Compliance fails! What startups consistently overlook

If you’ve ever started a business, you already know that from the day you hire your first employee, you’re under scrutiny. With just one person on your payroll, you immediately agree to abide by a whole slew of government regulations pertaining to employee management, any of which can be accidentally violated.

When compliance violations occur, it’s not usually because you’re trying to shun responsibilities. There are just so many regulations to contend with that it’s easy to miss something.

Compliance violations: real stories of harassment, discrimination, Fair Credit Reporting and more

I’ll give you some examples of what I mean, starting with an easy one: Uber. We’ve all heard about the HR nightmare there (sexual harassment and so much more), which could have easily been stopped before it ever started. Uber handed off the problem to a person on the startup’s HR team, who was anything but an expert on how to handle the situation. End result: loss of top management, total corporate shakeup, bad press, loss of customers, lawsuits and more. It’s the screw up that keeps on giving. Incidentally, a separate incident surrounding whether drivers were really contractors or if they should have been classified as employees could have also been avoided that way.

Startups don’t get to have all the fun though. Abercrombie & Fitch lost a lawsuit after a manager denied an applicant a position because of the applicant’s headscarf. McDonald’s had the same fate when one of its managers cancelled and refused to reschedule an interview with a deaf applicant who required an interpreter. These were violations of separate rules: Title VII of the Civil Rights Act of 1964, and the ADA, respectively. Any company with at least 15 employees has to comply with both of these.

There’s more. Earlier this year, a company in Texas was found to be in violation of the Fair Credit Reporting Act when it tried to lump a disclosure, authorization, and a liability waiver into one. Why? This “efficiency” didn’t comply with the law. You need a total of one (1) employee to be liable here.

A few years back, Convergys lost a suit because of a scheduling problem. Actually it’s a little more complex than that: the job applicant said he would be unable to work the Jewish Sabbath so the recruiter ended the interview, explaining that working Saturdays was a must. The EEOC disagreed, saying the company was large enough to provide an alternative work schedule. (Read the full article here.)

Health matters can also be a concern. An office manager in Pennsylvania who had been missing work due to medical problems ultimately received a poor performance review from a supervisor who noted she needed to “improve her overall health and cut down on the days she misses due to illness” and “start taking better care of [her]self.” After the supervisor terminated her because her work performance had not improved, it was deemed the supervisor was in violation of the FMLA (Family Medical Leave Act), which also applies to any business with 50+ employees.

I’m leaving a lot out here. We could talk about retaliation, one of the top employment discrimination claims; age discrimination, which is on the rise and that companies are at risk of violating the moment you reach 20 employees (Texas Roadhouse paid out $12 million in 2017 because of it); pregnancy accommodations (ask UPS how that worked out), which you need to make with just 15 employees; and so many more.

Why ignoring startup regulations in HR could cripple your success

Oftentimes, compliance issues aren’t directly the fault of the employer. The actions can frequently be traced back to an uninformed manager or other representative of the business. But all of these incidents add up to one thing: there are big, expensive risks for small businesses today when they are managing employees. Complying with regulations, however, isn’t just a legal requirement; it’s also essential to success. Finding a solution that protects your business can make all the difference in the world.

Compliance management is, in my opinion, one of the most valuable services a PEO can offer. Your PEO will tell you when you’ve reached a new regulation threshold, how legislation will affect you, and do everything in its power to make sure you’re not violating any employment laws, even as your company is growing. And since it’s handling other HR aspects of your business, you don’t find out too late — any new regulation thresholds you hit will be applied to the work the PEO is already doing for you. So if ACA reporting requirements change and the PEO is handling your payroll, those changes will be reflected immediately, not after you get around to opening the email someone sent you three weeks ago about the topic.

All in all, having a PEO manage your compliance is going to be one of the smartest and safest moves your business makes.

Startup Business - Compliance Fails

It seems like a pretty simple concept — you comply with the rules and survive. But complying with each new batch of regulations that crops up gets more difficult when your business is growing.

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John Farnsworth

Author John Farnsworth

John learned at an early age the value of hard work, forming his first company before his 18th birthday. He co-founded Stratus.hr (originally “Innovative Staffing”) in 1999 and has an established reputation for his expertise, work ethic, and love for traveling.

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