Running a company isn’t easy, and one of the most difficult aspects is managing human resources. Hiring the right people, managing benefits and compensation is a huge job. But what you may not realize is that it can cost a lot more than you think if you overlook common compliance hazards. If you aren’t working with an outsourced firm to handle your HR compliance, you’ll want to evaluate these 18 areas carefully. A mistake in compliance — which can be as simple as not having up-to-date posters — can cost you anywhere from hundreds to hundreds of thousands of dollars.
1. Failure to provide proper FMLA notification
According to the Department of Labor, failure to notify employees of their extended leave rights is the most common FMLA (Family Medical Leave Act) violation. The average cost to defend an FMLA lawsuit is $78,000, regardless of the outcome, and managers and supervisors can be sued personally for damages.
2. ACA filing errors
By now you know that ACA non-compliance can quickly add up to thousands of dollars in fines, but did you know that simple ACA filing errors can cost you money, too? For example, the penalty for failure to provide correct payee statements is $270 each, with a maximum of $3,275,500 per calendar year. Filing late or intentional disregard could cost up to $550 per return, with no limit on total penalties.
3. COBRA noncompliance
The IRS estimates that 90% of businesses are out of compliance with COBRA regulations. The Department of Labor can penalize businesses $110 per day per beneficiary for noncompliance.
4. Failure to provide ADA accommodations
In 2011, the ADA Amendments Act expanded employers’ duties to make reasonable accommodations for employees with disabilities. The maximum penalty for a first-time ADA violation is $75,000, and a second violation can incur penalties of up to $150,000.
5. Failure to display OSHA posters
Failure to display the most up to date OSHA job safety and workplace protection posters can result in a $7,000 penalty. Workplace hazards can lead to government fines of up to $500,000 and even imprisonment.
6. HIPAA noncompliance
HIPAA rules don’t just apply to medical care providers; they apply to any business that has any contact with electronic health records or medical information. Under the HITECH Act and HIPAA Omnibus Rule, civil penalties for noncompliance can be as high as $1.5 million per year per violation.
7. Failure to apply new overtime rules
Per the Fair Labor Standards Act (FLSA), the overtime exempt salary threshold has increased from $445 per week to $684 per week (or $23,660 to $35,658 annually). In addition, the required minimum annual salary for the highly compensated employees exemption has increased from $100,000 to $107,432. Businesses that are subject to FLSA overtime laws should identify which employees are now non-exempt from overtime; if the new rules result in large payroll increases, they might consider revising job descriptions, increasing pay or hiring additional personnel to limit overtime pay. Penalties for refusing to pay overtime can be up to $2,050 per incident and up to $10,000 for willful violators — not to mention potential criminal prosecution and additional damages owed to employees.
8. Narrow anti-discrimination scope
Most HR departments understand why it’s important to explicitly state (and practice) anti-discrimination policies based on age, race, ethnicity, military service and disabilities. However, new terminology has entered the anti-discrimination vernacular. Check federal and state protected classes in your area for the details that pertain to your business.
9. Failure to train employees
Lack of training or poor training programs can result in safety issues, HIPAA violations and other decisions that could leave your company in legal hot water. From new-hire onboarding to updates in laws and regulations, HR departments would be wise to implement ongoing training programs that can help companies avoid costly and potentially dangerous mistakes.
10. Lack of a whistleblower program
Fielding employee complaints is part of a company’s duties, but if you don’t have a clear path for employees to submit complaints, you could be setting yourself up for potentially costly lawsuits and legal battles. Your program should outline specific steps the HR department will take to address employee complaints and concerns. Though your legal duties mean not all conversations with HR are confidential, fostering an environment in which employees feel they can come to you with concerns can help compliance with anti-discrimination, anti-harassment and other laws.
11. Lack of an employee handbook
It behooves HR departments to outline an employee handbook that’s distributed to all new employees. The employee handbook should also be distributed to all employees when changes are made, and it should be available to any employee upon request. An easily accessible handbook can answer employee questions and clearly state expectations, policies and procedures.
12. Failure to conduct internal HR audits
It’s a good idea to regularly audit your business for potential HR violations. Doing so will help you identify issues before they become hazards, and could prevent safety violations, injuries, discriminatory practices, penalties, fines and even lawsuits. Moreover, routine HR audits can foster a safe, efficient and pleasant work environment that results in low employee turnover and helps you keep your best talent from leaving. You should also audit your own department to help ensure compliance with payroll tax regulations.
