As the economic horizon continues to shift and
belts tighten, small and medium-sized companies — who typically have between 10
to 500 employees and represent 99.7 percent of all employer firms according to
the U.S. Small Business Administration (SBA) — may wind up being so focused on
core business issues that they overlook one of their most potentially serious
and costly issues — human resource compliance. Unlike their large-company
counterparts, they lack the time and resources to build infrastructure and processes
that are beyond core business objectives.
But if
entrepreneurs and smaller business owners are focused solely on growth and
product, how do they know what issues to look for in order to protect the
company? Let’s look at the Top 5 HR Compliance Issues that they may face.
Exposure
to Workplace Litigation Not Being Addressed
According to the Equal
Employment Opportunity Commission (EEOC), race and sexual discrimination are the first and second most
prevalent forms of workplace discrimination. But
few businesses provide training regarding racial and sexual harassment, which
opens the door to wrongful
termination when employees leave their jobs.
Yet despite the possibility of
being sued, small business owners are not addressing the problem head on. For example,
only 23 percent of small businesses provide employment discrimination and/or sexual harassment training
(based on a random survey of 300 privately
held businesses conducted by Chubb Group of Insurance Companies).
Employee turnover contributes to
employer liability by creating potential wrongful- termination cases. Studies show that a company’s legal costs
in a wrongful termination lawsuit can
run up to $85,000, and that winning plaintiffs receive judgments averaging $500,000.
Current
Benefit Regulations and Laws Not Being Followed
The cost of compliance with
benefits regulations is often a bigger burden for small companies, primarily because the associated overhead expense
is spread over a smaller workforce.
According to a U.S. Small Business Administration survey, small companies spend up to 80 percent more per
employee on federal regulatory compliance than large companies. Poor management of personnel-related tasks can make
compliance even more costly.
For the small business owner who
offers retirement and health and welfare benefits, keeping up with all the new regulations and changing laws can be
daunting. The required tests must be
conducted, plan provisions must be properly applied, required notices and documents must be provided to employees, and
all required government filings must be completed.
Plus there’s the alphabet soup of HIPAA, COBRA, FMLA, and the rest to consider.
Multiple
HR Policies and Procedures to Follow with No Qualified Guidance
For a small to
medium-sized business, the human resource “department” is usually one person who wears many hats. This HR generalist may be responsible for
compensation and benefits,
HR management, labor relations,
legal issues, staffing, HRIS, training and much more. Besides, keeping
up with all of these tasks, thorough independent research often falls into the “nights and weekends”
environment, which can become both costly and time consuming.
While a typical HR generalist
may know a bit about everything, rock solid HR guidance is crucial given the constant presence and oversight of entities such as the
Internal Revenue Service (IRS),
the Department of Labor (DOL), or the EEOC.
The old adage “ignorance of the
law is no defense” certainly applies when a company is faced with an
audit, an investigation by a government agency, or even litigation. This is particularly true when areas of concern include everything from compensation
and benefits to staffing and
workers compensation issues.
An HR generalist who makes the wrong decision
about a crucial employee issue — even something
as simple as asking the wrong question in an interview — can result in significant consequences.
Paperwork Administration Results in Substantial Error
With every new hire comes a
mountain of paperwork. If a company doesn’t have access to online services and must deal with hard
copies, errors can multiply. Similarly, what happens when an employee enrolls in benefits? Payroll must
ensure that the adequate deductions are
made. When an employee undergoes a life status change and alters his or her benefits elections, benefits
and payroll must be adjusted accordingly and within the legally required time-frame.
All of these administrative
processes tend to “live” in different parts of the organization, and yet they’re utterly dependent
upon one another. At each step, when information is transferred from one HR process to another, there is a
chance of error. Multiply this possibility
by the number of employees and the reams of paperwork, and that possibility starts looking like a probability.
When one area fails, the whole process comes to a halt.
Mistakes cause employees to focus on the errors
rather than appreciating the benefits that HR delivers them. Many employees don’t realize how much money a company spends on employee benefits. The costs are
staggering and can easily reach between 5 and 10 percent of an employee’s salary, depending on
coverage options. So instead of saying how great it is to get top-quality benefits and flexible spending
accounts, employees are complaining that
the wrong deductions were taken out of their paychecks. This type of negative
“water cooler” conversation can
spread rapidly.
HR Functions Not Being Coordinated
As demonstrated above, in order for the correct amount of deductions for benefits to be taken out of an employee’s paycheck, accurate information must flow to and from payroll. payroll data and benefits recordkeeping need to work in sync. Otherwise, payroll deductions can be wrong. When that happens, employees notice and valuable time is wasted to implement corrections.
If different vendors are employed for the
payroll and benefits recordkeeping function, the small business owner is the one who must ensure that everything
is coordinated and running smoothly. This
entails fielding calls back and forth from the vendors, while trying to understand the technicalities of the different systems. But what about using
one of the“do-it-yourself”
payroll software now available? Having the “payroll” software still does not address the need to integrate
the payroll, benefit, and HR functions. So now, in addition to making sure the software runs
correctly, owners still need to communicate and transmit the information to their current record
keeper. On top of that, the payroll software
must be continually upgraded.
Getting Help
Many of these landmines can be
avoided with a little careful advance planning, and most importantly, by seeking outside help. Many small
businesses work with an outside HR
consultant or a lawyer who specializes in employment issues. SourcePointeHR provides several HR
services for smaller companies, including payroll,
benefits administration, workers compensation; as well as assistance with many aspects of employer-related risk
management and compliance.
Whichever option
a small business owner chooses, he or she faces the obvious need to let
qualified experts provide strategic guidance in regards to these issues. The return
on investment for taking precautions against running afoul of the law is not
only in the prevention of costly errors, but in the satisfaction and
productivity of the entire workforce.
About
SourcePointeHR
SourcePointeHR
is a premier HR administration provider focused on hands-on customer service and human resource expertise. Our service and expertise will allow
you to save money, increase productivity, and relax knowing that
we are constantly working to ensure
that your administrative duties are compliant and completed.
To find out
how we can help you solve the many compliance issues faced by small businesses, call us today at 866.340.8333
