies at 4+ employees
• Colorado's anti-discrimination law applies at 1+ employee
• Many state FMLA equivalents apply at 25+ employees

How to count employees: For most federal laws, count all employees on the payroll during 20 or more calendar weeks in the current or preceding year. Part-time employees count as one employee each (not prorated). Independent contractors do NOT count.

Record-Keeping Deep Dive: What to Keep and Where

Proper record-keeping is your primary defense in any audit or lawsuit. Here is a detailed retention guide:

Personnel Files

Document	Retention Period	Storage Notes
Job application and resume	1 year minimum (EEOC), 3 years recommended	Keep for unsuccessful applicants too
Offer letter	Duration of employment + 3 years	Include salary, start date, at-will statement
W-4 and state withholding forms	4 years after tax is due or paid	Update each time employee submits new form
I-9 form	3 years after hire or 1 year after termination (whichever is later)	Store SEPARATELY from personnel file (per ICE guidance)
Performance reviews	Duration of employment + 3 years	Signed by both manager and employee
Disciplinary actions and warnings	Duration of employment + 7 years	Include employee acknowledgment signature
Termination documentation	7 years after termination	Include reason, final pay records, separation agreement
Benefits enrollment forms	6 years after plan year (ERISA)	Include waivers if employee declined coverage

Payroll Records

Document	Retention Period	Storage Notes
Time cards/records	3 years (FLSA)	Include all hours worked, overtime calculations
Payroll registers	4 years (IRS)	Gross pay, deductions, net pay, taxes
Form 941 (quarterly)	4 years	Quarterly federal tax return
Form 940 (annual)	4 years	Annual FUTA tax return
W-2 copies	4 years	Employer copies of all issued W-2s
1099 copies	4 years	Employer copies of all issued 1099s
Garnishment records	Duration of garnishment + 3 years	Child support, tax levies, creditor garnishments

Medical and Safety Records

Document	Retention Period	Storage Notes
OSHA 300 Log	5 years following the year the records cover	Post 300A summary Feb 1 - April 30 annually
Workers comp claims	Duration of claim + 5 years	Include incident reports, medical records, return-to-work documentation
Drug test results	1-5 years depending on state	Store separately from personnel files -- medical privacy
ADA accommodation records	Duration of employment + 3 years	Store separately -- medical information
FMLA records	3 years	Store separately -- medical information

Critical rule: Medical records, I-9 forms, and background check results should be stored in SEPARATE files from general personnel records. Mixing these into personnel files creates HIPAA, ADA, and immigration law exposure.

Compliance Calendar: Month-by-Month Guide for Small Businesses

January

• Distribute W-2s to all employees (due January 31)
• Distribute 1099-NEC to all contractors paid $600+ (due January 31)
• Update minimum wage compliance if federal or state rate changed
• Review and update employee handbook for new year
• Confirm workers comp policy renewal is in effect
• Review ACA compliance if 50+ FTEs (Form 1095-C due to employees by March 2)

February

• File W-2s and W-3 with SSA (due January 31 but verify)
• File 1099-NEC with IRS (due January 31 but verify)
• Post OSHA 300A Summary in visible location (must remain posted through April 30)
• Review and update workplace posters for any new requirements

March

• First quarter I-9 audit -- verify all forms are current and properly completed
• Review employee classifications (exempt vs. non-exempt) against current salary thresholds
• Plan any mid-year compensation adjustments

April

• File Form 941 for Q1 (due April 30)
• Remove OSHA 300A Summary after April 30
• Conduct spring safety training and equipment inspection

May - June

• Mid-year performance check-ins with all employees
• Review PTO accruals and encourage employees to use time off
• Review workers comp classification codes before audit season

July

• File Form 941 for Q2 (due July 31)
• Review state unemployment tax rate notice
• Conduct I-9 re-verification for any employees with expiring work authorization

August - September

• Begin open enrollment planning for health insurance and benefits
• Annual workers comp premium audit preparation
• Review job descriptions for accuracy

October

• File Form 941 for Q3 (due October 31)
• Open enrollment period for benefits changes
• Review and update emergency contact information for all employees

November

• Annual employee handbook review with employment attorney
• Review OSHA injury and illness trends for the year
• Plan holiday schedule and communicate to team
• Review compensation data against market for annual raise decisions

December

• Year-end payroll reconciliation
• Verify all employee information is current for W-2 preparation
• Review and renew business licenses and permits
• Plan W-2 and 1099 distribution timeline
• File Form 941 for Q4 (due January 31 of following year)
• Review FUTA liability and file Form 940 (due January 31 of following year)

Building Your Compliance Team: Who You Need and What They Cost

Even a 5-person business needs a compliance support team. Here is what to budget:

Professional	What They Handle	Annual Cost	When You Need Them
Payroll provider	Tax deposits, W-2s, 1099s, wage calculations, new hire reporting	$1,000-$4,000	From your first employee
Employment attorney	Handbook review, termination guidance, compliance questions, dispute defense	$1,000-$5,000 (retainer or as-needed)	From your first employee
Insurance broker	Workers comp, health insurance, general liability	$0 (commission-based)	From your first employee
CPA/bookkeeper	Quarterly tax filings, year-end reconciliation, audit support	$2,000-$6,000	From your first employee
HR consultant (fractional)	Recruiting, onboarding, performance management systems, policy development	$3,000-$12,000	When you reach 10-15 employees
Benefits administrator	Open enrollment, COBRA administration, ERISA compliance	$1,000-$3,000	When you offer group health or retirement plans

Total annual compliance budget for a 10-person company: $5,000-$15,000

Compare that to a single compliance violation: $25,000-$500,000+

The math is clear. Spending $10,000 a year on compliance support to avoid a $200,000 penalty is one of the best investments your business can make.

DIY Compliance Audit: A Quarterly Checklist

Every quarter, spend one hour running through this self-audit:

Hiring and Onboarding:

• All employees have completed I-9s on file (verify dates and expiration)
• All new hires have been reported to the state within the required timeframe
• All employees have current W-4s on file
• Background checks (if performed) are stored separately from personnel files

Wage and Hour:

• All non-exempt employees are receiving overtime for hours over 40/week
• All employees are being paid at or above the applicable minimum wage
• Time records are complete and accurate for all non-exempt employees
• Meal and rest breaks are being provided per state law (if applicable)
• Pay stubs contain all information required by state law

Safety:

• OSHA 300 Log is current (if 11+ employees)
• All required workplace posters are displayed and current
• Safety training records are documented and on file
• First aid supplies are stocked and accessible
• Fire extinguishers are inspected and current

Documentation:

• All employees have a signed employee handbook acknowledgment on file
• All disciplinary actions from this quarter are documented in writing
• Performance reviews are on schedule per your review cycle
• Workers comp certificate of insurance is current and posted

Benefits and Tax:

• Payroll taxes are being deposited on schedule
• Quarterly Form 941 is filed on time
• Workers comp premium payments are current
• COBRA notices have been sent for any qualifying events this quarter

This quarterly audit catches problems before they become violations. It takes one hour four times a year -- four hours total to avoid potentially devastating penalties. There is no excuse for skipping it.