Small and medium-sized business (SMB) owners are often so focused on growing their business that they neglect an important and potentially costly issue: Human Resources (HR) compliance. From payroll and benefits to hiring processes, employee relations and risk and safety, SMBs must adhere to regulations or else run the risk of being penalized. The following are common mistakes SMBs make that might lead to non-compliance, as well as steps business owners can take to avoid them.
Not Addressing Exposures to Workplace Litigation
Wrongful discrimination lawsuits are costly. Studies show that the legal fees can run as high as $85,000 per lawsuit, with winning plaintiffs awarded $500,000 on average. According to the Equal Employment Opportunity Committee, race and sexual discrimination are the first and second most prevalent forms of workplace discrimination. Many small and medium business owners make the mistake of not providing diversity or sexual harassment prevention training. This can lead to wrongful termination suits if employees are fired or let go under circumstances that can be perceived as discriminatory.
Not Adhering to Current Benefit Regulations and Laws
Many business owners make the mistake of not keeping up with new regulations and changing laws that apply to HR. This can be due to the time involved in keeping current, but also the cost. According to a U.S. Small Business Administration survey, small companies spend up to 80 percent more per employee on federal regulatory compliance than larger companies. Because the cost of compliance with benefits regulations is often a bigger challenge for SMBs, keeping up with new regulation and compliance laws can be overwhelming and therefore overlooked.
Not Properly Completing Paperwork
While some businesses are going digital and decreasing the reliance on paper, many SMBs don’t use online services and still use hard copies for paperwork. Paperwork for new hires can be extensive, and with every new employee that is hired, the likelihood for paperwork errors increases. For example, if an employee enrolls in benefits, payroll must update their paperwork to ensure adequate deductions are made. Or if an employee undergoes a family or life status change, benefits and payroll must be adjusted accordingly and within the legally required timeframe. When information is transferred from one HR process to another, at each step there is a chance for error. Multiply this possibility by the number of employees and paperwork, and that possibility starts looking like a probability.
Not Adequately Coordinating HR Functions
If HR functions are not coordinated properly, SMBs can waste valuable time and energy correcting mistakes. As an example, let’s revisit the previous scenario noted above regarding benefits. After an employee enrolls in a benefits plan, in order for the correct amount of benefits deductions to be withheld from his or her paycheck, information must be accurately transferred to and from payroll. If benefits records and payroll data aren’t coordinated, the payroll deduction will be wrong.
Similarly, if an SMB contracts a different vendor for payroll and benefits recordkeeping functions, the responsibility falls on the owner to ensure everything is coordinated correctly. This could be challenging if the owner must field different vendor calls and navigate the specifics of the different systems. Even if a business uses payroll software, it may not fully address the need to integrate payroll and benefits functions. So now, in addition to communicating and transmitting information to their benefits record keepers, the company has to make sure the software runs correctly and is continually updated.
The risk of compliance failures and employment practice liability lawsuits has risen significantly in recent years due to new employment laws and regulations such as the Affordable Care Act. By making themselves aware of the common mistakes that can lead to non-compliance, businesses can take action to minimize or eliminate those risks altogether. While it is challenging for companies to keep up with regulations and stay compliant, it is not impossible. Many of these mistakes can be avoided with a careful advance planning or by seeking help from an outside HR consultant or lawyer who specializes in employment issues.