Managing Compliance For Your Growing Small Business

As your small business grows, it brings exciting opportunities—new hires, expanded markets, and increased revenue are all signs of success and progress. These milestones are worth celebrating and reflect the hard work you've put in to get to this point.

With growth, however, comes additional HR tasks and compliance responsibilities. While this can feel like a lot to manage, addressing these responsibilities effectively is essential to sustaining your business’s success, safeguarding your team, and supporting continued growth.

HR compliance management is the practice of ensuring your small business is adhering to applicable employment laws and regulations through internal policies and procedures. Labor laws – whether at the federal, state, or local level – impact functions across HR.

Key labor laws and regulations include (but are not limited to):

• Title VII of the Civil Rights Act
• Fair Labor Standards Act (FLSA)
• Equal Pay Act
• Age Discrimination in Employment Act (ADEA)
• Americans with Disabilities Act (ADA)
• Pregnancy Discrimination Act (PDA)
• Occupational Safety and Health Act (OSH)
• Employee Retirement Income Security Act (ERISA)
• Family Medical and Leave Act (FMLA)
• Affordable Care Act (ACA)

Several states have their own FLSA or FMLA standards or requirements not defined at the federal level, such as state-mandated retirement plans.

As your business grows – whether through acquiring businesses in other locations or hiring remote employees in other states – managing multistate compliance can become complex as you must comply with requirements for each location. Therefore, a key part of HR compliance management is awareness of all applicable federal, state, and local labor laws for any location you have employees performing work.

Also, some labor laws aren’t applicable until your business hits an employee headcount threshold. For example, ACA is required once you have 50 full-time equivalent employees. Others apply to any business with one or more employees, so your regulatory compliance requirements will vary as your business continues to grow.

For a small business, HR compliance management should include a strategy that:

• Anticipates growth milestones
• Ensures the company is aware of compliance requirements
• Has plans in place on how to meet compliance requirements

HR’s primary function has long been rooted in compliance – everything from ensuring new hires complete necessary paperwork to properly handling complaints or personnel disputes and processing payroll in an accurate and timely manner. In the last couple of decades, as human capital management has emerged, HR has evolved to include more than HR legal compliance.

Today, HR is often more strategic and recognizes people as a company’s greatest asset. Strategic HR is focused on:

• Helping a business achieve its goals
• Engaging employees and improving the overall employee experience
• Unlocking the potential of employees
• Maximizing employees’ productivity and value to the organization

A human resources team achieves this through recruitment, training, performance management, employee relations, and more.

HR compliance, on the other hand, is the adherence to federal, state, and local labor laws and regulations. This is achieved through understanding applicable requirements, assessing risk, and mitigating potential losses, then educating employees, implementing policies and procedures, and enforcing policies.

No, companies are not required by law to dedicate a team, department, or individual to human resources. However, failing to dedicate adequate resources to HR can lead to serious consequences for your business.

While it’s not required by law to have a dedicated HR department, team, or individual – ensuring your business has the right HR resources in place can reduce risk, unlock numerous benefits, and help set your company up for long-term success.

Here’s what your small or mid-size business could gain by having dedicated HR support:

• Improved HR processes: Managing daily HR tasks without dedicated support can lead to inefficiencies and delays. With HR resources in place, these tasks are handled more smoothly and consistently, ensuring your business runs more efficiently.
• Timely regulatory reporting: A number of laws and regulations have reporting deadlines your business must meet. Without an HR resource to stay on top of it all, you may be faced with penalties for missed deadlines.
• Trust with your employees: Who can your employees turn to if they have a personnel issue to discuss, a complaint, or questions about their benefits or paycheck? With dedicated HR resources in place, employees know who they can turn to. And when employees know HR is committed to overall HR compliance management and adherence with labor laws, it builds more trust between your business and workers.
• Compliance with labor laws and regulations: One of HR’s main responsibilities is to ensure your business and employees are adhering to employment laws and regulations at the federal, state, and local levels through internal policies, procedures, and training. Without a dedicated HR resource to manage these ever-changing requirements, your business risks noncompliance – and potential fines, penalties, and lawsuits.
• Better employee retention and recruitment. A more efficient, safe, and fair workplace contributes to higher employee retention rates and allows your business to more easily attract top talent.

