As a business grows, the web of laws and regulations becomes increasingly complicated. Larger corporations generally have departments and teams of attorneys ensuring that they avoid infractions, but small businesses often lack these resources and therefore, run the risk of unintentionally violating the law. Failing to comply with state, federal or even local laws can result in substantial penalties and expose your company to litigation. Tracking data indicate a 400% rise in the employment-related lawsuits in the last 20 years with 2 out of 3 workplace related lawsuits that go to trial are won by the employees.
The future is wrought with penalties and litigation nightmares for companies unwilling to invest in ensuring compliance. In addition to fines and penalties, you may also have to pay damages to employees injured by your actions, or non-actions. These facts make it even more important for organizations to address HR compliance issues as soon as possible. It only makes sense for companies to be proactive in becoming compliant and stay that way. If companies spent more on compliance in areas such as audits, technologies, training, and expert staffing, they might recoup the costs of non-compliance.
According to a study conducted by the Department of Labor, 70% of the U.S. employers are not observing HR laws pertaining to their industry. Civil penalties for non-compliance amounted to nearly $10 million in 2013 and more than $220 million in damages paid by employers for things like wage and hour violations, and these penalties and damages have only increased since then. Some legal offenses and subsequent fines and penalties are:
- I-9 violations can result in fines of $110 to $1,100;
- ADA violations can result in a first time fine of $55,000. For repeat offenses, it can be as high as $110,000 per violation;
- COBRA violations can result in a tax penalty of $100 per qualified beneficiary, up to $200 per family. If violation is found to be intentional, the maximum penalty is the lesser of $500,000 or 10% of the amount the employer incurred for group health care in the previous year;
- FLSA violations require employers to pay back-pay, plus a potential fine of $1,100 per violation. These requirements differ by state, but pose significant risks, especially for companies that have a large wage-based pool of employees;
- Violations of Child Labor laws are subject to a penalty of up to $11,000 and up to $50,000 if there is a death of a minor.
In addition to the monetary costs due to fines and litigations, there are also some hidden costs of non-compliance, such as the impact on the company’s reputation and goodwill in the industry. Consequently, when you consider the costs of non-compliance, compliance is a far less expensive alternative.
Most HR managers are pretty confident when it comes to their compliance with things like payroll and benefits because they are so heavily regulated. But as new laws are enacted, the burden of compliance may become considerable. For example, the new Patient Protection and Affordable Care Act (PPACA) establish more than two dozen new rules about to employer-sponsored health care plans. As the costs of non-compliance are considered, it becomes even more important for organizations to attend to their compliance issues and if required, get guidance from 3rd party HR experts or even outsource their HR function completely.
With new legislation, many HR professionals make efforts to become informed on the requirements of the law. But it’s also important to stay on top of established laws as they are also subject to change. For example, laws like the Employee Retirement Income Security Act (ERISA) have been around for some time but may not be as well known. ERISA requires reporting, disclosure, and fiduciary responsibilities that are not common knowledge for many HR professionals, and even these laws are subject to significant changes.
Like other less well-known employment laws, laws that govern employee relations, risk & safety, and hiring are equally important, and non-compliance with these laws can not only cause employee grievances and litigations, but also can result in stiff legal penalties.
Other such laws include the:
- Federal and state civil rights laws prohibiting employers from considering race, gender, age, or other “protected” groups when making hiring, promotion, and firing decisions or otherwise setting the terms and conditions of employment. This law applies when you have 20 employees or more;
- Family and Medical Leave Act (FMLA) grants certain employees the right to take up to twelve weeks of unpaid leave each year under specific circumstances, as well as the right to be restored to the same or equivalent position upon returning from such leave. This law applies once you have 50 employees;
- Uniform Services Employment and Reemployment Rights Act (USERRA) establishes certain rights and protections for employees who are called to active military duty.
- National Labor Relations Act (NLRA)protects workers’ rights to collective bargaining and governs other aspects of labor relations.
Human Resources laws begin regulating the employer-employee relationship before a new worker is even hired. For example, federal, state, and local laws prohibit employers from asking for information that would reveal certain protected characteristics of an applicant. After hire, federal law requires all employers to report that they have hired a new worker to their designated state agencies within twenty days of the date of hire.
Some compliance issues are a pretty easy fix. For example, employers must post the FLSA notice and, depending on the number of employees you have, notices concerning EEO and FMLA in the workplace. The Department of Labor (DOL) offers a poster advisor that will help you determine what needs to be posted, where, etc. at https://webapps.dol.gov/elaws/posters.htm. This is a simple step to avoid a fine or citation for non-compliance.
The best approach to preventing problems with compliance, again, is to be proactive. Prevention is much better than reaction.
- If you don’t have one, you should consider compiling an Employee Handbook. A handbook provides a clear set of rules, expectations, and guidelines for employees and serves as a point of reference should a dispute occur.
- Supervisors and Managers should be trained on such items as discrimination, harassment, FLSA, FMLA (if applicable), and other applicable labor laws.
- Auditing should be conducted for compliance with EEO, OSHA, FLSA, and other state and federal laws.
- While the federal minimum wage is currently $7.25 per hour, it is important to understand wage rates relative to local municipalities, cities, counties, and states as they may have their own minimum hourly amounts.
In addition, you should research state laws regarding overtime pay to make sure that you understand which employees must receive it and when it should be paid.
- All communications should be designed to be comprehensive and to promote compliance throughout the organization.
- An appropriate performance improvement program for employee misconduct should be developed that allows for flexibility, but also consistency.
- Any compliance program should be developed to encourage internal reporting and responses to whistleblower complaints.
These steps will can help avert problems with your organization’s HR compliance. They are proactive measures that are more preferable than reactive ones. It’s much easier to avoid compliance issues than to deal with complaints, fines, and litigations. While there still may be errors and oversights that occur, to neglect compliance is to invite risks that could otherwise have been easily averted. If you need assistance with compliance issues, let’s talk about how we can help.