HR for Massachusetts Startups: Be Prepared When Employment Laws Affect Your Growing Company
Fenway Law provides compliance advice for growing tech startups. Most employment and benefits laws apply once a company meets a minimum headcount.
In this advisory, founder Michael Loconto provides a general guide for growing Massachusetts startups and small businesses.
So you founded a tech startup — seizing on a world-changing idea that has consumed every waking minute of your existence over the last few years. You may have been joined by a few partners, and maybe even hired a few independent contractors or direct employees. You may have even taken steps toward seed capital and series financing, with a crash course in business funding to keep your developing business in growth mode.
People Often Come Before Policy
As many small businesses and startups grow, particularly in those frantic and kinetic first few years, the need for headcount can quickly materialize. What often sneaks up on a company are the compliance requirements that accompany staffing growth.
The good news is that there are plenty of outsourced benefits and human resources management options available to companies. These outfits can help with assuring that your staff gets access to a health insurance plan and paid on time — and may even help your company sort through the new leave laws popping up, like in Massachusetts where paid family and medical leave and the celebration of Juneteeth have taken effect in 2021.
What can be less obvious to employers are the legal requirements that impact operations in the workplace. Certain employment-related laws cover even to the smallest of workplaces, while other requirements kick in with a minimum FTE headcount. To further complicate matters — particularly in the era of remote work — the location of those employees across the country and the globe can also affect FTE counts in litigation or a regulatory review (for instance, consider the Equal Employment Opportunity Commission’s “integrated enterprise” standard). Small businesses and startups need to be aware of these triggers in order to maintain legal compliance and minimize workforce risks.
This guide is written to provide Massachusetts businesses with some practical tips and a reminder to consult with experts for legal advice and planning. While we hope you find it helpful, this primer is no replacement for direct legal advice. Startups are urged to consult with an attorney to assure compliance.
Congratulations on Your Company — Now Comply
Your legal obligations as an employer begin with the first employee (in fact, it may be you!). Employment obligations for companies with one or two employees include:
- Common law theories governing issues in contracts, speech (e.g., defamation) and accidents (“torts”)
- Worker’s compensation insurance (required by the Massachusetts Department of Industrial Accidents)
- Unemployment insurance and related payroll tax withholding
- Leave & re-employment rights for members of the military
- Civil rights, anti-discrimination and equal pay requirements, including the Massachusetts laws prohibiting sexual harassment (M.G.L. c. 214, §1C), discrimination (the Massachusetts Equal Rights Act, M.G.L. c. 93, §§102(a), 103(a), a contract-based law prohibiting discrimination on the basis of sex, race, color, creed, national origin, age, and handicap), and gender-based pay discrimination (the Massachusetts Equal Pay Act, M.G.L. c.149, §105A), and related civil rights provisions protecting individuals from threats, intimidation and coercion (M.G.L. c. 12, §§11H, 11I).
- Earned Sick Time (M.G.L. c. 149, §148C), which provides that all employers must provide up to 40 hours of sick leave (unpaid for companies of fewer than eleven employees).
- As a brief aside during the current pandemic, employers should bear in mind that the federal Families First Coronavirus Relief Act (FFCRA) requires paid sick leave and family leave for employees of businesses with less than 500 employees. Employers with less than 50 employees are exempt from leave related to school closures and child care if the employee’s leave would “jeopardize the viability of the business as a going concern.” Employers receive a 100% tax credit for all paid leave and related individual employee benefits costs accruing during a FFCRA leave.
- Various Massachusetts laws governing timely payment of wages (e.g., M.G.L. c. 149, §148), minimum wage and overtime pay (M.G.L. c. 151, §1). (Note: some cities also have related ordinances that may apply). When your business grows to two or more employees, certain federal laws that mimic or enlarge state employee rights in areas like minimum wage, overtime and equal pay (e.g., the Fair Labor Standards Act and the Equal Pay Act) take effect.
- The “Grand Bargain” (Chapter 121 of the 2018 Acts of the Massachusetts Legislature, which addressed minimum wage increases and Sunday overtime pay) also implemented a system of paid family and medical leave for all employees in Massachusetts. Most aspects of the law took effect on January 1, 2021, while paid leave to care for a sick family member takes effect on July 1. Briefly, paid FML in Massachusetts is funded through a payroll tax that includes both employee and employer contributions and provides a state-paid benefit of up to 75% of an employee’s base pay (up to $850 per week) for qualifying leave. Qualified benefits duration range from a maximum of 12 weeks for births, adoptions and care for an ill family member or to address issues arising from a family member’s military leave, to up to 20 weeks for an individual’s own serious medical condition, and up to 26 weeks for an individual caring for an injured service member. Note that some larger employers have chosen private insurance options to provide paid FML in lieu of the state benefit that is funded through the payroll deduction (the Commonwealth must approve the substitute in order to excuse an employer from the payroll tax).
