Risky Business

As Published in the October 13-19, 2006, Issue of the Kansas City Business Journal

Knowing Employment Laws is Vital to Business Success

In all the excitement of running a business and seeing big ideas become a reality, it’s easy for a business owner to lose sight of things that are crucial to keeping the business running, including keeping up to date on employment laws. Exciting? Probably not to the average business owner, but necessary, nonetheless. After all, the best defense is a good offense.

Employment law represents a variety of potential risks that businesses can encounter during the life cycle of an employee, from the hiring process through the time employment ends. Not knowing about these issues can put a business at risk for lawsuits that can be quite costly, but keeping track of compliance issues can take a business owner’s focus away from what counts-developing and retaining customers.

Understanding the Basics

Any business with employees has to comply with several federal and state laws. The first step in compliance is understanding, which can be a daunting task. Some of the key federal employment laws are outlined below:

  • The Family Medical Leave Act (FMLA) regulates and ensures that employees’ benefits and position are protected while they are on leave for qualifying events (such as the birth of a child). To comply with this law, documentation and confidentiality are essential, and the paperwork involved can be a challenge for a small business.
  • The Fair Labor Standards Act (FLSA) outlines classification of employee status. In other words, this is the law that sets the minimum wage and regulates overtime pay, recordkeeping and child labor laws.
  • The Immigration and Nationality Act (INA) requires employers to verify their employees’ work eligibility by submitting a completed I-9 Form for each employee, regardless of nationality or citizenship. In addition, employees are required to provide the appropriate documents to confirm their identity and employment eligibility. If a company fails to comply, it is in violation of federal immigration laws. The terrorist attacks of Sept. 11, 2001, brought about many changes in employment law with respect to hiring practices, immigration and the additional responsibilities that businesses must share to ensure compliance.

What Noncompliance Can Cost

The cost of not protecting your company is far greater that the cost of taking measures before a problem arises. The 2004 Small Business Economy: Report to the President, from the Office of Advocacy of the Small Business Administration, said that in 2001, firms with fewer than 20 employees paid nearly 60 percent more to comply with federal regulations than their larger counterparts with more than 500 employees. The cost disadvantage is largely driven by compliance with environmental and tax-related paperwork. Consider these facts:
  • Noncompliance with FLSA regulations may cost the employer two years’ back pay and liquidated damages. If the violation is determined to be willful, the fine can be as much as three years in back pay.
  • At the August 2005 annual American Bar Association meeting in Chicago, attorney James Finberg commented that, “The number of FLSA class actions continues to grow. It’s the most active area for class litigation. We have seen a 70 percent increase in wage and hour cases over the last three years.”
  • In 2003, companies paid out $236.2 million to the Equal Employment Opportunity Commission (EEOC) to settle charges of some kind of discrimination. (Compare this with 1993, when companies paid $126.8 million to settle charges.) Access to Employers Practices Liability Insurance (EPLI) can help protect businesses in cases involving discrimination, wrongful termination, sexual harassment or workplace torts. 

Partnerships Can Help

Keeping track of new issues and regulations regarding employment law can be a time consuming task for an employer. Because of the time involved, many employers outsource their human resources duties to a Professional Employer Organization (PEO). A PEO can help to improve a client’s compliance with employment regulations and assist the client by providing a team of HR professionals who keep abreast of employment laws and provide day-to-day guidance on HR-related challenges. This enables business owners to focus on the productivity and profitability of their business without the distractions of complicated human resources tasks.
 
Some PEOs offer services, solutions and training that cover issues such as discrimination, sexual harassment, monitoring workplace safety, conducting employee reviews, wage and hour concerns, disciplinary actions, manager training and employment terminations. In addition, companies that use a PEO often are able to offer a wide range of benefits,
such as group health insurance, dental, vision and a 401(k) retirement plan (just to name a few). These additional benefits are crucial to attracting and retaining employees in today’s competitive marketplace.
 
Removing all risk from managing a business may be impossible, but reducing risk associated with the employment relationship is not – especially when partnering with a leading PEO.