The myth of the 25th employee

Frayda Levin hates federal regulations, from controls on age discrimination to rules on how to treat employees who are covered by the Americans with Disabilities Act (ADA). She thinks they're overly broad and often misused. "I live in fear of being sued every day," she says.

Levin is vice-president of Regent Book Co., an $8-million family business based in Lodi, N.J. "I have 65 employees, so it seems like every friggin' regulation that could apply applies," she says. "And you have to understand: I only have me, myself, and I to deal with this."

When Congress considers enacting a new employment law, Levin isn't the only business owner to shudder. "We've had some members of our group tell us that they haven't hired additional workers because they don't want to rise above a threshold and suddenly have to comply with a new set of regulations," says Jim Weidman, spokesman for the National Federation of Independent Business. "They may not have the manpower or the money to comply with every regulation."

That perception is alarmist, according to Bill Anderson, a partner at Brobeck, Phleger & Harrison LLP, a 600-employee law firm with 10 offices across the country. Anderson heads up the firm's Palo Alto employment-law practice, so he's an expert in how federal employment regulations affect growth companies. "I don't think the 25-employee threshold or the 50-employee threshold really has any impact on a company hiring or not hiring people," he says. In fact, "quite a number of start-up companies are outsourcing [ employment-law compliance] to preferred employer organizations that actually pay the employees and handle all human-resources issues," Anderson says.

Still, small-fry entrepreneurs who can't afford top legal or HR advice may be confused by arcane federal rules. Here's a rundown on which regs cover small companies:

Eleven or more employees. At this level companies must keep and post data in compliance with the Occupational Safety and Health Act of 1970 (OSHA). Manufacturers of all stripes must keep this information, while retailers, service-industry businesses, and other low-risk workplaces do not. Essentially, the OSHA forms track injuries incurred on the job.

Fifteen or more employees. Hit this size, and the U.S. Equal Employment Opportunity Commission (EEOC) can field complaints filed against your company concerning violations of the Civil Rights Act of 1964 and the Americans with Disabilities Act of 1990. The ADA provisions involve reasonably accommodating job applicants' and employees' disabilities in a variety of ways, including tweaking the application and interview process, changing a work environment, changing the way a job is usually done, and helping disabled employees enjoy equal benefits.

Twenty or more employees. The EEOC has greater latitude with employers of this size, to which the federal age-discrimination laws apply. While that might sound like no big deal, consider this: placing a want ad for a "recent graduate" is considered an act of age discrimination. Quick, call the newspaper.

With respect to all these laws, it may simply be easier -- and wiser -- to comply with them as much as possible early in your growth cycle rather than to take them on in stages. And this issue affects midsize companies too. Next month we'll cover the regs that kick in with your 50th hire.

Small or Not, It's the Law

Dozens of employment regulations kick in once a business hires its 25th full-time employee, but there are rules for smaller companies to worry about, too. Lori DiCesare, CEO of Legal Placements Inc., a $7-million staffing company in Washington, D.C., learned that firsthand last year when she called her lawyer to ask about maternity-leave laws.

Tony Herman, a partner at Covington & Burling, in Washington, D.C., explained that the Family and Medical Leave Act required a minimum of 12 weeks of unpaid leave, during which time the absentee's job had to be kept open. But that was only the beginning of their conversation. He also found fault with several HR practices DiCesare had never thought twice about.

For example, DiCesare discovered that asking for a date of birth on job applications could expose her to age-discrimination suits. So could keeping I-9 forms -- which contain dates of birth -- in the same file as those job applications. In addition, Herman informed DiCesare that she had to offer the company's 401(k) plan to temp workers.

Though her now frequent legal consultations add up, DiCesare believes the cost is worth it for peace of mind and avoided litigation. Her advice? Foot the bill. "It's a lot, but I can sleep at night," she says. --Ilan Mochari