28 Oct HR Compliance Best Practices for Small Businesses in 2022
Small businesses must follow several labor and employment laws to stay compliant. From interview questions down to how paychecks are sent, pretty much every HR-related activity is controlled by one law or the other. According to the most recent US Census data, nearly 414,000 new businesses are created each year. Sadly, many small business owners do not dedicate enough time thinking about compliance the same way they make plans for growth. Truth is: the bigger your brand gets, the more important it is for you to be on the right side of the law. You are expected to promote a sustainable and ethical work environment, and at the heart of it all is compliance. So, if you’re an entrepreneur who has less than 50 employees and no HR manager, this post is for you.
What is HR compliance?
HR compliance is the process of making sure that a company’s policies and practices are in agreement with the prevailing labor and employment laws of a city, state or country. As a business owner, it is your duty to ensure that your hiring practices, rules, benefits, and other aspects of your HR function do not violate the existing laws applicable to your location. A small business owner won’t hit the heights they hope to attain if they don’t familiarize themselves with ever-changing policies (yes, they change so often). When you work in accordance with legal requirements, you’re giving your business more legitimacy while protecting your employees. It also protects you from scandals, fines, and liabilities that may damage your business’s reputation.
There are a number of HR challenges that an entrepreneur should be aware of. These include:
Many small business owners fail to properly classify their employees.
Employees can fall into 3 categories:
- Part Time
- Independent Contractors (1099)
A W2 employee (Full Time and Part Time) is a typical, salaried worker that is hired to fill a specific job position. They are protected by certain labor rights and can enjoy employee benefits.
An Independent Contractor (1099) needs to sign a W9 and do not qualify for Company benefits. Independent Contractors also can define when, how, where they work.
Other employment laws that small businesses need to keep in mind as their business grows are:
- Fair Labor Standards Act
- Equal Employment Opportunity
Small Businesses should also make sure that there are no local or state employment laws that they need to be following for compliance.
Workplace Health and Safety Laws
Health care law can be a challenging subject for employers. Hence, it is important to maintain compliance under business safety laws as stipulated by the occupational safety and health administration agency (OSHA). It is also expected to know if your business is expected to provide health insurance to their employees under the Affordable Care Act. For example, small employers are required to withhold and report an extra 0.9% on employee wages or a compensation in excess of $200,000. They must also report the value of the health insurance coverage provided to each worker on their W2 form. If your business has more than 10 employees, keep a record of serious, work-related illnesses and injuries. Under OSHA, you are expected to display a poster at a prominent spot in the workplace that informs employees of their rights and responsibilities. Do well to keep laws such as the National Labor Relations Act and guidelines such as COBRA at your fingertips.
Hiring and firing laws
There are several actions a small business must take care of before they hire an employee or right after an employee is onboarded. Some of these steps include verifying employment eligibility, collecting tax information and ensuring that workers are covered by your workers’ compensation policy. To verify identity and employment status, all US employers must properly complete Form I-9 for each individual they hire for employment in the United States. Generally, employers must withhold federal income tax from employees’ wages. The amount to withhold can be obtained using the employee’s Form W-4 or Employee’s Withholding Certificate.
With increased focus on immigration laws., the Immigration Reform and Control Act (IRCA) and INA compels employers to hire only eligible people, which include U.S. citizens, nationals, and other individuals who are authorized to work in the United States. At the same time, you should be mindful of severing ties with employees in a way that does not attract trouble.
Most small businesses adopt at-will employment policies because of the flexibility it brings. However, if you’re engaging your employees on an at-will basis, you should know that they too could quit on a moment’s notice the same way you can let them go. At-will employment also doesn’t imply that there shouldn’t be any legal basis for termination. Termination based on age, gender, religious belief and sexual orientation is illegal.
What is the role of HR compliance?
