From Start-Up to Grown-Up: 3 Compliance Must-Haves If You Want Your Business to Stay in the Game
Compliance is a crucial component to any business’s ongoing success, whether you’re running your first small startup or a gigantic corporation. It’s extremely important for businesses to keep a close eye on the laws in the cities and states in which they operate — because if they don’t, they’re likely to overlook compliance responsibilities and face damaging penalties and lawsuits that could severely impede progress and success.
Organizations that have shown a great deal of promise have had founders step down, executives replaced and employees lost due to bypassing important compliance practices required by law. Additionally, companies can lose business because the violations create the perception that they’re less trustworthy and a potential risk to customers.
The first step to ensuring your business stays compliant is to view it as more than a process, according to Catherine Spence, co-founder of Pomello, a company culture survey and analytics organization.
“It has to be part of your culture,” she says. “Everyone from the leadership team down to your new hires must internalize that there is a right way to achieve results. Compliance is not just about operating within the narrow bounds of laws and regulations, it is about cultivating a compass for doing the right thing and going for long-term value over short-term payout.”
Here are three important areas you should focus on if you want to keep your business on the right side of compliance.
1. Know the difference between employees and independent contractors, and classify accordingly
Incorrect employee classification is one of the more common compliance mistakes, and it can do damage that goes beyond inaccurate tax reporting. It can also lead to incorrect pay, affect workers’ compensation coverage and, in some cases, can even expose your company to lawsuits.
The first step in correctly classifying individuals as either independent contractors or employees is to understand the difference between the two, according to career and workplace expert Heather Huhman, founder of Come Recommended, a content marketing and digital PR consultancy firm.
“In general, contractors typically set their own schedules, use their own tools for the job, have control over which tasks and projects they work on and can serve more than one employer at a time,” says Huhman. “In comparison, employees work a set schedule, use resources provided by the organization, complete the work assigned to them and work for one employer.”
To better understand the classification process, familiarize yourself with the IRS definition of an independent contractor, and consider the following United States Department of Labor-suggested factors:
How integral is the work being done?
If the worker’s performance is essential to the success of the business, it is more likely that this is an employee.
Is the worker invested personally in the business?
If the worker has put money and has taken some risk in the investment, this person might be an independent contractor. This really only applies if the risk is the same as the person employing them. Investing in equipment for the job they are doing does not make a difference.
The initiative to operate independently.
If the worker is operating as his/her own entity and conducts business as such, he/she might be an independent contractor.
Is this working relationship temporary?
If the duration of the work is indefinite or permanent, this person could qualify as an employee.
How much control does the employer have?
If the employer is setting the pay rate and the hours worked, and controlling the actual work being done, this is most likely an employee. Independent contractors work with more freedom.
It’ll be in your best interest to audit the classifications you’ve assigned to your employees, to make sure you’re properly going about it and following minimum wage and overtime pay rules.
Additionally, Huhman suggests that you regularly reevaluate the status of any independent contractors you have on your payroll, as their status could change.
“As you form a relationship with them, they may take on more responsibilities and transition to a full-time employee,” she says.
2. Keep an eye on overtime
Incorrect employee classification is often a catalyst for improper overtime payment (or lack of payment) — and if overtime payment laws change this year as proposed by the DOL, it’ll be important for you to ensure your company is classifying workers correctly.
The proposed regulation changes seek to raise the minimum salary for those exempt from minimum wage and overtime from $23,660 annually to $50,440.
If you’re not already doing so, Steve Boese, co-host of the HR Happy Hour Show podcast and co-chair of the HR Technology Conference, recommends engaging knowledgeable HR professionals either in-house, outsourced or some combination of both.
“It can be tempting for the founders of a small business to try and ‘handle’ HR on their own, but just like you’d hire a CPA to do the company finances, you’ll be much better off (and at less risk of fines and lawsuits) by engaging qualified HR professionals to look after these important items,” Boese says.
3. Be aware of ban-the-box laws
According to the National Employment Law Project, ban-the-box laws are meant to ensure people with convictions have a fair chance to find work. Generally, these laws prohibit employers from asking a job candidate about his or her criminal history until an interview is conducted or an offer is made. They vary from state to state and even by city and county. Some ban-the-box laws affect only public employers, but some states — like Minnesota, New Jersey and Oregon — have adopted policies that impact private employers, according to Huhman, who says employers need to know and keep up with their local laws.
“Employers should check whether their city or state has any ban-the-box laws and if those laws apply to them,” Huhman says. “Then, they should adjust their job applications to comply with those laws.”
Employers should adjust interview guidelines, as well.
Huhman says employers who aren’t sure about local laws, or who have employees spread out across different states, may want to delay questions about criminal history until later in the hiring process, to make sure they avoid any penalties.
This post was authored by Scott Muska and was originally published by our media partner Mashable.