Regardless of your company's size or industry, there are laws and regulations that your business must adhere to. Maintaining compliance with these can be easy. However, in many other cases, compliance may be more complex.
It's also important to note that non-compliance can lead to steep fines or costly remedies to achieve compliance with various industry regulations or litigation. And then, there are the associated costs from business disruption and the potential for productivity loss to consider. In short, non-compliance can have a devastating impact on your company's bottom line.
To help avoid these costs, anticipating risks and taking proactive steps to ensure compliance is critical.
What Is Compliance?
First, it’s essential to understand the meaning of non-compliance and what it means for your business. To be compliant, you must be sure that your business is adhering to all of the laws, rules, and regulations that apply to your business and your employees, typically established by local, state, and federal government entities and agencies.
Staying on top of these many ever-changing laws, rules, and regulations can be difficult, so it's important to have processes and systems designed to avoid or mitigate the consequences of non-compliance. While these processes and procedures may require additional investment, the cost of non-compliance can be far greater to the success of your business.
Part of managing your compliance efforts is about putting processes and systems in place to meet the various employer responsibilities and then monitoring that these processes and procedures are being followed.
With so many laws, rules, and regulations to consider, businesses can easily fall victim to non-compliance. That's why it's important to remain vigilant. Much can be said for hiring compliance experts in business areas like human resources, taxes, and financial reporting, as well as investing in facility modifications to help your facility meet existing legal requirements.
Examples of Non-Compliance in the Workplace: What Does Non-Compliance Look Like?
Non-compliance in the workplace may differ for business owners depending on their industry, size, and location(s). Here are some examples of non-compliance in the workplace that could lead to penalties, including:
- Failure to pay covered employees at least the correct, minimum wage.
- Improper employee classification that results in wage and hour violations like unpaid overtime.
- Violations of anti-discrimination laws and harassment policies.
- Ignoring Occupational Safety and Health Administration (OSHA) regulations.
- Failure to provide job-protected leave to eligible employees under applicable leave laws, including the Family Medical Leave Act.
These are just a few examples of areas where non-compliance can lead to potential consequences, including penalties, litigation, business disruptions, and damage to your reputation. Working with an HR provider like Paychex can help you maintain compliance, avoid OSHA penalties, stabilize workers’ compensation costs, boost productivity, and reduce employee turnover.
Business Areas Where Compliance Is Key
While compliance issues can permeate all company areas, the following functions are common across most businesses.
Human Resources
When it comes to your human resources department, part of being compliant means developing and implementing company policies that are consistent with applicable federal, state, and local laws, rules, and regulations involving recruitment, hiring, termination, and management of employees. For example, verifying eligibility to work in the U.S. for all new hires is an essential compliance-related task. Failure to do so using Form I-9 may result in fines and other penalties.
When crafting your HR compliance program for hiring, you must comply with applicable federal, state, or local laws, rules, or regulations protecting employees and applicants against employment discrimination based on race, ethnicity, gender, disability, and other protected characteristics. Not only can violating these laws result in potential penalties, fines, and litigation, but, in some cases, the fallout could damage your company's reputation, resulting in lost business and reduced profitability.
Creating and maintaining an employee handbook consistent with current and applicable local, state, and federal employment laws and regulations can also give you peace of mind, knowing that you're up to date in giving your staff the information they need. This can help you focus on productivity and worry less about issues that could negatively impact business operations.
Employee Rights and Employment Laws
There are also numerous employment laws and regulations that must be adhered to; for example, here are the standards established by the Fair Labor Standards Act (FLSA) of 1938:
- Minimum wage
- Overtime pay
- Recordkeeping requirements
- Child labor rules
Compliance with employment laws helps ensure your employees are treated fairly and can save you from costly penalties.
Health and Safety
It's also essential to ensure your business complies with regulations enforced by the Occupational Health and Safety Administration (OSHA) and applicable state safety standards, which help ensure safe and healthy working conditions for all employees.
If you fail to correct a violation for which a citation has been issued under section 9(a) of OSHA within the permitted time frame, you may be subject to a maximum penalty of $15,625 per day for violations.
OSHA has inspectors that review health and safety compliance within a company. These inspectors include trained industrial hygienists and safety professionals who help companies maintain workplace health and safety standards to minimize workplace injury. In addition, OSHA provides whistleblower programs for employees who wish to report unsafe working conditions. Following these guidelines can help mitigate your risk of an employee injury or illness or potential fines or lawsuits.
Taxes and Financial Reporting
Regardless of whether you are a sole proprietor or a multinational corporation, there are important things to consider in terms of financial reporting. For example, each state has its own rules, regulations, and tax rates for conducting business there. In many states, you'll find variation when it comes to payroll taxes — and sales taxes, if you're a retailer. So, it's important to be aware of these differences when conducting business across state lines to avoid non-compliance.