Successful HR best practices start and finish with the integrity of the human resource function already in place. Essentially, HR compliance:
Protects from fines and other legal trouble
Your business can be subjected to an external audit without prior notice. An external compliance audit will scrutinize how your business sticks to regulatory stipulations. Compliance with laws linked to your business shields you from legal problems, saving your business money.
Maintains brand reputation
Non-compliance cases such as employee misclassification can hamper your reputation as an employer of labor and as a brand. A stained reputation deals a huge blow to your hiring and retention efforts and reduces customer confidence.
Creates an amazing workplace
Compliance is crucial to building a secure workplace where your workers can feel at ease. Your employees will also see you as a reliable employer.
Create clear policies and procedures
Your business should have a clear set of rules for your employees to follow. When drafting your policies, spell out your expectations and the conduct you frown upon. If you’re hiring a 1099 worker, have them sign a contract for the project to ensure that each party holds up their end of the bargain. Should the IC require access to sensitive company information, have them sign a non-disclosure agreement (NDA). An NDA protects your organization’s privacy rights while allowing the IC to carry out the task. NDAs work in your favor when issues can only be resolved through legal action.
Be consistent and fair when applying your disciplinary action policy. Consider writing down your safety rules, attendance requirements and benefits allocations. You also need to create anti-harassment and anti-discrimination guidelines as outlet for employees to report complaints and violations.
Education and training
It’s hard to enforce rules if you don’t explain them. Arm your HR function with knowledge about employment law and regulatory requirements that can affect your business. Create an employee handbook and update it regularly. An employee handbook is a veritable training tool that communicates your business’s methods and policies. Let your legal advisor review the handbook and any updates to policy prior to distribution. A few important compliance training modules to set up for your employees include:
- Fair labor Standards ACT (FLSA) training
- Affirmative-action plan training
- Interview compliance training for hiring managers
- Anti-harassment, antidiscrimination, and diversity training
- Performance review training
You can take compliance training courses at HR Training Center or HR Certification. These platforms offer webinars and certifications to increase your knowledge and skills to help manage your employees better and record increase in sales and profits.
Track current HR policy compliance
Perform regular HR audits to see if your HR policies such as non-discrimination leave policy and compensation policy are compliant. Find time to revise your guidelines. This will help you predict anomalies before they develop into problems. Hiring competent people to manage your human resources is a bright idea. Depending on the size of your business, you can onboard a HR manager, an in-house HR department or you can outsource your HR function to a HR consultant.
These professionals will ensure that you are bringing the right ones in. A HR consultant, for example, is well-versed in the gamut of laws and regulations associated with onboarding. Whether it’s Fair Labor Standards Act, ADA rules protecting people against disability discrimination, or Age Discrimination in Employment Act protecting those over 40 from prejudice, you can rely on their vast understanding about the onboarding process.
Focus on documentation and data management
Most employer laws feature a recordkeeping requirement. You need to keep records that can be easily retrieved in case an enforcement agency sends a memo or an inspector. It’s also important to have your records in a centralized and secure system as it makes it easy to search, organize, and store employee data.
Data security is an underrated topic. Most HR activities involve private data and are inherently sensitive, making them a critical compliance problem. Depending on the size of your small business, you should have a data protection policy that specifies how you process data. Inform employees on how their data will be managed and make sure it is held in line with relevant laws.
Incorporate HR technology
Introducing an automated program for Human Information Resource System can help with keeping within compliance. A HRIS system can be used to pay employees, hold employee records such as I9, track employee attendance, and so much more.
The legal estate of the workforce changes frequently. If your small business is not attuned to stipulations concerning taxations, wages, safety, leave, among others, you’re setting yourself up for a period of turmoil. Not only would the authorities hammer you with fines, your employees may file lawsuits.
Building a compliance regime might be a difficult task, but with the right steps you can navigate the complexities. You can educate yourself to evaluate the HR requirements of your small business. But if things feel overpowering, you can seek professional counsel. At RCR Consulting, we work closely with our clients to traverse the intricacies of HR compliance. Contact us to learn how we can help you.