Often, small and mid-sized businesses lack the resources or time to dedicate to HR and compliance. Rather than risking noncompliance, many small businesses turn to an HR outsourcing provider to help them manage their HR responsibilities and get time back to focus on core business functions.

As your business grows, so do your compliance responsibilities. That’s because several labor laws and regulations are tied to the number of employees you have. Therefore, as part of your compliance management process, it’s critical that you’re aware of employee headcount thresholds that may trigger new regulatory compliance requirements.

Employee Headcount Thresholds

It’s important to note that, as you hit a new employee threshold, the labor laws and regulations you previously had to comply with still apply.

Common triggers include:

• One employee: Even with one worker, your business must meet specific requirements, such as those set in the Fair Labor Standards Act (FLSA), new-hire and I-9 reporting, the Equal Pay Act, federal labor law postings, and Uniform Services Employment and Reemployment Rights Act (USERRA). Standards defined by the Occupational Safety and Health Act also apply.
• 15 or more employees: Protections provided under laws such as Title VII of the Civil Rights Act of 1964, Americans with Disabilities Act (ADA), and the Pregnancy Disability Act (PDA) apply when you employ 15 or more workers.
• 20 or more employees: Your business is now subject to requirements in the Age Discrimination in Employment Act (ADEA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA).
• 50 or more employees: Hitting this milestone means your business must comply with the Affordable Care Act, Equal Employment Opportunity, and the Family Medical Leave Act (FMLA).
• 100 or more employees: The Worker Adjustment and Retraining Notification (WARN) applies to business with a minimum of 100 employees.

Labor laws and regulations have varying methods for determining your headcount or which employees are eligible. For example, FMLA applies to “private-sector employers who employ 50 or more employees in 20 or more workweeks in either the current calendar year or previous calendar year,” according to the Wage and Hour Division’s FMLA fact sheet, though not all employees are eligible for the FMLA’s job-protected leave.

However, some states have leave laws that apply to private employers with one employee (Connecticut, for example), so it’s important to know state and local labor laws and how employee headcount thresholds vary from federal laws.

For a small business, compliance management can seem overwhelming, especially if you’re a business owner who lacks the time or resources to research labor laws. Hiring an HR outsourcing provider such as a professional employer organization (PEO) or working with an employment law attorney can help you stay abreast of the latest labor laws and requirements.

Businesses face a variety of risk – strategic, operational, security, or financial, for example. Compliance risk refers specifically to the legal and regulatory risks your business may face that could cause harm to or disrupt the organization.

Compliance risk management is focused on identifying, assessing, and mitigating those risks and potential losses due to noncompliance with laws, standards, and regulations.

Within HR, some examples of compliance risk include but are not limited to:

• Pay equity or pay transparency
• Employee classifications (exempt vs. nonexempt)
• Overtime pay calculations
• Minimum wage compliance
• Discrimination in hiring, promotions, or other employment decisions
• Workplace safety standards
• Recordkeeping and record retention
• Employee training requirements
• Employment eligibility verification

Noncompliance in any HR-related area can carry significant consequences, such as fines or penalties, lawsuits, damage to the company’s reputation, erosion of employee-employer trust, difficulty retaining customers or talent, and more. And if your business has repeated violations or is found to be willfully negligent, it could be subject to government oversight and costly compliance mandates.

Staying on top of HR compliance for a small business can be confusing and overwhelming, and understanding and tracking regulatory requirements can feel like a full-time job. Add in navigating new compliance requirements as you grow, and it’s easy to understand how managing compliance can become a major challenge.

Outsourcing your HR and compliance needs is one way to reduce the burden, improve compliance, and give you more time to focus on your business. It’s also a solution that will scale with your growing business.

Scaling Your HR Compliance with a PEO

A professional employer organization (PEO) is an HR outsourcing provider that not only provides compliance guidance but also handles HR tasks on your behalf. Because a PEO already has teams of experts available to manage companies of all sizes, it can effortlessly support growing businesses as their HR and compliance obligations increase.

