HR for Startups: Compliance Fails That Are Consistently Overlooked

If you have ever started a business, you know you are under scrutiny from the day you hire your first employee. 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 are 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, and more 

I'll give you some examples of what I mean, starting with an easy one: Uber. 

Harassment Compliance Woes for HR Professionals 

In her personal blog, Susan Fowler describes the HR nightmare she experienced at Uber (sexual harassment, retracted performance reviews, retaliation, and so much more), which could have easily been stopped before it ever started. Unfortunately, Uber's human resources team did not implement good HR practices and, instead, "permitted a culture of sexual harassment and retaliation against individuals who complained about such harassment." (source: eeoc.gov) 

End result: loss of top management, total corporate shakeup, bad press, loss of customers, lawsuits, and a $4.4 million payout to resolve charges. 

Title VII and ADA Compliance Woes 

Poor HR practices can also happen during the hiring process.  

For example, Abercrombie & Fitch lost a lawsuit after a manager denied an applicant a position because of the applicant's headscarf (religious discrimination). McDonald's had the same fate when one of its hiring managers cancelled and refused to reschedule an interview with a deaf applicant who required an interpreter (disability discrimination). 

Both of these were violations of separate rules that anyone working in HR operations should know: Title VII of the Civil Rights Act of 1964, and the Americans with Disabilities Act (ADA), respectively. Any company with at least 15 employees must comply with both. In fact, compliance with these laws and other company policies should be clearly outlined in every company's employee handbook. 

Fair Credit Reporting Act Compliance Woes 

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” did not comply with the law. You only need a total of one (1) employee to be liable here. 

Religious Accommodation Compliance Woes 

A few years back, Convergys lost a lawsuit because of a scheduling problem: the job applicant said he would be unable to work the Jewish Sabbath. According to the company's HR policies, working Saturdays was a must, so the recruiter immediately ended the interview.  

The Equal Employment Opportunity Commission (EEOC) sided with the applicant, saying the company was large enough to provide an alternative work schedule. They also mandated training for those involved in the recruitment process to continue interviews even if it is disclosed in the interview that schedules may need to be adjusted, and to allow new employees to request a religious accommodation after being offered a job. 

Family Medical Leave Act Compliance Woes 

Health matters can also be a compliance concern.  

When an office manager in Pennsylvania missed a number of days at work due to medical problems (heart disease and Type II diabetes), her performance struggled. She received a performance review from her 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." (Side note: giving unsolicited health advice to workers does not improve employee relations.) 

During this time, new software went live within the company, making it difficult for the office manager to become proficient and stay on top of her tasks. Several months later, she was again hospitalized due to her Type II diabetes and returned to work, only to be notified that she was being terminated for failure to improve performance. She sued saying the termination was because of her disability, and that she suffered discrimination and retaliation in violation of the Family & Medical Leave Act (FMLA). 

Other Compliance Woes in HR Processes 

I'm leaving a lot out here. We could talk about retaliation, one of the top employment discrimination claims; age discrimination, which companies are at risk of violating the moment they reach 20 employees (Texas Roadhouse paid out $12 million because of it); pregnancy accommodations (ask UPS how that worked out), which are required for employers with just 15 employees to make; and so much more. 

All these incidents add up to one thing: there are big, expensive risks for a business once they are managing employees. And, unfortunately, many lawsuits can be traced back to an uninformed manager or other representative of the business. This means companies of all sizes, including startups, must have a strong HR foundation. 

Building a Strong Foundation in HR for Startups 

Establishing an HR Department 

Having a solid human resources foundation is key for any startup looking to scale and grow. Not only is compliance with basic human resources labor laws critical to your company's success (see cases listed above), but having certified experts who can create strong HR strategies for employee development will give you an upper edge to talent acquisition, productivity, and employee satisfaction. 

When establishing an HR department, you need to have people who are responsible for managing all aspects of human resources. This includes recruitment, employee onboarding, benefits administration, safety compliance, performance management, payroll, and more.  

But realistically speaking, is this within your startup's budget and resources? 

How to Establish an HR Department with Limited Resources 

For many startups, creating their own HR department may be unrealistic due to budget, time, or other constraints. This is where outsourcing HR to a professional employer organization (PEO) becomes a key strategy to success.  

Outsourcing to a PEO helps ensure all your HR tasks are covered, from creating an employee handbook to writing clear job descriptions, implementing a smooth recruitment process, administering payroll and benefits, managing performance, addressing employee concerns, and more. Your outsourced HR provider will also help create clear HR processes and procedures to limit confusion and provide consistency.  

When you outsource to a PEO, you gain the competitive advantage of attracting and retaining top talent with robust employee benefits. Most PEOs also provide smooth HR processes that contribute to employee happiness and foster a positive company culture.  

With so many HR functions at their disposal through outsourcing, startups can easily increase employee engagement without exhausting internal staff. 

Leveraging Technology for Compliance 

HR Technology and Automation 

Leveraging technology is essential for any startup looking to streamline their HR processes and ensure compliance. HR technology and automation can help reduce the administrative burden on HR teams, freeing up time for more strategic tasks. 

When you choose to outsource, most PEOs offer an HR tech stack that can be leveraged to automate many administrative tasks. For example, your recruitment process can be automated with job postings assistance, filtered applications, and status updates that are automatically sent to applicants through an applicant tracking system. HR software can also be used to automate the onboarding process, including benefits enrollment and payroll setup. 

Most PEOs also provide HR consultants that leverage software to inform you when you have reached a new regulation threshold. From there, they will explain how legislation will affect you as your company grows and reaches new thresholds. 

Where to Find Compliance Assistance 

All in all, having a PEO manage your compliance and HR administrative tasks is one of the smartest and safest moves your company could make, whether you are a startup or have been in business for years. From keeping you compliant with each new batch of regulations to providing you with advanced HR software, Stratus is your competitive advantage. 

Book a consultation today from Stratus HR and learn just how affordable it is to have our team manage your compliance.