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HR Compliance Challenges Small Businesses Face Today

Dennis O’Keefe
Dennis O’Keefe

HR regulations are always evolving, and businesses need to monitor them to stay compliant.

There are many regulations imposed on small businesses. Once you start hiring employees, you will need to abide by these ever-changing laws. Not only do you have to keep your finger on the pulse of federal agencies' requirements, but you must also track changes at the state and local levels. Keep reading to learn about eight evolving employment and HR compliance regulations you'll need to monitor.

1. Paying your employees at least minimum wage

The current federal minimum wage is $7.25 per hour. If you pay your workers less than that, you could be responsible for back wages and steep penalties.

Although the rate has been stagnant for over 10 years, there is a nationwide movement to increase it to $15 per hour. In fact, more than half the states and several localities have set their minimum wages higher than the Department of Labor's standard.

If your state's minimum wage differs from the federal limit, you will usually need to pay your workers the higher of the two. To find out how much you're required to pay your team members, contact your state's DOL branch.

2. Knowing when to pay overtime

A worker is exempt from overtime if they meet all of the following criteria:

  • They are paid on a salary basis.
  • They make at least $23,660 per year or $455 per week.
  • They perform exempt job duties, such as supervising two or more people.

For all others, you will likely need to pay at least 1.5 times their hourly rate for any time worked over 40 hours in a single workweek. Recently, the DOL increased the salary threshold to $35,568 per year or $684 per week. This rule will go into effect on Jan. 1, 2020. If any of your employees are exempt from overtime but earn less than that, start monitoring how many hours they typically work. If they often work overtime, you have a few options:

  • Give them a raise to bring them to the new salary level.
  • Help them improve their time management.
  • Hire someone else to share their workload.

As with most employment regulations, federal law is not the only kind you must consider here. Several states have their own overtime rules. For example, in Alaska, you will need to pay your workers 1.5 times their regular hourly rate for any time worked over eight hours in a day.

To track overtime and ensure you're accurately paying your employees, consider using payroll software that integrates with a timeclock.


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3. Understanding your medical coverage requirements

The tax penalty for not having health insurance was eliminated at the beginning of 2019. However, under the Affordable Care Act, employers with 50 or more full-time equivalent employees (FTE) must provide health insurance. An FTE is anyone who works an average of 30 hours or more per week.

You might face steep penalties if you don't offer health coverage when you should.

  • If you don't provide minimum coverage to eligible workers and one of them receives a premium tax credit, you might have to pay $2,000 per person.
  • If your plan wasn't affordable or didn't meet minimum coverage requirements, you could owe $3,000 for every employee who received a premium tax credit.

When you get close to 50 team members, start reviewing your options to ensure you're prepared for the potential healthcare costs. 

4. Preparing your employees for retirement

Although anyone can set up a retirement account through their bank, people are 15 times more likely to save for retirement if their employer offers a plan. Several states now require employers to provide retirement plan options:

For small businesses, it can be challenging to offer these benefits because of the associated costs and upkeep. If you're required to provide retirement benefits, you may be able to use a state-run option to alleviate the administrative burden. For example, employers in Illinois can use the Illinois Secure Choice retirement savings program to manage their workers' retirement plans. There are no fees associated with the program; you simply need to deduct each employee's retirement contributions from their paychecks and submit the amount to Illinois Secure Choice through its website. [Looking for help with benefits administration or other HR tasks? Check out our best picks and reviews of HR outsourcing services.]

5. Avoiding discrimination on job applications

Asking for certain information on a job application may put you at risk for discrimination lawsuits. To protect yourself, avoid asking about the following:

  • Previous convictions: 35 states prohibit employers from asking candidates about arrest or conviction records.
  • Salary history: Asking about someone's prior earnings may perpetuate the gender wage gap.
  • Age, birthdate or graduation year: The Age Discrimination in Employment Act of 1967 protects workers who are 40 years or older.
  • Citizenship: To prevent national origin discrimination claims, only ask applicants if they're authorized to work in the United States.
  • Pregnancy, children or marital status: You might eliminate a candidate because you fear that they'll often be out of the office to care for their family.
  • Religious holidays: You're required to accommodate religious beliefs and practices. Candidates may think you're discriminating against them if you ask about holidays.
  • Alcohol or tobacco usage: Tobacco and alcohol usage can affect a person's quality of work and your company's health insurance rates, but it cannot influence your hiring decisions. Instead, ask if they've ever gotten in trouble for violating an employer's policies.
  • Disabilities: Under the Americans with Disabilities Act, you must make reasonable accommodations for workers with disabilities.

