Navigating Employee and HR Compliance: A Minefield for Employers

Employee and HR compliance have become a minefield where a single misstep can lead to a disaster.

And with all of the DOL horror stories, it’s no wonder why employers are concerned.

So the big question is, is employee and HR compliance really that big of a deal?

The short answer is… yes!

If you’re not compliant, you’re at risk and it’s possible that you’ll face lawsuits from your employees or investigations from the Department of Labor.

But don’t worry, in this article, we will explore the top five areas of employee compliance that frequently create havoc for small and medium-sized businesses. And steps you can take to mitigate these risks proactively.

What are the Things Companies Do That Gets Them in Trouble?

1. Paying Employees Off the Books

Paying workers off-the-books is a big deal because it’s a violation of both federal and state labor laws.

And our government has two Departments of Labor ("DOL") - the Federal DOL and the State DOL. Two enforcement agencies, pounding the pavement, ready to pounce on you.

If you're caught, you will face devastating fines and penalties, including back taxes and interest.

This is a big number and probably adds up to more money than you have in your bank account.

In fact, chances are that you're personally liable for these infractions, which means if your business doesn't pay, the government can come after your personal assets, like your house or your car, to collect this debt from you.

So unless you're making a fortune, it's probably not worth taking this risk.

That's why paying all your workers on the books is such a big deal, and complying with the payroll regulations is essential to avoid having skeletons in your closet and risking everything. You’re best off learning from others' mistakes and not finding out the hard way.

Check out this article on how to add your ITIN workers to payroll.

2. Incorrect Overtime Calculations and Payments

Accurately calculating and paying overtime is also crucial to avoid legal disputes and ensure employees receive fair compensation.

Employers often make errors in overtime calculations, either by misclassifying employees or failing to account for overtime hours correctly.

So, it’s essential to understand the distinction between exempt and non-exempt employees and adhere to the applicable laws regarding overtime pay.

3. Not Documenting Meals and Breaks

Another pitfall is that employers have no proof that their employees took their meal breaks and rest periods mandated by law.

All employees have the right to meal breaks. And others, based on their work environment (like manufacturing), even have the right to rest periods or breaks.

And employers must establish and maintain time records or employee time cards to record and prove that employees received their meal and other mandated breaks.

4. Improperly Classifying Employees As Exempt From Overtime

The correct classification of employees as exempt or non-exempt from overtime is critical to employee compliance. You can’t just do this willy-nilly. It’s based on your employee’s job description, and federal and state laws dictate how you must classify your employees.

Exempt employees are exempt from overtime pay, while non-exempt employees are entitled to overtime wages.

As a best practice, you should always pay non-exempt employees as hourly workers and maintain accurate time cards with hours that tie out to their pay statements. In other words, you have proof that you paid your employees (pay statement) for all the hours they worked (time card).

Getting this wrong and misclassifying your employees as exempt from overtime when instead they should be classified as non-exempt, can create havoc in your organization.

Employers should familiarize themselves with the rules for exemption and non-exemption, always track employee hours, and pay overtime wages as required by law.

5. Paying Your Workers as Independent Contractors

Some employers wrongly classify some employees as independent contractors. They do this to simplify things, avoid payroll taxes and save money.

This practice is dangerous and can lead to severe penalties.

Employers must accurately classify workers according to the criteria set by the IRS and the Department of Labor.

Treating employees as independent contractors when they should be classified as employees can result in significant legal and financial repercussions.

Is It Possible to Avoid a DOL Audit?

There isn’t a way to 100% avoid a DOL audit.

If a disgruntled employee turns you in, mostly-likely, the DOL will come knocking.

So, the best thing you can do is have good records and systems in place that clearly state your expectations for your employees and your business.

This way, if you do ever have a DOL audit, you have the paperwork and practices to back up your claims.

Here are two key things that every business with employees should have.

1. An Updated Employee Handbook With Signed Employee Acknowledgments

An employee handbook serves as a guidebook that outlines company policies, expectations, and legal obligations for both employers and employees.

It establishes the rules for your company that your employees must follow. Such as paid time off rules, vacation policies, and termination procedures. Without this, it’s virtually impossible to hold your employees accountable or terminate bad employees for cause.

However, the most important thing for you is to have signed proof that your employee received your handbook. Without having this, you’re up the creek without a paddle.

2. Have Written Employee Job Descriptions

Job descriptions play a critical role in determining employee classification because their classification is based upon what duties the employee actually does.

Job descriptions must be accurate and portray exactly what your worker with that job description actually does.

It’s crazy, but most small and medium-sized businesses do not have job descriptions.

Where Do You Start?

So now that you know what you need, you might be wondering where to start.

You can either:

1. Do It Yourself (DIY)

Some businesses scour the Internet and try to create an employee handbook and job descriptions themselves.

Besides wasting lots of time researching these topics, it’s complicated because there are two sets of laws - federal and state laws. Every state has different laws, and whether the federal law or the state law takes precedent can be tricky.

The bottom line is having a poorly written handbook or job descriptions can actually do more harm than good for you and your business.

2. Outsource This to HR Professionals

This is your best option. It doesn’t have to cost a lot or take a lot of your time.

Doing things proactively is always better. You can outsource the creation of your employee handbook and job descriptions to an HR professional. We can help you get this job done right for under $1500. It’s a no-brainer.

What Should You Know about the Department of Labor?

You should know that there are two Department of Labor organizations that will stop at nothing to stand up for your employees’ rights. The DOL is itching to get your money.

1. Federal Department of Labor:

Is a Cabinet department of the U.S. government, reporting directly to the President.
Has a $13.2 billion discretionary budget for 2016 and over 17,000 full-time equivalent employees.
Administers and enforces more than 180 federal laws covering about 10 million employers and 125 million workers.
Looks for violations in tracking hours, keeping records, and calculating pay, to ensure that your employees receive all legal rights that should be covered by you.

2. State Departments of Labor:

Each state also has its own Department of Labor, which enforces state-specific labor laws and regulations.
State labor laws may vary from federal laws, and business owners must be aware of and comply with both sets of regulations.
The Department of Labor investigates complaints, conducts audits, and imposes penalties for non-compliance.
It is essential for business owners to understand the reporting and record-keeping requirements set forth by these departments.

And that’s it!

All in all, navigating employee compliance is critical to the success of your business.

Your goal should be to protect yourself, your family, and your company from the
risk of a full-blown DOL investigation, typically resulting in large-scale fines, bankruptcy... or even worse!

If you think for a second that you might be in any danger whatsoever (and it doesn’t even have to be your fault), or you’re just looking for better HR, schedule an appointment with an advisor today!

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