Small business owners and their employees are responsible for many jobs.
There aren’t enough hours a day for even the best-run teams to keep track of everything. From finance to sales, marketing, and compliance—and everything in between—there is more to manage than your eyes can track.
It’s easy for minute details to be missed, and as your small business grows, problems have the potential to multiply. Even worse, you don’t know what you don’t know: challenges can creep up in the form of a healthy fine.
The best way to stay ahead of legal and compliance challenges is to get ahead of them: work with a lawyer and advisory board to navigate unknowns that may impact your business.
Read about common mistakes so that you can actively avoid them. The QuickBooks team recently interviewed a mix of experts, to gain perspective on potential problems that can arise.
Here were some of the insights that they shared:
1. Know the most common broken laws for your industry
Romin Currier, attorney at Pincus and Currier LLP, explains that from his perspective, the most common law violations relate to the Fair Labor Standards Act (FLSA), Title VII of the Civil Rights Act of 1964, and the Occupational Safety and Health Administration Law (OSHA). He elaborates:
“FLSA is a very complex statute that is often violated despite employer’s best efforts. The risks include back pay, liquidated damages as well as attorney’s fees and costs.
Title VII [of the Civil Rights Act is also often violated because it can be very difficult to police all employee conduct all the time and the employer is ultimately responsible. Damages under this statute include back pay, possible punitive damages and attorney’s fees, and costs.
The other repercussions of violating both of these statutes are the cost of defending oneself. OSHA addresses safety in the workplace and it is difficult to get all workers to adhere to all of a company’s safety rules. Small violations could trigger warnings or small fines. Larger violations could result in the shutting down of the business for some period of time.”
All of these laws are complex, with many business-specific nuances. And many claims, even when unsubstantiated will get settled. A small business that isn’t prepared or that doesn’t have funds to defend itself may go out of business.
The path to avoiding potential problems will depend on your business.
“Employers must adopt policies and procedures and take great steps to ensure that the policies and procedures are complied with,” says Currier. “I recommend that the company work with their employment law attorney to review the policy and procedures and make revisions to them.”
2. Pay attention to your wage, employee classification, and payroll taxes
From the perspective of Alix Rubin, an owner of an employment law firm in New Jersey who also practices in New York and Pennsylvania, small businesses are most at risk with respect to payroll, taxes, and hiring.
Small business owners will run into challenges when misclassifying employees as independent contractors, for instance. This law has gotten businesses into trouble with respect to paying overtime.
This legal area is entwined with workers compensation insurance requirements, according to another attorney, Michael Hernandez, in San Diego, California.
“I often see problems beginning with clients that bring on ‘employees’ as 1099 independent contractors,” explains Hernandez. “The most obvious reason for this is to avoid the perceived burden of payroll and payroll taxes.”
This misclassification, especially for onsite employees, can have negative repercussions that tricking into other areas of the business. Companies that don’t pay payroll taxes and misclassify their employees likely don’t have the appropriate insurance programs in place.
“I have had several clients who failed to secure workers’ compensation insurance, had an investigator from the Department of Industrial Relations conduct a site visit, and perform an insurance audit. These clients have needed to pay between $20,000-$100,000 in penalties alone. There is also the added complication of criminal penalties. In California, failure to obtain workers compensation insurance is a serious offense, punishable by jail time and a $10,000 fine.”