What Are the Consequences and Penalties of Non-Compliance?
The consequences of non-compliance in business may depend upon:
- The area of your business in which you are non-compliant
- The type of non-compliance (does it pertain to an internal process or procedure, or does it involve compliance with a federal or state rule?)
- The severity and frequency of your company's non-compliance
- Whether it is your company's first instance of non-compliance
In addition, your business could also be subject to:
- A warning — Consequences can be as tame as a warning with a directive to fix the problem within a certain time frame.
- Penalties, fees, or fines — Monetary penalties and fines are the most common consequences of non-compliance.
- Ceasing business operation — In extreme cases (often related to unsafe working conditions or violating environmental rules) your business could be forced to shut down some, or all, of its operations.
- Criminal penalties — In other extreme cases, owners or managers of the business could face criminal charges. The consequences of non-compliance can still be personally devastating and severe for the people involved, and for your business as a whole.
- Damage to business reputation — In some cases, failure to comply with regulations can harm a company's reputation, impacting customer trust and long-term sustainability.
How To Avoid Non-Compliance in the Workplace
While there may not be a surefire way to guarantee compliance with every rule at all times, there are some steps your organization can take to help minimize the risk of non-compliance with policies and procedures.
Establish New Policies or Procedures
In general, one of the best ways to help ensure compliance with applicable rules and laws is to implement processes and procedures throughout your business so that tasks are done the same way each time, and to ensure that everything is being regularly and carefully reviewed, where applicable. Policies and procedures you may want to review include hiring practices, the process of collecting sales taxes, and other routine business transactions and tasks.
Ensure Workplace Policies Are Enforced
Enforcing workplace policies is essential for reducing non-compliance and maintaining a productive environment. Clear policies and consistent rules help employees understand their responsibilities and the consequences of violations, which allows the organization to stay within legal boundaries and protect its reputation. Policy enforcement may also promote productivity by ensuring everyone is on the same page and working toward common goals without distractions or disruptions caused by inappropriate behavior.
Conduct an Internal Audit
Internal audits and reviews can also help you minimize your risk, in some cases. This is common for financial functions such as internal accounting and can also make sense in areas like environmental compliance and facility safety, where the consequences of non-compliance can be great both in financial terms and in the risk to human life. Before conducting a review or an internal audit, it's important to consider whether the audit should involve legal counsel. You’ll also want to become familiar with the best practices for the particular function you will be reviewing. These best practices might be for businesses in general, or within your particular industry.
To better assess your business' risk of non-compliance and to assist with certain types of internal audits, ask yourself the following questions:
- Does your company have written job descriptions, including identified essential functions for every position?
- Do you understand your responsibilities surrounding the prevention of violence in the workplace, and do you have effective processes in place?
- Are you aware of all OSHA regulations that apply to your business, and are you in compliance?
- Do you have an up-to-date safety manual for the company, all divisions, and departments? Are all managers trained in the implementation of these measures?
- Have you filed all applicable financial statements and reports at the federal and state levels?
- Do your financial statements accurately reflect the company's financial position?
- If needed, do you have regular audits by an independent outside firm?
- Are all financial statements in connection with any bank loans or other debt accurate and current?
- Do you have an emergency action plan in case there is an accident in one of your facilities?
- Do you have a process in place to manage hazardous materials?
- Do you have a plan to deal with any workplace injuries that may occur?
- Do you have a preventative action plan to help ensure that all safety protocols surrounding workplace safety that apply to your business are reviewed and followed by all employees?
How Do You Handle Compliance in the Workplace?
Handling workplace compliance effectively is key to maintaining a healthy environment and protecting your business from the consequences of non-compliance.
Here are a few of our recommendations:
- Establish and regularly review policies in alignment with federal, state and local regulations.
- Conduct training for managers and employees on expectations.
- Implement a documentation and record-keeping system.
- Stay informed about changes to employment laws and regulations and update policies.
- Conduct audits to identify and address issues before they escalate.
- Foster a culture of compliance through transparent communication and proactive resolution of concerns.
It’s important to stay proactive and consistent by ensuring actions align with applicable laws, company procedures, and policies outlined in your employee handbook. By following these steps, you can foster a culture of compliance that minimizes risk.
Protecting Your Business, and Your Bottom Line
Protecting your business' bottom line goes beyond just looking at financial statements; it requires identifying vulnerabilities — such as non-compliance — and solving for those vulnerabilities to help minimize their risk to the business. This includes staying on top of the many ever-changing laws, regulations, and guidelines impacting your business.
And, many businesses face new regulatory and compliance challenges, including increased health and safety requirements, added internet security requirements due to an increase in remote work, and more.
Fortunately, with Paychex HR Services, clients have access to OSHA and safety programs, as well as a dedicated HR professional, who is supported by a robust team of compliance specialists who understand legislative and regulatory guidelines that may impact your business and can help guide you through HR challenges.
