Compliance or Consequences: Key HR Regulations You Can’t Ignore
No business owner wants to receive an IRS notice for a compliance penalty. Non-compliance with HR regulations can result in significant penalties for your business, no matter its size. All businesses must comply with employee work authorization verification requirements (Form I-9), the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA). If your business has 50 or more employees, it must comply with additional regulations, such as the Affordable Care Act (ACA) and the Family and Medical Leave Act (FMLA), increasing the audit risk. Compliance with these regulations is essential not only to avoid financial penalties but also to maintain a positive work environment and reputation. Below are some common HR regulations that often result in non-compliance fines:
Compliance Penalties Applicable to All Businesses:
Form I-9 Infractions
Non-compliance with employee work authorization verification requirements (Form I-9), as mandated by the Immigration Reform and Control Act (IRCA), can lead to substantial fines for businesses. Employers are required to verify the eligibility of their employees to work in the United States using Form I-9. Failure to properly complete, retain, or present these forms during an inspection can result in financial penalties, ranging from hundreds to thousands of dollars per violation, depending on the severity and nature of the infraction. Repeat violations can incur even higher fines, as the penalties increase with each subsequent offense. In addition to financial penalties, non-compliance can damage your business’s reputation and provoke legal challenges, underscoring the importance of adhering to these federal requirements. Be sure your company has the processes in place to correctly collect and store Form I-9 for all your employees.
Americans with Disabilities Act (ADA) Infractions
Violations related to hiring and workplace accessibility can lead to civil penalties and legal consequences for businesses. The Americans with Disabilities Act (ADA) mandates that employers provide equal employment opportunities and reasonable accommodations to qualified individuals with disabilities. These penalties are designed to enforce compliance and can vary based on the nature and frequency of the offense. For first-time violations, businesses may face civil penalties up to $75,000. Repeat offenders can incur fines up to $150,000 per violation. Additionally, non-compliance can result in compensatory damages, back pay, and attorney fees, further emphasizing the importance of adhering to ADA requirements. Ensuring that your workplace follows accessibility and non-discriminatory hiring practices is not only a legal obligation but also crucial for fostering an inclusive work environment.
Equal Pay Act Infractions
Failing to pay male and female employees equally for substantially similar work can have serious legal and financial repercussions for employers. When such discrimination is proven, your business may be required to increase the salaries of underpaid employees to match those of their counterparts performing equivalent work. Additionally, your business may owe backpay to compensate for past disparities, covering the difference in wages that should have been paid. Your business may also be liable for court costs and attorney fees incurred during the legal proceedings. This not only leads to significant financial penalties but can also damage your company’s reputation and employee morale.
Employee Classification & Incorrect Wage Infractions
The Fair Labor Standards Act (FLSA) mandates that your employees be properly classified based on their job duties and pay structure. Misclassifying employees under the FLSA by wrongly categorizing them as Exempt or Non-exempt from overtime pay requirements, or mislabeling workers as Independent Contractors instead of Employees, can result in substantial penalties and legal complexities for your business. Incorrectly classifying employees can lead to significant fines from the Department of Labor, including back pay for unpaid overtime and minimum wages, penalties for failing to withhold and pay payroll taxes, and potential lawsuits from affected workers seeking compensation for overtime or benefits they were denied. As a business owner, it’s critical to accurately assess and classify your workforce to reduce these risks and uphold legal standards under federal employment law.
Recruitment Infractions
You must be confident that your business’s recruitment process does not violate your state and the federal employment laws. Violations can lead to significant legal and financial consequences for your business. For instance, “Ban the Box” laws in some states prohibit employers from asking about an applicant’s criminal history on job applications. It’s a better practice to delay such inquiries until later in the hiring process, so that candidates are evaluated based on their qualifications first. Similarly, certain states have laws that prevent employers from asking about a candidate’s salary history during the application process. This practice aims to reduce pay disparities and promote equal pay by preventing new salaries from being anchored to previous, potentially discriminatory wages. Employers must stay informed about these laws to avoid non-compliance and ensure fair hiring practices. Check your Job Application Form to avoid mistakes, check your state’s hiring regulations, and review the steps in your recruitment and hiring process to ensure your business is protected.
Compliance Penalties Based on Workforce Size:
Affordable Care Act (ACA) Infractions
Under the ACA, if your business has 50 or more full-time employees, you are required to offer affordable health insurance coverage to your employees or face penalties. The ACA aims to provide more Americans with access to affordable health insurance, improve the quality of healthcare, and reduce healthcare costs. The penalties for non-compliance with ACA are severe. For the year 2024, the penalty for medium-sized businesses that fail to offer adequate healthcare coverage was either $2,970 or $4,460 per full-time employee (depending on the nature of the violation), excluding the first 30 employees. For instance, a business with 150 employees that does not provide health insurance could face a penalty amounting to $356,400. These penalties underscore the importance of compliance with ACA requirements so that your business avoids significant financial repercussions.
Family and Medical Leave Act (FMLA) Infractions
For businesses with more than 50 employees, violations under FMLA can lead to financial penalties and obligations to compensate employees for time covered under the FMLA. If your business is found to be in violation, you may need to compensate your employees for lost wages, benefits, and other monetary losses incurred due to the denial of FMLA leave. Additionally, businesses in violation may be required to pay interest on these amounts, as well as liquidated damages equal to the compensation awarded, effectively doubling the financial penalty. Beyond the monetary penalties, employers may also face reinstatement of employees to their former positions or equivalent roles and coverage of attorney fees and court costs. Ensuring compliance with FMLA regulations is crucial for your business to avoid these severe consequences and maintain a fair workplace.
COBRA Infractions
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), businesses with 20 or more employees and offer group health insurance, must provide continuation of group health coverage to employees and their families upon qualifying events like job loss or reduction in hours. Failing to offer COBRA coverage as mandated can lead to tax penalties per qualified beneficiary. Compliance with COBRA is crucial for covered employers so that your business may avoid the financial repercussions and ensure ongoing health coverage for eligible individuals.
Maintaining compliance with HR and payroll regulations is critical to avoid costly non-compliance penalties for your business. By understanding common audit triggers and HR non-compliance penalties, you can take proactive steps to mitigate risks. Regularly reviewing and updating your business’s HR and payroll practices can help ensure compliance and reduce the likelihood of costly audits and penalties. Staying informed and proactive is the best way to protect your business and foster a positive work environment.
Due to the complexities and risks associated with payroll and HR compliance for small businesses, partnering with CRI Payroll Services can provide you and your business with invaluable support. Their expertise can safeguard your business from costly penalties and ensure smooth operations, allowing you the peace of mind to focus on growth and sustainability.
Contact CRI Payroll Services to learn more.
For detailed information and resources, businesses should consult the IRS, Department of Labor, and other relevant federal and state agencies.
