Many small businesses don’t have an HR department. This means those in leadership roles are tasked with taking on HR compliance issues.
Employer compliance issues always seem to be changing with new legislation. These issues become even more challenging to manage when your small business doesn’t have dedicated staff to focus on compliance and implementing appropriate policies.
When you need to update your policies, here are five of the most common compliance issues faced by small businesses and how you can start improving your approach.
1. Employee benefits
Employee benefits are often equated with salary for top talent. According to data from the American Institute of CPAs, 80% of employees say they would take a job with benefits over one that offered 30% more salary without benefits. It’s thus important that you have some a policy in place related to benefits, no matter how small your business is.
First, the Family and Medical Leave Act (FMLA) is one piece of legislation you should get to know. FMLA put in place guidelines and rights for employees to take time off if they experience a certain medical or family situation. Among other protections, FMLA ensures that these employees are still covered by their health insurance during time away.
The FMLA has recently changed to address COVID-19. The Emergency Family and Medical Leave Expansion Act was addressed as part of the Families First Coronavirus Response Act. This update now takes into account employees who are impacted by COVID-19.
Another requirement that will depend on your state and location is paid sick leave. Workers often have to choose between not getting paid because of missing work for an illness and going to work sick. Some states now have paid sick leave laws in place to prevent employees from working if they’re sick due to missed compensation.
2. Wages, hours, and overtime
There are also laws in place that govern how regular W-2 employees should be managed, as well as 1099 independent contractors. The first thing to know is that federal employment laws typically do not apply to contractors, only regular part-time or full-time employees. Many of these laws relate to employee hours, pay, and overtime.
Important considerations that are easy to overlook:
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Minimum wage requirements for your state or municipality
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Overtime restrictions and overtime pay requirements
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Hiring minors
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Hour requirements, for example how long employees can work in one shift
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Laws related to employee breaks
3. Discrimination and harassment
The federal U.S. Equal Employment Opportunity Commission (EEOC) provides guidelines and regulations that protect against discrimination in the workplace. The federal laws you need to know about are:
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The Equal Pay Act of 1963: States that an employer cannot discriminate regarding pay between men and women who perform equal work.
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Pregnancy Discrimination Act: Put protections in place for pregnancy or childbirth discrimination in the workplace.
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Title VII of the Civil Rights Act of 1964: Prohibits discrimination based on race, color, religion, national origin, or sex in the workplace.
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Age Discrimination in Employment Act of 1967: Protects employees 40 or older from discrimination.
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Title I of the Americans with Disabilities Act of 1990: Prohibits discrimination of those with a disability.
States have varying laws that also protect against harassment in the workplace, including conditions that create a hostile work environment. Additional protections are often put in place so that employees will not face retaliation if they speak up. Make sure to read through your state’s requirements for discrimination and harassment policies.
4. Retirement preparation
Another employee benefit you need to address in your policies is retirement preparation. The applicable law for this area is the Employee Retirement Income Security Act (ERISA), which sets forth minimum requirements for employers. Some states require that all employers offer retirement savings plans.
Many small businesses are especially challenged by these requirements because of the costs of these plans. However, sometimes there are government options to help out businesses (for example, the Illinois Secure Choice retirement savings program).
5. Payroll compliance
There are also local, state, and federal laws in place that govern payroll requirements. These guidelines must be followed each time employees are paid.
Withholding income tax is one major responsibility as an employer. Not to mention the taxes that must be withheld from employee’s paychecks, including federal income tax. The percentage withheld will depend on what tax bracket an employee is in as well as any personal exemptions from an employee’s W-4.
You’re also required to pay FICA taxes, which includes taxes for Social Security and Medicare. These taxes are also withheld from each paycheck.
You can deduct some expenses from employees’ wages before tax, including premiums for health insurance or some retirement contributions. But some benefits, such as fringe benefits the business offers, are still subject to tax withholding.
It’s important to note that any compensation paid outside of regular payroll still needs to be reported, including bonuses or gifts. Otherwise, you could have to pay penalties or fines to the IRS.
Tax deadlines must be followed closely to ensure compliance. Some tax forms have to be submitted quarterly, including Form 941, and some are only submitted annually. Employers must submit tax forms both to the IRS and to employees each year. Missing deadlines can mean paying steep penalties.
There are a lot of things for business owners to know when it comes to HR compliance. These top compliance issues that are often mishandled or overlooked for small businesses.
At Franco Blueprint, we know how confusing starting a business can be. From startup to full CFO services, we’re here to help you succeed. Contact the team for a consultation.