For small and midsized businesses, jumping through never-ending compliance hoops can quickly become an exhausting exercise that leaves them with less time to focus on their main mission: Growing their bottom line.
Many of these companies have lean HR teams who juggle everything from payroll to recruiting. That means they can’t always keep up with evolving regulations around paid sick-leave, overtime pay rules, and the Affordable Care Act (ACA). As a result, midsized employers are increasingly stressed about the volume of government regulation and are experiencing a growing number of fines and penalties for noncompliance.
According to the latest ADP Midsized Business Owners Study
which surveyed more than 700 business owners, senior level and C-suite executives at U.S. companies with 50-999 employees, two in five ranked the amount of government regulations as their top business concern, a significant spike over the previous year.
Despite this increasing concern, about 80 percent of respondents expressed confidence that their companies would be compliant with payroll tax laws and government workforce regulations. This may be a misperception since they also reported an increasing number of compliance penalties. More than one-third of midsized employers said they experienced unintended penalties as a result of noncompliance, and nearly half didn’t know how many fines they incurred or how much they cost their organizations.
Of the midsized businesses that could recall the amount of fines they received in the previous 12 months, the average number doubled over the past four years to 13. Some of the leading reasons for these fines included noncompliance with payroll taxes, workers’ compensation, and sales and use taxes.
While business owners still reported less confidence in compliance with ACA regulations as compared to payroll tax laws and workforce regulations, the gap is narrowing. Compared to the previous two years, confidence levels in ACA compliance remained constant while confidence in compliance with payroll tax laws and workforce regulations dipped.
In fact, concerns over tax law compliance jumped at a higher rate than any other in the most recent study, with 18 percent of respondents ranking this as their number one worry compared to just eight percent the year prior. Further, worries over complying with wage and hour regulations showed a marked increase over prior years, with about one-third of study respondents expressing high levels of concern. This could be due to the fact that the number of wage and hour lawsuits rose nearly eight percent to 8,781 cases
last year alone. Also, the U.S. Department of Labor recently unveiled sweeping changes to the Fair Labor Standards Act overtime rules. These regulations -- which haven’t been updated in over a decade -- are estimated to make nearly 4.2 million current workers eligible for overtime pay.
In order to comply, employers need to evaluate their employees’ current classifications and confirm compliance. They should then evaluate whether they will either raise salaries to maintain an exempt status, or maintain the level of pay and begin paying overtime when the employee works more than 40 hours in a single week.
Here are a few things midsized businesses should consider to help navigate the increasing layers of overall regulatory complexity.
• Seek expert help. Recognize that compliance is not a one-time investment, but an ongoing journey. Trying to solve compliance challenges with only internal resources can sometimes end up costing more than paying a third-party expert to help. If employers aren’t staffed properly and don’t have the appropriate compliance experts on staff, they can potentially expose themselves to significant risk. Consider working with a broker, CPA or financial advisor to stay on top of trends and help avoid penalties.
• Stay connected. Seek peer networking opportunities. Knowing that other businesses are facing the same challenges can make it easier to cope and it always helps to have support. Networking with peers can be a great way to discuss compliance obstacles, and learn how others are tackling them. Also, consider joining a local chapter of a larger organization like the Society of Human Resource Management (SHRM) that offers seminars and events on new and changing federal and state requirements.
• Take inventory of your HR systems. Employing manual processes can increase the risk that critical information needed to comply with laws ranging from the ACA to the FLSA is not being tracked. Now’s the time to analyze and assess how you fared during the first ACA reporting cycle. If you were pulling data from multiple disparate administrative systems, you may want to consider an integrated HR system that can seamlessly collect the required information from various departments.
If getting a handle on the alphabet soup of regulations ranging from OSHA to FMLA feels like an exercise in futility, don’t fret. Seeking the help of certified and trained compliance experts and ensuring the proper systems are in place will help your company stay ahead of regulatory changes and minimize the chance of unintended penalties stemming from noncompliance.
Tom Perrotti is President of ADP’s Major Account Services, the business unit that provides human capital management services to businesses with 50 to 1,000 employees in the United States and Canada.