3 Hidden HR Compliance Risks Every Entrepreneur Should Know

Feb 05, 2020
| Matthew Ponticelli, Vice President, Risk Management
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Launching a new business or getting a new product off the ground requires an entrepreneurial mindset.
Flexibility, adaptability, creativity and quick problem-solving are all important characteristics for the growth of fledgling businesses. However, the lack of rigorous processes may ultimately spell trouble for small and medium-size business owners who haven’t taken the appropriate time to establish compliant HR systems.
 
Here are three unseen ways entrepreneurs inadvertently risk exposure to compliance violations.
 

Misclassification of employee time off

Correctly classifying employee time off can be tricky for employers. Not all time off is not created equally. Paid leave, unpaid leave, personal time off, medical leave… Each comes with a set of qualifying events, communication requirements and record-keeping regulations business owners must follow to the letter. Sometimes entrepreneurs get into trouble by trying to be a “nice guy/gal,” instead of focusing on being a compliant employer. There are many questions to consider when an employee requests (and takes) time off:
 
  • Is the time off regulated by the by Americans with Disabilities Act (ADA)? 
  • Does the time off pertain to the Family and Medical Leave Act (FMLA)?
  • Is it a worker’s compensation-related issue?
  • When does the clock start ticking?
  • Have you properly tracked the amount of time off taken?
  • Are you applying the same standards across all employees at all locations?
 
For many entrepreneurs, this is where partnering with a certified professional employer organization (PEO) can help. Outsourcing HR administration to experts in federal and jurisdiction-specific employment law ensures you appropriately issue and track employee time off.
 

Messy terminations caused by sloppy HR practices

In the rush to solve problems quickly, many entrepreneurs aim to fill open positions as quickly as possible. Unfortunately, imprecise HR administration can become disastrous down the line. 70% of employer litigation relates to termination. If you take the time to hire the best fit for the job in the first place, you are less likely to end up with an employee who will ultimately need to be let go. This means drafting appropriate recruitment ads, asking the right questions when interviewing candidates, then taking the time to maintain appropriate documentation throughout the employee’s tenure with your organization.
 
During the termination process, all the workplace hiccups responsible for bringing you to this point will come under scrutiny. You will be called upon to provide documentation regarding the employee’s performance, proof of warnings issued and communications demonstrating you have conducted yourself within the scope of the law.
 
Lack of complete documentation or incomplete record-keeping can pose major problems as you try to prove just cause for an employee termination. Standardizing your process for hiring and tracking employee performance generates a valuable paper trail protecting you in the unfortunate event of a dispute.
 

Ignorance of tightening privacy laws

New Jersey’s 2019 Data Breach Notification Amendment and other updated state and federal privacy law changes continue to remind you, as an employer, of your responsibility for protecting your employees’ private information. For many employers, data privacy is not top of mind. Therefore, the systems and processes currently in place are woefully under-prepared to ward off privacy breaches.
 
From brute force attacks on your company database to keystroke-tracking malware designed to silently compromise your privacy, employers must be aware of the many threats to cybersecurity and take a proactive approach to ensuring company data remains safe.
 
This is another area where outsourcing HR administration can reduce your liability. The enterprise-level software used by PEOs and their clients is a secure way to store all sensitive employee information. Built-in protections like end-to-end encryption and the ability to restrict access to certain departments or employee tiers ensure you are operating within best practices, thus protecting your company’s exposure. If you’re still doing business on spreadsheets or a localized system on a single computer, you’re exposing your company to unnecessary risk of data theft or employee litigation.
 

Trust experts to monitor compliance on your behalf

In the rush to keep up with the fast pace, business entrepreneurs tend to operate myopically, focusing on single events instead of the big picture. One of the most cost-effective ways to ensure your company is protected from compliance violation risk is to partner with an outsourced HR provider whose team already possesses expertise in the compliance risks associated with your industry. In this way, you can be sure no matter which laws change, or where your day-to-day focus is pulled, maintaining compliance will never be an issue.
 
Is partnering with a PEO the right move for your company? Take our PEO assessment to find out.