As a small business owner, you may not have a formal human resources department, which means either you or one of your non-HR employees are left in charge of your organization's human resources (HR). With so many regulations and compliance laws, you might wonder if your organization is HR compliant.
To help, we’ve created an HR compliance checklist of questions to answer regarding HR matters you need to know that will save you time and money—and protect you from legal issues.
Are your employee files up-to-date?
First, there are many types of files that you may need to maintain at your organization, depending on the types of employees you hire and what benefits you provide. The most common types are Form I-9, personnel files, and medical files.
Form I-9 compliance
Form I-9 is used to verify that your employees are authorized to work in the United States. It's also called an Employment Eligibility Verification form. The Immigration Reform and Control Act of 1986 (IRCA) prohibits organizations from knowingly employing workers who aren't authorized to work.
Failing to comply with the law regarding I-9 forms can land your organization in serious trouble. The Department of Homeland Security increased fines1 in 2020 from $230 per individual for technical violations to $234 while also increasing the maximum fine from $2,292 to $2,332.
Fines for knowingly employing unauthorized employees can be as high as $4,667 for the first violation.
To ensure I-9 compliance, always use the most up-to-date version of the form for new hires. You should also conduct an internal audit, ensuring you have a form for every employee. If you find any errors, correct them immediately to avoid any risks associated with improper documentation.
Your personnel files should include all job-related documentation and information about your employees. This includes hiring records, performance reviews, and any disciplinary actions. You should also keep documents your employees have signed, such as non-compete or confidentiality agreements.
Examples of personnel files include:
- Job applications
- Job descriptions
- Performance reviews
- Pay and compensation packages
- Employment agreements
- Disciplinary actions
Documents that include your employees' Social Security Numbers (SSNs), dependent information, and other confidential information shouldn't be accessible to managers and supervisors that don't need the information for work purposes.
Confidential personnel files that should be kept in their own location include:
- Background check results
- Drug tests
- Equal employment opportunity forms
Employee medical records must be kept confidential and separate from other personnel files per the Americans with Disabilities Act (ADA) regulations.
Your separate medical records files can include documents related to medical leave, accommodations, workers' compensation, and other files applicable to your organization.
Are you paying fair wages?
It’s essential to stay up to date with employment laws and pay at least minimum wage to your employees. You must also avoid wage discrimination based on race, gender, or ethnicity. The federal minimum wage is $7.25 per hour. However, it’s important to note that many states, counties, and cities have established their own minimum wage laws.
Various anti-discrimination laws aim to promote equal pay for employees.
Employers are subject to the Equal Pay Act, which requires that employees be paid equally for equal work regardless of gender. Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the ADA further prohibits wage discrimination based on race, religion, national origin, age, or disability.
Furthermore, the Fair Labor Standards Act (FLSA) requires employers to provide overtime pay to certain employees. FLSA classifications include exempt and nonexempt employees. Nonexempt employees are entitled to overtime wages for all hours worked above 40 in a workweek.
The applicable overtime rate can be no less than time and one-half your employees' regular pay rates.
Are you classifying employees correctly?
Next, it’s important to classify your employees correctly. Whether they are employees or independent contractors, full-time, part-time, or temporary will be an important distinction to ensure they are granted their entitlements as a worker.
Classifying your employees correctly has a more significant impact than you may know. Did you know misclassified employees are often denied access to critical benefits and protections such as family and medical leave, overtime, minimum wage, and unemployment insurance?
Additionally, misclassifying an employee's results is a substantial loss to the Treasury, Social Security, and Medicare funds and to state unemployment insurance and workers' compensation funds.
Do you have an employee handbook?
One of the most important things you can do as an HR department is develop a compliant employee handbook. Your employee handbook explains your company's policies and procedures and communicates your expectations to employees.
A handbook also helps protect your business in case of disputes.