Consider these two scenarios:

• A Small Business Owner Who Handles HR Internally
  This small business owner is sharing some of their HR and compliance responsibilities with an office manager. Both are learning as they go, but they are also juggling other duties. Occasionally, mistakes crop up in payroll or they unknowingly misclassify an employee.
  
  As the business starts to boom, the owner hires more staff to keep up with growing demand. With that growth, HR needs also increase, but the owner and office manager find themselves overwhelmed with the added workload. To manage the growing responsibilities, the owner decides to hire an HR professional. However, it takes several months to fill the role, and it takes time for the new hire to get fully up to speed.
  
  A year later, the business is flourishing, and the team continues to expand. However, the new HR manager, whose expertise is in payroll, is now overwhelmed by the complexities of managing a growing workforce. As the company adds new employees, the HR manager faces mounting challenges—navigating benefits, workplace safety, and other evolving HR regulations. With limited resources, they’re still relying on some manual processes, like tracking time in spreadsheets. The owner considers hiring another HR professional to help lighten the load, but once again, the process will take several months before additional support is in place.
  
  
• A Small Business That Partners with a PEO
  This small business owner has been handling most HR tasks on their own, but the growing administrative workload is becoming overwhelming. The owner is increasingly frustrated by the complexity of labor laws and the need to stay compliant with ever-changing regulations.
  
  Despite the challenges, the business is thriving, and the owner is considering acquiring another small business to fuel further growth. Recognizing the need for support, the owner decides to partner with a professional employer organization (PEO), an HR outsourcing provider that works through a unique arrangement called co-employment. In this relationship, the PEO manages HR-related tasks on behalf of the company, while the owner focuses on business decisions, daily operations, personnel decisions, employee reviews, and more.
  
  Immediately, the owner gains access to a full team of HR experts that provides valuable support and insights across payroll, HR management, benefits, compliance, workplace safety, and more. The PEO assesses areas where the business may be at risk of noncompliance and provides solutions for the owner to implement. The PEO also provides state-of-the-art HR technology that reduces errors and saves time on HR tasks. As planned, the owner acquires another small business and the PEO helps onboard the new employees, ensuring they effortlessly transition into payroll and benefits.
  
  A year later, as the business continues to soar, the owner is eyeing a second acquisition. The PEO alerts the owner that the acquisition will push them over an employee headcount milestone, and now the company will need to provide an ACA-compliant healthcare plan. The owner works with the PEO to explore healthcare plans that the PEO will administer on the company’s behalf. Once again, the acquisition goes smoothly, as the company’s PEO partner assists with the numerous HR tasks associated with onboarding the newly acquired employees while also ensuring compliance with labor laws.

Additional Options for HR Support

In addition to a PEO, there are additional options that will help you with HR compliance management and/or administrative HR tasks.

Let’s review some of the most common:

• Hire a dedicated HR professional. This option allows you to keep your HR functions in-house. However, keep in mind that HR managers typically come with a high pay rate, and even an experienced HR professional may not be knowledgeable across all areas of HR.
• Choose an HR outsourcing (HRO) provider. When you hire an HRO, you typically choose which HR services you need, and that can include compliance assistance.
• Hire an HR consultant. If you have an in-house HR team that lacks time to manage compliance as well, you can hire an HR consultant to focus on regulatory compliance, conduct HR audits, and help you craft compliant policies.
• Engage a PEO. This comprehensive HR solution is generally equal to the cost of one full-time employee, but you gain access to a team of HR experts who handle back-office administration and provide expert compliance guidance.
• Hire an employment law attorney. A skilled employment law attorney can keep you abreast of the latest labor laws, advise on personnel issues, mitigate risks, and represent your business in employment-related legal disputes.
• Consult with federal and state agencies. From website resources and newsletters to hotline support, federal and state agencies are eager to help small businesses. Check their websites for additional resources, such as the Department of Labor’s summary of major labor laws or Fair Labor Standards Act (FLSA) toolkit.

While each of these options is helpful on their own, they also work well together. For example, you can hire an employment law attorney and benefit from their newsletters, webinars, and guidance while also engaging a PEO like G&A Partners to help you properly manage HR with regulatory compliance in mind.