The 3 Big Risks of Noncompliance: What Your Business Could Lose

If your business isn’t compliant with HR laws, it could be at risk for penalties, reputational damage, and legal action.


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Noncompliance and what your business could lose
Are you making compliance a priority for your business?

Here's what you need to know:

  • HR compliance remains a necessary priority
  • Businesses that are out of compliance face fines and penalties from a number of regulations, such as GDPR and ACA
  • Problems like wage issues or allegations of discrimination could also cause affect a business's reputation and recruiting top talent

Whether you’re a small business owner who wants to spend more time growing your business, or an HR leader who needs to shift more toward a people-focused strategy, manually handling HR compliance tasks can feel time-consuming and burdensome. However, compliance remains a necessary priority.

Being out of compliance with HR laws puts your business at risk for big penalties, reputational damage, and legal action. If you’re the go-to HR person for a small business, you’re probably already facing a number of challenges:

  • Limited resources: Your small and medium-sized business HR department might be short-staffed with limited resources. If you don’t have an HR department, you — the SBO — may be the one responsible for compliance, payroll, benefits, and tracking timesheets, as well as fostering an attractive company culture and creating recruiting strategies for top talent.
  • Managing compliance: Compliance is a dense forest of regulation that changes on the regular. HR team members or SBOs are in charge of staying on top of workforce laws and organizing required training. They also handle the necessary reporting to keep the business compliant.
  • Building out an HR strategy: To get the best people in the door, you need a strong and smart recruiting effort from your HR team. This may be an afterthought for many SBOs who lack HR teams and focus more on managing labor-intensive, everyday tasks. Many SBOs have to take care of responsibilities like paying employees on time, PTO requests, and remaining in compliance.

Despite the dynamic needs of HR teams and SBOs at SMBs, compliance remains at the top of the list. It’s the foundation of successful and ethical businesses and helps you mitigate your company’s risk.

Risks of noncompliance

1) Hefty fines and penalties

Businesses that are out of compliance face fines and penalties from a number of regulations. Some of the most common are:

  • GDPR: Businesses that have or hold data belonging to any EU citizen are subject to GDPR data protection requirements. The maximum penalties are 4% of worldwide revenue or €20 million, whichever is greater
  • I-9 form: Employers must verify employee eligibility verification forms and keep them on record in case of an audit. Businesses that knowingly break these laws face fines of up to $20,130
  • Affordable Care Act: If you have 50 or more full-time employees, you’re considered an applicable large employer and have to provide healthcare for your employees or face IRS penalties
  • Fair Labor Standards Act: You’re legally obligated to pay federal minimum wage and overtime pay to exempt employees. Failure to do so may mean you’re on the hook for back pay and could face a $10,000 fine

2) Reputation damage

Fines and penalties aren’t the only damage you might incur from noncompliance — your business reputation is on the hook as well. Compliant and ethical businesses reap benefits for both their external, consumer brand reputation but also internally with their employer brand.

Fines and penalties aren’t the only damage you might incur from noncompliance — your reputation’s on the hook as well.

A recent Accenture study found many consumers support brands which care about social issues, with 42% of respondents willing to walk away from companies that don’t align with their beliefs.

At the same time, candidates are spending significant time and energy researching potential employers, and integrity matters. Problems like wage issues or allegations of discrimination are major red flags for top talent.

3) Legal action

Compliance is based on best practices and rules and regulations. As complex and tiring as they can be, they exist to:

  • Keep people safe
  • Protect personal information
  • Ensure fair labor practices

When businesses don’t remain compliant, they risk class action lawsuits or criminal charges. And it’s not just small businesses which lack the resources and legal expertise of big companies who are at risk for legal action. Target is currently facing a class action lawsuit for breaking ERISA laws related to insufficient notice and instruction regarding COBRA offerings after a qualifying event.

How can businesses protect themselves?

We wish the answer was as simple as “stay compliant.” But the overlapping, piecemeal, oft-changing landscape of compliance makes it tricky.

Automating HR tasks with the right HR tech is a great place to start. Choose an HR tech provider like Zenefits that helps your HR team stay on top of payroll, benefits, onboarding, and employee records.

Zenefits offers on-demand compliance help via The Compliance Assistant which delivers personalized compliance tasks relevant to each company like ACA reporting. You can let Zenefits handle the day-to-day of HR compliance so your HR team can focus on building a great place to work.


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