6. Offering paid sick and parental leave

Federal rules do not mandate paid time off, and many employers don't offer it. This means people must often choose between bringing home a smaller paycheck and going to work ill. To prevent this, several states have adopted paid sick laws and allow workers to use that time for themselves or a family member.

If you have 50 or more employees, you must provide up to 12 weeks of unpaid, job-protected time off for specified family and medical reasons under the Family and Medical Leave Act.

7. Protecting your staff from workplace harassment

Illegal harassment happens in businesses of all sizes. This has always been the case, but the #MeToo movement has brought it into the spotlight. Because of this, many states have introduced legislation that increases penalties, mandates employee training or requires the implementation of anti-harassment policies. If you don't take steps to protect your staff from harassment, you might face damages to your reputation and significant financial consequences.

You can protect your team by taking three steps:

  1. Adopt and enforce anti-discrimination and anti-harassment policies. In your employee handbook, provide specific examples of prohibited conduct. These examples can help avoid confusion and prevent problems before they arise. State that the company will handle all charges confidentially and investigate promptly, thoroughly, and impartially. Then, confirm that you'll take corrective action when warranted.
  2. Develop a reporting system to act quickly if someone submits a harassment complaint. Explain how to report complaints and to whom. Consider designating multiple people to receive and examine harassment claims. This will protect victims if the primary person responsible for investigations is the target of the charge. If possible, choose at least one man and one woman so that your staff feels comfortable reporting issues.
  3. Teach your employees to promote a fair, civil and harassment-free work environment. Your staff might not know how to recognize harassment or how to respond to victims. Train them on how to protect themselves, their co-workers and your company.

8. Classifying your workers correctly

You have different responsibilities for an employee versus an independent contractor. For example, you must withhold federal and state taxes from an employee's paycheck and file a W-2 for them at the end of the year. When it comes to contractors, you don't usually have to withhold taxes from their pay, but you will need to submit a 1099-MISC for them at tax time. To meet these different requirements, you must classify your team members correctly. Unfortunately, there's no set definition of "contractor," which can make this difficult.

To determine a worker's status, examine three aspects of your relationship:

  1. Behavioral control: If you have the right to control your worker's behavior, they're likely an employee.
  2. Financial control: If you pay the person per project and don't reimburse them for job-related expenses, they're probably an independent contractor.
  3. Type of relationship: If the relationship will last indefinitely or you offer benefits, you'll typically treat them as an employee.

Some states are making the definition of "contractor" more stringent. For example, in California, you must use the "ABC test" to find out if someone is a contractor:

  1. The worker must be free from your control and direction with respect to performance.
  2. They must perform work outside your usual course of business.
  3. The person is routinely engaged in an independently established trade, occupation or business of the same nature as the work they're doing.
  4. The person must actually be in business for themselves.

Staying compliant with HR regulations

The specific federal and state labor laws you need to follow will likely change as your business grows. To learn more about federal requirements, you can take advantage of the DOL website to help you understand your obligations as an employer. To learn more about state requirements, you can contact your local DOL. As your team grows, you may consider hiring a human resources manager or working with a PEO to help you navigate changing laws. You may also want to keep an employment attorney on retainer to answer your questions and ensure you're staying compliant.

Image Credit: AndreyPopov / Getty Images
Dennis O’Keefe
Dennis O’Keefe Member
Dennis O’Keefe is the Product Director for Workful, a new cloud-based human resources and payroll employee management suite made for small businesses. Dennis has a rich history in the payroll, banking and small business management space, with a specific passion for helping small business owners streamline financial and record keeping processes so they can get back to what they’d rather be doing, growing their business.