While federal COBRA regulations governing health insurance continuation for terminated employees do not impact a business with less than twenty employees, Massachusetts companies should also be aware of the Commonwealth’s “mini-COBRA” law (M.G.L. c. 176J, §9) that applies to businesses with at least two employees.
With Continued Growth Comes Added Responsibility for Employers
The scope of employee protections expands in an enterprise with six or more employees, and employers are also required to develop and adopt certain policies. The six-employee threshold is a good time to consult with a labor and employment attorney for specific and to consider issuing an Employee Handbook.
Where many leave requirements are unpaid, HR consultants can also help companies operating in a competitive labor market to consider adopting enhanced paid time off (beyond minimum legal requirements) as a recruitment and retention strategy.
Companies at or above this size should also consider purchasing employee rights posters in order to comply with any applicable legal requirements and to keep employees informed about benefits and basic rights. Posters are simple and inexpensive, available from numerous vendors, and can be displayed in breakrooms or some other central employee space within a physical office space.
Consider the following:
- The Massachusetts Fair Employment Practices Act (M.G.L. c.151B et seq.) expands upon the Commonwealth’s Equal Rights Act by specifically prohibiting discrimination in the employment context (hiring, preemployment criminal record and mental health inquiries, promotions, termination and other aspects of the employment relationship). Chapter 151B, as it is often referred to by lawyers and advocates, expands prohibitions on discrimination in the workplace to include race, color, religion, national origin, sex, ancestry, age, sexual orientation, veteran’s status, genetic information, or disability, and also forbids employers from retaliation against employees for complaints about discrimination or for participating in the investigation of a claim.
- Chapter 151B also requires employers that have met the six-employee threshold to adopt a sexual harassment policy. The policy must be provided to new employees and annually to all employees. The Massachusetts Commission Against Discrimination (MCAD), which enforces Chapter 151B requirements, publishes a model policy that companies can use as a baseline to consider when implementing a policy.
- Eight weeks of parental leave (M.G.L. c. 149, §105D), albeit unpaid, becomes available to all full-time employees (mothers and fathers) at the time of birth or placement of a child. To be eligible, a full-time employee must have completed the initial probationary period set by the employer (to a maximum of six months, or three months if no period is specified). The employee must give two weeks’ notice of his or her expected departure date and intention to return. (Note: if both parents work for the same employer, the family unit shall only be entitled to eight total weeks of parental leave for the birth or placement of the same child).
There are practical risk mitigation steps that an employer can take at this stage. First, employers are strongly urged to to conduct sexual harassment training — an ounce of prevention can mean a pound of cure. Second, employers can be proactive and adopt a respectful workplace policy to help inform the individuals across the company about many of the rights and responsibilities addressed above. The Society for Human Resource Management (SHRM) offers a respectful workplace policy template (Note: link will open a Word document) that businesses may adapt to create a policy.
And finally, given these additional risks and affirmative policy obligations, startups are strongly urged to consider working with an attorney or an HR consultant to adopt an Employee Handbook. A written, shared understanding of the basic terms and conditions of employment, the benefits available to employees, and the grievance procedures that employees may use to address problems in the workplace, can reduce uncertainty and promote clarity for staff and for organizational leaders.
With eleven or more employees, Earned Sick Time becomes a paid benefit under Massachusetts law. A business of this size must allow all employees (full-time, part-time and temporary) to earn at least one hour of paid sick time annually for each 30 hours worked.
With fifteen or more employees, federal discrimination laws also become applicable in a workplace. Specifically, the federal laws prohibiting discrimination on the basis of race, color, creed, national origin and sex (Title VII of the Civil Rights Act of 1964) and disability (Americans with Disabilities Act) cover workplaces with 15 or more employees. Practically speaking, however, employers in Massachusetts should already have compliant practices in place given that the state-level companions to Title VII and the ADA (Chapter 151B) are applicable to workforces of at least six employees.
Where Did All These People Come From? And Other Concerns for the Mid-Sized Workplace
Once a company’s headcount reaches twenty or more employees, most employment-based laws and regulations will apply to the workforce. At this stage, hiring a human resources professional to help oversee hiring, benefits, and workplace conflict resolution can be a practical (and perhaps necessary) step to maintain compliance and mitigate risk. Consider a few of the additional workplace benefits and protections that now apply:
- Most people are familiar with COBRA (the federal Consolidated Omnibus Budget Reconciliation Act of 1985), which requires employers to provide employees (and their spouses and dependent children) who are leaving a group health or dental insurance plan with the opportunity to continue group insurance coverage at the employee’s own expense. Recall that Massachusetts includes a “mini-COBRA” requirement for companies with as little as two employees.
