Business owners have ended up losing everything because they ignored existing regulations or made simple errors when trying to comply with the law. Mistakes as simple as misclassifying whether an employee is an independent contractor or not can have a huge impact on whether you can continue to do business.
The solution?
A business partnership that decreases liability and gives your business access to HR expertise in local, state, and federal regulations. That business partnership can help decrease the risk of those errors and protect your business.
Below, find just a few of the potential consequences of handling compliance concerns in-house without perfect execution.
Consequences of Non-Compliance
Regulatory compliance isn't just a buzzword that makes you look good to potential employees or customers that are considering your business. It's also vital to the future success of your business.
Major Fines
The fines associated with regulatory compliance issues can prove catastrophic for your business. In some cases, businesses have faced such heavy financial losses that they were forced to close due to a lack of compliance.
Consider, for example, Fair Labor Standards Act (FLSA) violations like misclassifying exempt versus nonexempt employees. Willful violations of FLSA standards can lead to fines of up to $10,000 for the violator, as well as criminal proceedings.
Occupational Health and Safety Administration (OSHA) fines can also add up fast. A construction company in Florida failed to provide adequate training to its Spanish-speaking employees, instead giving them instructions in English. This negligence led to more than $50,000 in fines for the company.
Investigations Started by Whistleblower Complaints can Lead to a Lawsuit
OSHA non-compliance can lead to significant lawsuits for your business. Failure to meet compliance regulations can cause serious injuries to both employees and patrons. If a whistleblower starts an investigation or a normal inspection turns up problems, you could find yourself facing a lawsuit in addition to substantial fines.
Shut Down Due to Non-Compliance
Inspectors, including health inspectors and OSHA, can shut down your business entirely if you fail to comply with the regulations you have to adhere to in your industry.
In some cases, you may need to cease operations immediately, with no chance to fix the problem before you have to shut down--and many businesses do not recover from those shutdowns. Other businesses lose their ability to practice business in their industries due to those compliance issues.
Lost Reputation
Public knowledge of compliance failure can cause serious concerns with your business's reputation. Even if you had a highly positive reputation prior to the incident, your lack of regulatory compliance can cause a loss of reputation.
The coronavirus crisis, for example, brought to light poor conditions in meatpacking plants that existed long before the virus--and many of those plants may struggle to fully recover as the crisis continues. Customers want to support companies that they feel are meeting their standards, not those that are failing in their regulatory duties.
Regulatory Compliance Challenges
Keeping up with regulatory compliance is an ongoing challenge for many businesses. To remain compliant, you must keep up with:
- State and federal legislation passed by legislative bodies, including any emergency orders related to local or federal disasters
- Regulations set by regulatory agencies
- Regulations imposed through propositions voted on during state and local elections
The EEO-1 report, for example, is a critical compliance report that is submitted to the federal government. It must break down company employment data according to race or ethnicity, job title, and gender. Failure to fill out this form or to fill it out correctly can result in hefty fines and even criminal action against the individual.
But EEO-1 is just the tip of the iceberg. You also need to keep an eye out for:
OSHA Violations
The Occupational Safety and Health Administration is responsible for protecting the well-being of workers throughout all normal industry sectors. To ensure compliance with OSHA safety standards, employers must regularly audit their workplaces for occupational hazards, and make adjustments to conditions or procedures as needed.
Employers may accidentally violate OSHA regulations in a variety of ways. For instance, construction companies may not have proper fall protection equipment at work sites, or manufacturing plants may not have sufficient barriers to separate workers from heavy machinery. Violations of the OSH Act of 1970 that are deemed "non-serious" in nature may still come with a price tag of up to $7,000. When OSHA finds that an employer has willfully violated its standards, the penalty is usually much more substantial: a minimum of $5,000 per violation and a possible fine of up to $70,000.
ERISA Violations
The Employee Retirement Income Security Act was designed to protect companies’ retired employees from losing their rightful benefits after they stop working. When an employer improperly denies retirement benefits to current or former employees or is otherwise in breach of its fiduciary duty towards employees covered by a certain plan, then a fine for violating ERISA may result.
Penalties for ERISA violations may be either civil or criminal in nature. If the Employee Benefits Security Administration (EBSA) finds that an ERISA violation has occurred, it may assess civil penalties which include:
- The employee's complete recovery of improperly denied benefits
- Any accrued interest while those benefits were withheld
- Any attorneys' fees the plaintiffs may owe
- A fine, the severity of which depends on the degree of willfulness exhibited by the employer
Criminal penalties could include fines of $10,000 per affected individual, and imprisonment.
FMLA Violations
The Family and Medical Leave Act (FMLA) is a piece of legislation designed to safeguard workers that are temporarily away from the office for a variety of necessary reasons. If an employer violates FMLA (for instance by denying leave benefits or retaliating against an employee that takes advantage of the FMLA), hefty penalties may result.
For example, one employee who took FMLA leave was replaced by an IT firm and fired shortly after returning to work. The employee took the matter to court, and the employer was eventually fined $103,000 plus liquidation damages, attorney fees, and prejudgment interest for FMLA violations.
I-9 Forms
Employers that hire ineligible workers in the United States may be subject to fines and penalties from Immigration and Customs Enforcement (ICE). This agency may levy fines that range from $573 to $20,130 per violation against companies that knowingly hire or continue to employ ineligible workers. Other violations, such as failure to produce an I-9 (employment eligibility) form, could result in fines of up to $2,292 per violation.
ACA Non-Compliance
The Affordable Care Act mandates that applicable large employers (ALEs) must offer minimum essential coverage to at least 95% of their full-time employees. If they do not, they may be penalized by making an "employer shared responsibility payment" to the IRS. As of this writing, the payment is mandated at $2,500 per employee. Other penalties may come into play if the employer fails to offer coverage that meets affordability and minimum value requirements.
FLSA Violations
The Fair Labor Standards Act was enacted to protect employees from abuses of overtime pay, minimum wage requirements, and other practices. Employers that violate the FLSA by withholding rightful overtime wages, paying less than minimum wage, or using child labor may be subject to hefty fines. For example, repeat offenders against minimum wage/overtime pay regulations may be fined $1,000 per violation. More serious FLSA violations may lead to a fine of $10,000 against the violator, criminal prosecution, and even imprisonment.
A single error can trigger an investigation--and unfortunately, all too often, it can result in hefty fines. For example, Qdoba faced fines of more than $400,000 for violating child labor laws, which is likely, in many cases, unknowingly. The company often required underage employees to work 11 or more hours in a shift or asked them to work later than the law permits.
Potential regulatory complications can come from many different legal avenues. You should keep up with:
Keeping track of regulatory changes, reporting requirements, and maintaining error-free compliance is a full-time job. Luckily, your business does not have to take it on alone.
Lowering Risk Through Co-Employment
Co-employment does not mean a loss of control for your business. It does, however, make the co-employer partially liable if there are any errors in reporting, including EEO-1 or meeting Form I-9 requirements.
Co-employment splits the employer's responsibilities between the employer and a Professional Employer Organization, or PEO. The PEO takes on responsibility for tasks like payroll processing and remitting taxes. The PEO will ensure correct reporting and ensure that your business complies with all those critical regulations, helping to protect your business. The PEO also offers constant access to HR regulatory experts, so you can ensure that your business does not make vital mistakes that could lead to disaster.
Compliance errors have consequences, often serious consequences, whether or not the error is accidental. Even unintentional errors can lead to heavy regulatory fines and penalties for your business. Partnering with a PEO is the best way to reduce liability and ensure compliance with changing regulations.
