5 FAQs About Federal Compliance for Small Businesses

It’s a good thing American business owners “pull themselves up by their bootstraps” because wading through the muck of federal compliance and tax codes is a messy business indeed– those boots might come in handy.

Research from several companies, small business groups—and even the government itself—confer federal tax complexity is one of the most bewildering tasks a small business faces. But don’t let compliance (or the lack of knowledge around it) soil your reputation. 

This post tackles five of the top frequently asked compliance questions small business owners ask, and provides a few tips to help clean up the muddle of compliance chaos.
Once you get your answers, we recommend downloading the 2019 Compliance Calendar + Guide. This is your in-house resource of over 100 key dates and protocols necessary to stay cleaned up on compliance for 2019 and beyond.

Compliance FAQs

1. How complex are U.S. tax codes and federal compliance regulations with HR, benefits, and payroll?
2. What is the cost of noncompliance, and how often are small businesses penalized?
3. How much do small businesses spend on compliance management?
4. What are the top 10 federal tax compliance issues for businesses?
5. How do small businesses handle tax compliance?

Q1: How complex are U.S. tax codes and federal compliance regulations with HR, benefits, and payroll?

A: U.S. federal compliance with HR, benefits, and payroll taxes is quite complex and time intensive, but measuring the extent of that is a challenge. Here’s what we know:

The IRS estimates it takes a collective 2.8 billion hours for U.S. businesses to complete tax compliance tasks. That’s equivalent to the entire city of Dallas, Texas (1.3 million people) working full time on nothing but tax paperwork for a year. No bathroom breaks.

44% percent of small firms said that they spend 40 or more hours each year on federal regulations, but 33% spend double that, more than 80 hours each year, according to a 2017 NSBA Small Business Regulations Survey.

And depending on which tabloid-like web search result you look at, there are between 2,000 pages and 70,000 pages of U.S. tax codes.

So perhaps it’s not just complex, it’s also confusing, frustrating, draining, and tough for businesses to navigate without expert help.

Friends don’t let friends navigate compliance alone. Talk to an advisor.

Q2: What is the cost of noncompliance, and how often are small businesses penalized?

A: The average cost of each noncompliance citation is $30,651.14, with 1 in 10 small businesses getting fined.
But federal fines aren’t the only fiscal implication businesses face if they’re out of compliance.  Lawsuits are another costly and damaging outcome triggered by not following the rules or making mistakes.

Workplace class-action settlements totaled $2.72 billion in 2017, a 55% increase over 2016.

Wage and hour settlements representing $1.2 billion of that, and Equal Employment Opportunity Commission (EEOC) filings rose to $485.3 million in 2017 from $52.3 million in 2016, an 800% increase.

Q3: How much do small businesses spend on compliance management?

A: Small businesses spend about $12,000 per year on compliance regulations. This includes direct and indirect costs.

Q4: What are the top 10 federal tax compliance issues for businesses?

A: We loved this article from CFO Selections on Top 10 Federal Tax Compliance Issues for Businesses. Please read their article for details for each item on this list:

1. Costs of Compliance
2. Business Organization or Structure
3. Danger of Underpaying Taxes
4. Changes to Section 179
5. Expiring Provisions
6. Choosing Cash vs. Accrual
7. Employment Taxes
8. Independent Contractors
9. Timely Filing
10. State Changes to Healthcare Reporting

Q5: How do small businesses handle tax compliance?

A: 70% of businesses of five to 49 employees try to handle HR tasks, such as compliance, in-house among its existing employees—whether or not they have any training.
85% of small businesses rely on an outside tax professional to manage their taxes, paying an average hourly wage of $35.42 for their accountants.

But new research suggests an increasing number of small and midsize companies are looking to outsource HR, with benefits being:

1. Businesses can get diverse experience and knowledge without paying for multiple full-time staff. As Liz Howe, director of Business Development at Benefitdecisions, Inc. says in a Smart Business article, “Medium-size companies may need an HR director, HR manager, a generalist and a recruiter. If you outsource HR, you can get all or some of that expertise for an equivalent cost of hiring one person.”
2. It’s a good transition between a PEO and an entirely in-house HR team. “You can take back control of your employees, but you’re still outsourcing the day-to-day, transactional HR functions,” Howe says.  
3. You decrease errors in manual entry, while maintaining primary business productivity. “The average payroll error rate for organizations using homegrown payroll solutions is 11.4%, nearly twice the rate of those using a third-party solution or service at 6.1%,” says Mollie Lombardi, an analyst and co-founder of Aptitude Research Partners.

Tips to Simplify Compliance

Organizations are unique in how they structure and get work done, but we can all agree less stress and paranoia from insecure federal filing is preferred. Here are two actionable tips you can take to your workplace that might curb anxiety woes.

Tip #1: Download the 2019 Compliance Calendar + Guide

The 2019 Compliance Calendar + Guide can serve as your year-long, in-house reference tool that covers most of the “what if” questions that you might encounter in your business. It also sends automatic reminders directly in your phone and/or desktop calendar on which federal compliance filings to complete and when.

Tip #2: Automate and integrate your HR, payroll, and reporting.

Organizations that simultaneously automate and integrate their payroll data, benefits administration, absence and leave information, are 7% less likely to have payroll errors and 36% more like to have improved employee productivity, new research shows.

Manual entry of time and attendance, healthcare deductions, withholdings, and employer/employee taxes in contrast, increases your chance of human-entered errors and federal fines.

There’s no doubt it’s chaotic out there, but there are things small businesses can do to be better prepared. Asking the right questions was the right first step.

Integrating and automating your HR organization and federal reporting could the next.