The Most Critical HR Compliance Issues For Small and Medium Sized Businesses

At the turn of the 19th century, most people in the U.S. worked for themselves as farmers, ranchers, storekeepers, railroad workers, you name it. The entrepreneur wasn’t a position of risk; it was the way of survival for most Americans. Some individuals became extremely successful, people like Getty, Carnegie, Weyerhaeuser, Morgan, Vanderbilt, Astor and Rockefeller and a cadre of others too numerous to mention. The collapse of the economy in 2008 has ignited the largest surge of entrepreneurship in this country since the previous depression and earlier. In fact according to the Small Business Administration (SBA), small and medium sized firms (fewer than 500 employees) represent more than 99% of all employer firms. The SBA also notes that the greatest concerns may be the lack of focus on human resource compliance. As small businesses go, they do not necessarily allocate sufficient capital investment on this facet of business, either due to lack of funding, or ignorance. Large firms have the resources to address HR Compliance in addition to their core business focus, whereas small business treats it like a luxury.

Let’s review the four most critical HR Compliance Issues facing small business today:

1) Documentation-Lack of Uniformity and Centralized Storage. Office gossip often is the place where everyone complains about errors in their paychecks, benefits not kicking in on schedule. Time cards or record sheets have errors, or may simply become lost. Vacation accrual records may contain errors, either over-accruing or applying sick time against vacation time or the like. All of these actions and much more happen with alarming regularity, as small business manually handles all of these transactions day in and day out. Employee benefits, time records, disciplinary reports, achievement records, policies and procedures, time off records, new hire forms, training documents and records, the list goes on. All of these manual systems are ripe with errors, and compound each time an employee file changes hands.

2) Laws and Benefits Regulations Poorly Handled. An SBA survey indicated that more than 80% additional cost on a per employee basis on federal regulatory compliance than large companies. This cost is burdensome, as cash is often more restrictive than their larger, bigger competitors, which places the small business at yet another critical disadvantage. As workforces grow, so does risk. The complexity of adding benefits in addition to headcount places more and more regulation on the scales of small business, often tipping them to the point of collapse. Benefit compliance is a federally regulated sector, as well as regulations such as COBRA, OSHA, EEOC, Title VII, FMLA, Wage and Hour and more. Poor management of these and other issues stack risk on top of risk until the cost of doing business shrinks margins to the point of insolvency.

3) Ignoring Potential Workplace Litigation Issues. Some of the most expensive litigation comes from either not realizing or ignoring the regulations regarding discrimination, especially race and sexual discrimination. Additionally, sexual harassment and wrongful termination suits can range from awards of $10,000 to $500,000, on top of the legal fees that could be as high as $100,000. According to the Equal Employment Opportunity Commission (EEOC), less than 23% of small businesses provide training on these topics for management and staff.

4) Inconsistency in HR Policy. The size of an organization typically dictates who handles the human resources function. A start up may have one or two employees in addition to the entrepreneur, but as businesses gain momentum and headcount, the clarity on policy and procedure begin to blur. The moment there is more than one leader, the potential for misinformation and mishandling of personnel occurs. Without a well-written P&P Manual, Employee Handbook and coordinated HR focus, payroll, benefits, communications become inconsistent, and the margin for risk increases incrementally.

Where Do We Go From Here? As one of America’s earliest millionaires, Benjamin Franklin might state; “By failing to prepare, you are preparing to fail.” Good planning before problems arise is your best defense against HR Compliance issues and litigation.

Payroll and benefits software exists that make the compliance and cohesion of record keeping error-free (or at least greatly minimized), as well as document storage systems that centralize all company rules and policies. Digital record keeping eliminates confusing paper versions that often go overlooked in the workplace as they are updated. Older versions remain hidden until the urgent need arises, causing inconsistency.

Additionally, by digitizing the entirety of your operation starting with HR compliance related sectors will go a long way to minimizing your risk. A centralized, automated system with digital integration eliminates the risk of lost documentation, ease of location, self- retrieval for status or information, and regulatory compliance.

There are numerous HR compliance-consulting firms that specialize in payroll and benefits, administration and management. Lawyers that specialize in HR related litigation avoidance can assist in developing a comprehensive HR policy, provide the necessary document vehicles and even offer some training.

How does your business or current employer address these issues?