- As another pandemic-era side note, the American Rescue Plan Act (ARPA) that was signed into law by President Biden on March 11 requires that most employees who lost health insurance coverage during the pandemic must be offered free COBRA coverage between April 1 and September 30, 2021. The law also provides an opportunity for employees that did not opt-in to COBRA coverage when first eligible to sign up now for the free benefit. Companies will receive a tax credit for COBRA-related expenses during the covered period.
- Practically speaking, employers have likely already established a meaningful personnel records system by the time the company has reached 20 employees. In Massachusetts, the Commonwealth’s personnel records law (M.G.L. c. 149, §52C) goes a step further to add a three-year retention requirement following the employee’s termination, and mandates certain basic information that must be included in the record. Employees also have rights of access (an employer must provide personnel records to an employee within five business days of a written request) and response (employees may request that derogatory information be removed, or provide a written response that must be incorporated in the file), and may seek enforcement through the Attorney General’s Office.
- Growing Massachusetts employers will have also already implemented measures to restrict age discrimination in the workplace as required by Chapter 151B (which affects companies with six or more employees), but the similar federal Age Discrimination in Employment Act (“ADEA”) applies to employers with 20 or more employees. Practically speaking, ADEA (and the related, federal Older Workers Benefit Protection Act of 1990) most directly affects Massachusetts employers negotiating separation agreements — companies need to use care in dealing with an older worker to assure that the individual has knowingly and voluntarily waived potential claims under the ADEA.
A number of other well-known provisions apply to employers with fifty or more employees:
- From a strict perspective, the federal Affordable Care Act (ACA) requires businesses with 50 or more employees to provide health insurance options for employees. As a practical matter, most employers begin offering health insurance as a recruiting and retention strategy well prior to reaching the 50-employee threshold. Companies with smaller workforces may be eligible for additional tax credits (salary restrictions apply). Consult with an insurance agent or broker for more information.
- Massachusetts employers are now required to offer paid family and medical leave, but the federal Family and Medical Leave Act (“FMLA”) has long provided eligible employees in companies with 50 or more workers the right of up to twelve weeks per year of unpaid leave, as well as benefit continuation and reinstatement rights. This period runs concurrent with state-level family and medical leave benefits.
Unlike paid FML in Massachusetts, which applies to all employees, an employee must have worked for the employer for at least twelve months, for at least 1,250 hours in the twelve months prior to the first day of leave in order to qualify for FMLA leave. FMLA regulations also mandate strict record-keeping and leave designation under the law, and limits employer rights to access information necessary to verify a request for leave.
Practically speaking, the FMLA also requires employers to publish and distribute information among the workforce regarding employee rights under the law — another reason for businesses to develop and adopt an Employee Handbook if one has not already been created at this stage.
- In a professional work environment with few hourly workers, most startups have developed less-restrictive workplaces that include flexible hours and work locations. For office-based employers and those with large hourly staff headcount, however, note that the Massachusetts’ Small Necessities Leave Act (“SNLA”) provides employees with up to twenty-four hours of additional unpaid leave to attend to particular family obligations. Practical uses of SNLA include time off to use professional services (e.g., tax preparation), attending activities at a child’s school, or accompanying a child or a parent to medical appointments.
- Victims of domestic violence are also eligible for up to fifteen days of unpaid leave per year in Massachusetts. The Domestic Violence Leave Act defines domestic violence, stalking, sexual assault or kidnapping as qualifying reasons for leave and includes measures to protect victim identification.
- Finally, companies that work with the federal government must annually disclose certain staff demographic information (sex, race and ethnicity in certain occupational categories) by filing the EEO-1 report with the federal Equal Employment Opportunity Commission (EEOC). This requirement affects federal contractors who have fifty or more employees and, generally speaking, private employers with one hundred or more employees.
At one hundred or more employees:
- An employer becomes covered by the federal WARN (Worker Adjustment and Retraining Notification) Act, which requires notification to employees sixty calendar days in advance of plant closings and mass layoffs as defined under the law.
This brief summary is intended to focus small business and startup leaders on the key Massachusetts and federal employment laws that become relevant at progressive intervals while a workforce expands. Human resources and legal support can mean the difference between effectively managed risk and disruptive claims and litigation. Rather than viewing these requirements as obstacles, effective leaders can integrate these requirements in plans for growth and avoid surprises.
Please consult a professional for support when growing your workforce. With risk managed through effective planning, your company can focus on its core mission.
Michael Loconto is a Boston-based attorney and consultant with Fenway Law, a Boston-based firm that can help your business think through key workforce operations planning. If you like what you read here, follow Mike on Medium and subscribe through Substack.