13. Inaccurate employee classification
Improperly classifying employees can result in tax overpayment or underpayment, the latter of which can result in costly penalties as well as the potential to lose eligibility for tax credits that could have a major impact on your company’s bottom line. Make sure you understand the difference between part-time, full-time and contract workers and how they should be classified. If you’re a large company or you offer health care coverage, you also need to understand when to classify a group of part-time employees as a full-time equivalent employee for reporting and tax payment purposes.
14. Improper compensation categorization
Similarly, you should be familiar with different types of compensation and how they’re categorized in order to accurately file and pay taxes. If you offer fringe benefits, meals, health care coverage, retirement and pension plans or employee use of company vehicles, do you know which are tax exempt and which are not? Improper compensation categorization can not only cause you to overpay or underpay taxes, it could lead to tax code violations and penalties.
15. Poor hiring practices
Good HR departments exercise due diligence when hiring new employees. Not only do they check qualifications, they ensure job descriptions are accurate, check candidate references and assess whether a given candidate aligns with company culture and vision. Taking the extra time to properly vet potential employees now can save a lot of headaches in the future; and hiring good human resources employees can even help you maintain HR compliance.
16. Structured salary increases
Are pay raises given willy-nilly, or do you have a structured program in place that defines when and why employees’ salaries increase? Structured salary increases help you avoid potential complaints for unfair practices and favoritism. They also help you plan for escalating payroll budgets and related taxes now and in the future.
17. Poor documentation
Document everything: This should be a maxim in your HR department, because documentation enables accurate reporting and may help defend against invalid complaints. Document employee policies, structured salary increases, employee information (think I-9 forms), employee complaints, disciplinary action taken, internal audit results and more.
18. Inadequate payroll administration
From employee time tracking, classification and overtime compensation to benefits delivery, reporting and tax filing and payment, it’s essential for any HR department to properly manage payroll. Complicated tax codes on multiple levels (federal, state, county and city) make payroll administration a daunting task, especially when you consider that tax laws change every year (or even more frequently). You need to know the tax codes inside and out so you can comply with the tax code, avoid overpaying your tax liabilities and stay out of legal trouble with the IRS and other tax agencies. If your payroll administration isn’t up to snuff, it’s time to consider outsourcing payroll duties.
Deluxe Payroll can help you increase business efficiency
An experienced payroll service like Deluxe Payroll can help you save money and avoid costly penalties. Deluxe Payroll offers a full suite of payroll and tax filing services designed to help you, including:
ACA compliance dashboard and reporting
The Affordable Care Act has ballooned into hundreds of pages of complicated tax law. Deluxe Payroll’s ACA compliance dashboard helps eliminate the hassle of tracking and reporting with a streamlined interface that makes it easier to meet all ACA requirements.
Employee self-service and onboarding
Deluxe Payroll allows you to offer self-service to employees so they can review information such as income to date, tax withholdings and eligibility for fringe benefits. New employees can be onboarded quickly without the need for direct HR interaction, which frees staff to focus on compliance efforts.
Fully integrated time and attendance solution
Track employee time and attendance and view reports at a glance with an integrated solution designed to make HR compliance easier. From tracking full-time and part-time hours for non-exempt employees to helping you ensure overtime wages are properly paid, this solution is here to help.
Poster compliance update service
Avoid potentially costly penalties for failure to post the latest OSHA posters with Deluxe Payroll’s poster compliance update service. Get notified when new posters are available.
HR analytics dashboard
Deluxe Payroll’s cloud-based payroll and HCM platform minimizes redundant work and reduces the time needed to manage employee data. It integrates with a custom reporting tool to offer instant reports on key metrics customized to your business.
HR compliance and risk management
From employee screening and background checks to on-time tax deposits and new-hire reporting, Deluxe Payroll offers a complete HR and payroll tool that can help any business, big or small, meet its obligations.
Editor's note: This blog post was deemed accurate at the time of publication and may not reflect recent changes related to payroll law. The information provided in this blog does not, and is not intended to, constitute legal or financial advice.