9 Commonly Misunderstood Labor Rules

As a small business owner, it’s up to you to stay current with labor and employment laws that affect your employees. Failing to follow labor laws can result in expensive fines and potential litigation.

The following nine labor rules are often misunderstood. Learning as much as possible about them will help you avoid problems and keep your business compliant.

(The following is for informational purposes only and is not legal advice. If you have a legal question about labor rules, consult a licensed business attorney.)

1. Employee Leave Through the FMLA

The Family and Medical Leave Act (FMLA) applies to most employers with 50 or more employees within 75 miles. It guarantees eligible workers up to 12 weeks of unpaid, job-protected leave in a 12-month period for qualifying family or medical reasons. During FMLA leave, employers must maintain group health insurance under the same terms as if the employee were actively working.

Employees are generally eligible if they have worked for the company at least 12 months and have logged at least 1,250 hours in the past year. Covered reasons include:

• Caring for a newborn child within the first year of birth

• Caring for a newly adopted or foster child within the first year of placement

• Caring for a spouse, child, or parent with a serious health condition

• Recovering from the employee’s own serious health condition that prevents them from performing job duties

• Certain qualifying needs arising from a family member’s covered military active duty

• Caring for a covered service member with a serious injury or illness (up to 26 weeks of military caregiver leave)

2. Employee Right to Discuss Salaries With Coworkers

The National Labor Relations Act (NLRA) protects most employees’ right to discuss their wages, hours, and working conditions with each other. Employers generally cannot prohibit or punish employees for these conversations, as they are considered protected “concerted activity.”

Note: A single personal complaint may not always be protected, and threats or harassment are not covered by the NLRA.

3. Employee Freedom to Post Negatively About a Company on Social Media

The NLRA also protects employees who use social media to discuss workplace concerns together. Employees may lawfully post about pay, scheduling, or working conditions if the purpose is to seek change or mutual support.

That said, purely individual gripes, threats, or unlawful harassment may not be protected. If you include a social media policy in your employee handbook, consult legal counsel to ensure it does not restrict rights under Section 7 of the NLRA.

4. OFCCP and Affirmative Action Requirements

The Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) enforces rules that apply to federal contractors and subcontractors. These include strengthened protections for veterans and individuals with disabilities.

• Federal contractors must take affirmative action to employ and advance qualified individuals with disabilities. The OFCCP sets an aspirational utilization goal of 7% in each job group; this is not a quota.

• Covered employers must invite applicants and employees to self-identify as disabled individuals or protected veterans.

• Similar requirements apply under the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA). As of July 30, 2025, the nationwide veteran hiring benchmark is 5.1%.

5. Independent Contractors

Since March 2024, the U.S. Department of Labor has applied a six-factor “economic reality” test to determine whether a worker is an employee or an independent contractor. The factors include:

• Opportunity for profit or loss

• Investments by worker and employer

• Permanency of the relationship

• Degree of control by the employer

• Whether the work is integral to the business

• The worker’s skill and initiative

No single factor is determinative, and details such as where the work is performed or who sets the schedule do not decide the issue on their own.

6. Employees and Overtime

Under the Fair Labor Standards Act (FLSA), most employees must receive overtime pay at 1.5 times their regular rate for hours worked beyond 40 per week. Employers cannot decide exemptions on their own — exemptions depend on the type of work performed and salary level.

• To be exempt, employees must meet the duties test for executive, administrative, or professional roles (the “white-collar” exemptions).

• They must also meet the current federal salary threshold of $684 per week ($35,568 annually). A federal court vacated a 2024 rule to increase this threshold, so the lower level remains in place for now.

Misclassifying employees to avoid overtime or taxes can lead to serious penalties. Both the IRS and the Department of Labor actively investigate misclassification.

7. Paying Employees for Unauthorized Overtime

If an employee works overtime despite your instructions not to do so, the employee is still owed overtime pay. It doesn’t matter if the person is violating a written policy or direct orders. A manager or supervisor who is aware that the employee is working overtime must compensate the person for the extra workday hours. You may, however, discipline the employee so that the behavior is hopefully not repeated in another workweek.

8. Wrongful Termination

Most employees in the U.S. are hired “at will,” meaning they can be terminated at any time, with or without cause, as long as the reason is not unlawful.

Termination is considered wrongful if it is based on discrimination (such as race, color, religion, sex, national origin, age, disability, or genetic information) or retaliation for exercising legal rights. Knowing the limits of at-will employment can help protect your business from wrongful termination claims.

For more guidance, visit the Equal Employment Opportunity Commission (EEOC).

9. Harassment

Workplace harassment is unlawful when it is severe or pervasive and based on a protected characteristic. Harassment is illegal if tied to race, color, religion, sex (including sexual orientation, gender identity, and pregnancy), national origin, age (40+), disability, or genetic information.

A hostile work environment may involve repeated actions, but a single severe incident (such as physical assault) can also be unlawful. Employers should act promptly to prevent and address harassment in the workplace.

Final Thoughts

To safeguard your company, review your employee handbook regularly and make sure none of your policies violate employees’ rights under federal or state law.

Running your business professionally and staying informed about labor laws is one of the best ways to protect your company. For more HR tips and small business resources, visit our Learning Center or reach out to our friendly Swyft Filings business professionals.