Government regulation hit an all-time high last year with the Federal Register reaching 82,035 pages, including about 3,378 final rules and regulations. Needless to say, mounting regulations can mean a heavier compliance lift for businesses of all sizes. While larger enterprises usually have more resources to put toward compliance, many small and mid-sized businesses do not, which can have a direct impact on profitability.
According to the ADP 2015 Midsized Business Owner Study, an annual survey of mid-sized business owners and senior executives at U.S. companies with 50 to 999 employees, two in five mid-sized employers rank the volume of government regulations as their top business concern. While the Affordable Care Act (ACA) and health care costs are still among employers’ top three concerns, worries over the amount of overall regulations increased significantly since last year.
It’s clear that as ACA compliance responsibilities become the new norm, mid-sized employers are increasing their focus on other issues, such as tax law compliance and wage and hour regulations. In fact, 18 percent of mid-sized employers surveyed ranked tax law compliance as their number one concern in the latest survey, a significant increase over the prior year. Further, one-third of respondents expressed high levels of concern regarding compliance with wage and hour regulations, which could be tied to the Department of Labor’s proposed changes to overtime rules, which are expected to be finalized this year.
These bubbling concerns are compounded by the fact that the mid-sized business owners surveyed are overestimating their ability to handle the changing compliance landscape. While a majority of respondents report feeling confident in their ability to remain compliant with tax laws and other workforce regulations, more than one-third of mid-sized businesses said they were hit with unintended penalties due to noncompliance. Worse yet, many did not know how many fines they had incurred or how much it cost their organizations. Of those business owners who could recount the fines they experienced in the past 12 months, the average number of fines doubled to 13 over the past four years.
Today, employers who averaged at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year are required to offer “affordable” health insurance to their full-time employees or pay a penalty. They are also required to record and report specific health care insurance and workforce information for each qualifying employee to meet the regulatory requirements of the Internal Revenue Service (IRS).
Yet only a quarter of mid-sized business owners surveyed indicated they were completely confident that their organization understands all of the ACA regulations and only slightly more than one-third were completely confident they’d be ACA compliant.
Some of these concerns may be due to the fact that the majority of mid-sized businesses surveyed report they’re handling ACA compliance tasks in house and very few said they have hired additional staff to manage these tasks.
So how does a mid-sized business with a lean HR team stay ahead of the constant barrage of regulatory changes?
Consider these three tips to help navigate the ever-changing terrain and remain compliant.
- Leverage outside expertise. Companies need to recognize that compliance is not a one-time investment, but an ongoing journey. Trying to solve compliance challenges with only internal resources can sometimes end up costing more than paying a third-party expert to help. Working with a broker, CPA, financial advisor or Human Capital Management solutions provider who is on the front lines of the regulatory landscape can help companies keep up with the latest trends and emerging government rules.
- Build your network. Consider joining the local chapter of an HR or workforce-oriented industry organization, such as the Society of Human Resource Management (SHRM). These groups offer seminars and events about new and changing federal and state requirements. Also, examine sector-specific trade associations to stay on top of regulations that will impact only certain industries. For example, restaurants may have different compliance requirements than construction firms.
- Connect across teams and systems. A major compliance obstacle is working in silos and not leveraging organization-wide employee data and resources. The same ADP study showed that only half of mid-sized business owners expressed confidence in their payroll, HR and benefits systems working together to produce accurate data for ACA reporting. It’s important to integrate transaction and recordkeeping so systems can provide all impacted departments with relevant data for reporting and auditing purposes.
The pressure to comply with government regulations has grown substantially over the past five years due to both the growing amount of regulations and stricter government enforcement. Instead of trying to tackle every new compliance challenge one by one, companies need to start thinking of compliance as a strategic capability. For mid-sized companies that are expected to operate with the nimbleness of a small company while complying with the same regulations applicable to larger enterprises, honing their compliance capabilities internally can be a daunting task.
The good news is, more mid-sized employers are seeing the benefit of outsourcing. Compared to 2013, mid-sized business owners are more than twice as likely to outsource benefits administration as a result of the ACA. The bottom line: Many believe it’s better to have a trusted compliance partner than it is to have misplaced confidence in your in-house capabilities which may result in facing unexpected fines down the road.Corporate Compliance Insights is a wholly owned subsidiary of Conselium Executive Search, the global leader in compliance search.