Your employee handbook should cover:
- Company policies such as employee behavior, attendance, overtime, and acceptable dress code
- Paid holidays
- How paid time off (PTO) works
- Your company mission statement, vision, and values
- Equal employment opportunity statements
- At-will employment statement if applicable (and allowed)
- ADA reasonable accommodations
- Fair Labor Standards Act (FLSA)
Do you have a compliance calendar?
With so many legal liabilities, a compliance calendar can help ensure your organization doesn't miss any crucial deadlines, filing dates, and reporting requirements.
Add quarterly reminders to review your compliance policies and ensure up-to-date compliance practices. You'll also want to list when any taxes or forms are due to federal, state, and local governments, such as an EEO-1 report, if applicable, and quarterly or yearly tax estimates.
If you offer employee benefits, don't forget to include important ACA compliance dates and review your benefits offerings every July. You'll also want to remind employees to regularly take advantage of their benefits.
Alternatively, you can use compliance software to help your organization manage the complexity of employment law.
Do you offer the required employee benefits?
While most employee benefits are voluntarily offered to attract and retain top talent, some benefits are required by federal and state laws.
Workers' compensation insurance is required in most states to protect employees and employers due to a workplace injury or illness.
You may also have to provide health insurance for your workers. Under the Affordable Care Act, any applicable large employer (ALE) with 50 or more full-time employees or full-time equivalents (FTEs) must offer health insurance. Your health plan's coverage must satisfy the minimum essential coverage (MEC) provisions.
However, there are many different affordable healthcare options available that can help you satisfy federal compliance rules. Instead of offering group health insurance, you can offer a health reimbursement arrangement (HRA).
Specifically, an individual coverage HRA (ICHRA) can help you meet the ACA's employer mandate and MEC. With an ICHRA, you can reimburse your employees tax-free for their qualifying medical expenses, including individual health insurance premiums.
Family and medical leave
The Family and Medical Leave Act (FMLA) allows eligible employees of employers with 50 or more employees to take unpaid, job-protected leave for qualifying family and medical reasons.
Some states go a step further by requiring paid leave, as well as paid sick leave.
While disability insurance isn't mandated federally, a few states require it.
Employees in the following states and territories must be offered disability insurance:
- Rhode Island
- New Jersey
- New York
- Puerto Rico
Remote employee expense reimbursement
Some states require employers to reimburse their employees for remote work expenses, such as internet access costs, cell phone bills, and the cost of tools necessary for the job.
While most states don't require employers to offer retirement benefits, there are exceptions. Many states mandate employers to participate in state-sponsored retirement plans or provide their own benefits.
States with government-sponsored retirement plans include:
- Colorado (beginning 2022)
- Maine (beginning July 2023)
- Maryland (beginning 2022)
- New Jersey (beginning 2022)
- New Mexico
- Virginia (beginning July 2023)
New York passed legislation to require retirement plans, but the law hasn't been implemented.
Are your health benefits compliant?
Because many small businesses are unable to afford traditional group health insurance plans, many have chosen to reimburse their employees for individual health insurance premiums. If this is the case, your plan must be compliant.
Like many other federal compliance issues, you could face severe fines and penalties if your plan isn't compliant. For this reason, many small businesses choose a third-party administrator or a benefits administration platform like PeopleKeep for their health benefits.
Ensuring your small business is HR compliant is a great way to save yourself from future headaches. With the possibility of audits, legal fees, and other forms of reprimand for not adhering to federal compliance regulations, it’s imperative that you cover all of your HR bases.
We hope our compliance checklist helped you determine where your organization may be falling behind with compliance laws and employment regulations. Always consult with your legal counsel and tax advisers to ensure that your organization is mitigating any potential HR compliance risks.
Ready to offer compliant employee benefits? PeopleKeep can help! Our HRA and employee stipend administration software helps organizations like yours set up and manage their benefits in minutes each month.
This blog article was originally published on February 11, 2015. It was last updated on July 7, 2022.