Reinforcement theory assumes that reward and punishment affect human motivation. We are recognized verbally or through a more formal reward system when we meet or exceed company standards, and we face consequences when we exhibit unwanted behaviors. This reward and punishment system is designed to encourage acceptable behavior, which is vital to organizational growth. The U.S. government, as well, abides by this notion.
The federal, state and local governments each have their own employment-related laws that impact a continuum of human resource functions. Failure to comply with these rules comes with consequences, ranging from mild, moderate to severe. In this post, we will examine vulnerable areas of employment compliance, potential ramifications of noncompliance, and strategies for mitigating compliance risks.
Top Employment Liability Concerns (according to the Society for Human Resource Management):
On a granular level, these concerns may be tied to minimum wage, overtime, wage garnishment, employment taxes, classification of independent contractors and exempt employees, paid sick leave, health and safety, immigration, equal employment opportunity, welfare benefit plans, fiduciary responsibilities and a host of other sub-categories.
Penalties for Noncompliance
An employer can face civil penalties for breaching employment laws. In some cases, criminal penalties may also apply. Factors influencing the assessment of penalties include severity and impact of the violation, the company’s history of violations, and whether the employer demonstrated good faith.
The federal, state or local administering agency overseeing the regulation that was violated is responsible for imposing liabilities. For instance, an employer who violates the minimum wage, overtime, recordkeeping and child labor provisions of the Fair Labor Standards Act may be liable for back pay and liquidated damages. Depending on the law and violation, the employer may face lawsuits brought by employees or the administering agency.
Lawsuits are a real threat. U.S. companies have “at least an 11.7% chance of having an employment charge filed against them,” according to the 2015 Hiscox Guide to Employee Lawsuits. And that’s just the national average. Some states—such as Alabama, New Mexico, Nevada and California—have a much higher chance (than the national average) of having a lawsuit brought against them.
Mitigating Compliance Risks
To avoid the consequences of violating employment laws, employers must know which laws they are required to follow. (Some laws which apply to large businesses do not apply to small businesses, and vice versa.) Also, employers must communicate applicable laws to employees, stay abreast of regulatory changes, implement the changes in a timely and accurate manner, and keep an eye out for new legislations. All of this is easier said than done.
You can formulate an in-house team to execute all of your HR functions, including compliance. This option may work fine if your business is very small and your compliance requirements are manageable and do not prevent you from dedicating sufficient time to strategic aspects of the business. However, due to the breadth of laws governing hiring, employee pay, benefits, employee policies and procedures, performance reviews, and employee discipline and termination, it’s often in a small and midsized business’ interest to entrust at least some of these activities, especially those relating to compliance, to an HR solutions firm.
Provided the HR solutions firm has a reliable team, it can ensure that you are following applicable employment laws, including reporting data to the respective administering agencies. Despite the benefits of partnering with an HR solutions firm, some employers hesitate to take the plunge out of fear that they will be liable for mistakes made by the HR partner—though a credible HR partner will keep errors to a minimum.
This apprehension is not without merit. Depending on the circumstance, an employer can be liable for errors the HR partner makes. A good example of this is the Internal Revenue Service’s stance that employers are ultimately responsible for depositing federal taxes and filing timely returns. But, who is liable for not upholding those responsibilities is also based on the type of arrangement the employer has with its HR partner.
For example, you can enter into a co-employment agreement that lets you share or relieve yourself entirely of certain employment liabilities. This means that instead of you being fully liable, your HR partner accepts some of the liability or 100 percent of the liability while allowing you to retain control over your company’s decisions and daily operations.
In the end, a co-employment agreement spares you from having to do time-consuming HR tasks and alleviates many of the risks associated with compliance.
September 7, 2017
> 50 employees < 50 employees Article Business Executives Business Owners Compliance HR Professional