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small business hr compliance

What is Small Business HR compliance?

Creating and enforcing internal HR Policies protects small businesses financially and promotes a positive and functional work environment for all employees regardless of their position within the company. Small business HR compliance means creating policies that meet regulatory employment laws and guidelines. It is an essential aspect of safeguarding any business, large or small, and involves various HR functions such as:

  • Recruitment
  • Onboarding
  • Payroll and Benefits Administration
  • Risk Management and Safety
  • Training and Development

What HR compliance tasks should businesses know?

Mandatory federal and state posters

State and Federal laws require employers to display labor law posters clearly. Since laws are updated often, these posters must be updated as needed. Business orders have the option to purchase “all in one” signs to maintain the appropriate compliance.

Correctly classify your workers

Employee classification typically falls under one of two situations:

  • Exempt or Non-Exempt – Employees are exempt or non-exempt under the FLSA (Fair Labor Standards Act), which regulates minimum wage and overtime requirements, as well as child labor laws on a national level. An exempt employee is an employee that does not require overtime when working over 40 hours per week. Most employees are non-exempt and eligible to receive time and a half for over 40 hours within one work week.
  • Independent Contractors or Employees – Classifying an employee as an independent contractor or employee depends on state and federal laws. Failure to follow regulations and proper testing violates wage and hours laws and subjects businesses to fines and penalties.

Employee handbooks

A lack of clear guidelines and enforcement can lead to conflict and put a business at risk for potential litigation. Employee handbooks are highly recommended to communicate a company’s policies and expectations. A well-written employee handbook can define a business’s core values and mission, thereby conveying the company’s culture. Creating an employee handbook is not a one-and-done project. This is a living document that must be maintained and updated when policies, laws, and regulations change. It is a powerful tool for creating a work environment where all employees are treated equally, respectfully, and free from harassment and discrimination.

Required documents for new hires

When onboarding new employees, employers must obtain several required documents from their new hires. Businesses may be required to keep some of these forms and documents on file for specific periods depending on the local and state requirements. Some examples of documents that employees may need to work in the United States legally are:

  • Proof of identification – such as a Passport, Birth Certificate, or Driver’s License, just to name a few
  • W-9 (in the case of a contractor)
  • Form I-9
  • State and Federal Tax Forms

Final paycheck laws

When an employment relationship ends, regardless of whether said employee gives notice, is laid off, or is terminated, employers must compensate them for hours worked and process their final paycheck. However, last paycheck laws vary from state to state concerning the time frame that an employee is delivered their final paycheck depending on how the employee’s relationship with their employer ended. For example, in Arizona, if an employee quits, they must be paid out on the next payday. If terminated, they must be paid within seven days or the next payday – whichever comes first. In cases where an employee owes the business money and the business has written consent, the employer may withhold money from the final paycheck to cover the employee’s debt. The employee’s last paycheck should include regular wages for all hours worked in addition to any unused PTO or bonuses if applicable by company policy and state laws.

How to stay HR compliant

In addition to recruiting, hiring, terminating, and onboarding new employees, employee payroll and benefits, and a host of other tasks, HR Departments have a long list of compliance-related responsibilities. Read on for an all-inclusive HR compliance checklist to help you and your small business avoid HR compliance issues and stay HR compliant.

Policies and procedures

Before instituting any policies and procedures, small business owners and HR Managers must be aware of state, local, and federal laws. Effective HR policies should communicate expectations and restrictions clearly for employees. Anti-discrimination and anti-harassment policies are essential to HR compliance procedures, with clear steps on how and where employees should report any concerns or incidents.

Train team

Small business HR compliance training depends on the type of business and the training topic. Employee training is necessary whether done online or in person, internally or by a third party. It should be a priority for all employers regardless of the size of their business. Communicate and discuss training and policies with employees regularly. Having an external party conduct training such as anti-harassment and anti-discrimination training is recommended. This can help avoid future claims and demonstrate that the company is committed to keeping the workplace free from unfair treatment.

Investigate complaints

To avoid disputes, it is critical to investigate all employee complaints quickly and efficiently. Any complaints about the following should be investigated:

  • Accidents or issues related to safety
  • Harassment/Discrimination
  • Illegal Activity
  • Suspicions of Misconduct

Whether an employee complaint is verbal or written, the complaint must remain confidential and handled with respect, no matter the type of complaint. Individuals and witnesses should be interviewed privately with a manager and HR representative present to avoid any difference of opinion. Developing a standard operating procedure (SOP) for investigating complaints shows your employees that they can feel safe and confident that issues will be appropriately handled. Touching base with the person who filed the complaint 15, 30, and 60 days after the original complaint is typically adequate.

Proper documentation

Complete and proper documentation is imperative when a policy has been violated and an investigation initiated. Fair and equal treatment of all employees is essential. No employees should be “let off the hook” or given special treatment. Depending on the situation, it may be necessary to separate the individuals involved until circumstances have improved and all parties feel comfortable. Keeping proper documentation will come in handy should circumstances escalate to litigation.

Common HR Questions

How is HR in small businesses different from large companies?

Whether running a small business or a large company or corporation, many HR challenges are similar regarding shared goals for problem-solving, recruitment, and planning and development. However, how you overcome these challenges is very different. One of the biggest challenges for a small business is the availability of resources. HR functions for a small business may be left to one individual due to a limited budget and other resources. Individuals can share the workload and provide mentorship and support with a larger company. This support is harder to come by on a smaller team since owners often wear multiple hats.

Do small companies need HR?

In a word – yes! Small companies need HR just as much as, if not more, than larger organizations. Human Resources encompasses a vast assortment of responsibilities, and these tasks must be completed regardless of the company’s size. If no organized systems are in place when incidents occur, the consequences could be catastrophic and cost the company.

How can small businesses improve their HR?

Human Resources are an essential component of any business, small or large. But small businesses may not have the resources to have a dedicated HR Department. In this case, being organized and purposeful is crucial for legal compliance and the company’s overall success. Here are a few suggestions for improving HR services:

  • Hire the right people – implement a thorough screening process for potential employees, including a background check.
  • Establish written policies and procedures – This should take the form of your core values, mission statement, and employee handbook. These three staples will communicate the company’s culture and dictate what behaviors will and will not be tolerated.
  • Dedicate a specific day each week to ensure all payroll and benefits information is accurate and all bills are paid. There are a variety of programs and apps that allow small businesses to streamline these processes.
  • Designate one person to manage employee and customer/client complaints daily.

Human resources help create a better working environment and allow employees to feel more comfortable in their positions. Improving the efficiency of your HR functions takes a lot of work, but with the right tools, even the smallest business can see significant results. 

Struggling with small business HR compliance? Gro HR offers customizable, affordable fractional human resources support. Contact us for more information!