Government agencies such as the Occupational Safety and Health Administration, Department of Labor, IRS and others, aren’t making life easier for smaller businesses. New laws are created regularly and companies must comply or face significant penalties. That’s why it’s increasingly important to have a strong human resources department that’s capable of keeping up with the changes.
“It used to be the larger companies that were looking for help with HR, but increased regulation and the way in which they’re enforced has caused that need to go down market to companies with as few as 15 employees,” says Jim McElwain, a Regional Sales Manager at Paychex.
He says some agencies are becoming less reactive and more proactive, hiring more agents to spot-check businesses rather than waiting for complaints to be registered.
“This approach is scaring many business owners that aren’t confident in their HR capabilities. They need a partner to help them stay compliant,” he says.
Smart Business spoke with McElwain about options for companies struggling to keep up with ever-changing regulations.
What elements of human resources do you find are often overlooked?
Companies that start out with only a few employees usually have just one HR concern: making payroll. But once they start hiring, their problems multiply.
Many companies are not trained to interview effectively, making it difficult both to hire the best person for the job and also operate within the law, avoiding questions that could lead to damaging discrimination lawsuits. On-boarding brings with it a slew of forms to complete, such as W-4 and I-9. Once new employees are on staff, businesses can struggle with how to discipline, and firing someone without proper documentation can lead to a successful unemployment claim by the terminated employee, which drives up unemployment insurance rates. These are just some of the legal nuisances in all the fundamental day-to-day business operations that companies must understand and address.
How might having an inexperienced HR department affect a business?
Putting someone in charge of HR functions who knows little to nothing about the laws that guide employment practices creates a risky situation. Rule changes are frequent and require diligent attention to keep up. Sometimes, especially in companies with fewer than 100 people, that knowledge doesn’t exist in the building and hiring for it can be cost-prohibitive.
Fortunately, there are HR outsourcing services for companies that are too big not to have HR help but are too small to afford a qualified person.
How can companies without knowledgable HR staff reduce the risk of noncompliance?
There are many services available from HR outsourcers, some of which are a la carte and others that are bundled into packages. This can be an affordable way to stay in compliance and avoid lawsuits and penalties.
In some arrangements, an HR generalist is assigned to a specific company and meets face-to-face as much as is needed to consult, train supervisors, and help with interviewing, discipline and termination of employees.
What misconceptions do business owners have about an HR outsource relationship?
Many business owners think they can manage HR functions themselves in addition to filling other roles in the company. That leads to a lack of proper attention given to important and often legally required actions.
Without a knowledgeable HR staff, business owners fail to understand overtime laws, when an employee can be paid a salary instead of an hourly wage, and when someone can be classified as a subcontractor instead of an employee. This can lead to serious legal trouble.
So many people that go into business understand their product or service without understanding their legal responsibilities to employees. But it’s not easy. Government agencies continually make it more complicated for business owners to run their companies in accordance with the law. And as these agencies become more proactive, businesses stand a greater risk of incurring fines unless they have knowledgeable assistance in their HR departments.
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