Employer compliance

10 Employer Compliance Mistakes to Avoid


Employment laws apply to organizations based on the number of employees, states where the organization has employees, whether business is conducted with the government, and which benefit plans are offered. 

Navigating these employment laws can lead to several employer compliance mistakes if you’re not careful. Luckily, there are solutions and best practices you can implement to avoid these employment law compliance issues. 

Employer Compliance Mistakes

Failing to meet employment law compliance can leave your organization open to costly fines and penalties. It’s important to understand the biggest compliance mistakes and how to ensure you avoid them.


Compliance Mistake #1:

Problem: Incorrectly classifying employees as exempt or salaried when they should be non-exempt or hourly. Some employers classify employees as exempt from the Fair Labor Standards Act (FLSA) to save money and eliminate hassle. Exempt employees don’t enjoy paid breaks, are not obligated to track work hours, and are not entitled to overtime pay in accordance with applicable laws.

Paying employees a set salary each week does not make them exempt in the eyes of the law.

Solution: Make sure all positions classified as exempt meet the salary and job responsibilities/duties test before classifying them as such. Federal, and sometimes state, law requires employees to be paid a set minimum salary per week and to pass one of the allowed job exemptions: Executives, Professionals, Administrative, Computer Related/IT, and Outside Sales.

Keep in mind, that when the Department of Labor (DOL) reviews the position classifications, they examine the job duties, not the job title. Suppose an Executive Assistant is to pass the Administrative test, for example. In that case, they must be able to show that they regularly exercise discretion and independent judgment with respect to matters of significance.

Compliance Mistake #2:

Problem: Employers classify workers as independent contractors to avoid the liability and costs associated with hiring a regular, full-time employee.

Solution: Follow the rules that allow for independent contractor status. The IRS provides very strict guidelines for this classification, depending on the amount of behavioral control, financial control, and type of relationship.

Compliance Mistake #3:

Problem: Allowing non-exempt employees to perform work off the clock. What do you do when highly motivated employees arrive early, work late, or take work home without reporting the work time?

It is tempting to allow them to go above and beyond without pay. The problem is — as employers — we are required to track and pay for all work time, whether it is approved or not.

Solution: Establish clear policy guidelines requiring non-exempt employees to track and report all work time, then communicate and reinforce this expectation. Employees who repeatedly abuse this should be subject to progressive discipline. 

Compliance Mistake #4:

Problem: Terminating employees who are on medical or sick leave. We have all had situations where an employee is out for surgery, injury, or sickness that extends way past what seems reasonable, and we just want to cut our losses and move on to someone who can come to work.  The challenge is there are numerous laws protecting employees’ rights that may apply, depending on the facts.

For example, Family Medical Leave Act (FMLA) allows up to 12 weeks of protected job leave for employees who meet specific criteria

The definition of disability is explained thoroughly in the American Disabilities Act, in which employees may qualify for reasonable accommodation.  Employees have rights against retaliation in workers’ compensation claims and many other situations where they exercise a given right for which employers cannot take negative corrective action.

Solution: Evaluate all medically related leave situations, carefully looking at employee’s rights and laws (state and federal) separately, before making decisions to terminate. Even employment-at-will does not allow employers to terminate if an employee has protections and rights under the law.

Have set policies and practices that instruct employees and supervisors on how to handle all leave situations, especially medical-related leave.

Compliance Mistake #5:

Problem: Taking corrective actions without following set practices or policy guidelines. Many organizations take corrective actions somewhat haphazardly when resolving employee problems, without following consistent best practice techniques. After all, they are the boss and they should be able to fire anyone for any reason, right? 

Taking corrective actions in this fashion can lead to inconsistent practices, and claims of wrongful termination and/or discrimination.

Solution: Establish consistent practices for handling most performance challenges and corrective actions. Use a positive discipline approach with more coaching, feedback, and planning.

In most cases, this will look something like a verbal discussion, written improvement plan, and then termination. Retaining the flexibility to go directly to the most appropriate step, depending on the situation, requires a consistent and fair application of performance steps.

Compliance Mistake #6:

Problem: Not taking responsibility for all employee notice requirements.

  • COBRA – Initial and Qualifying Event
  • CHIP (Child Health Insurance Plan)
  • MHPA (Mental Health Parity & Addiction Equity Act)
  • NMHPA (Newborns & Mothers Health Protection Act)
  • WHCRA (Women’s Health & Cancer Rights Act)
  • HIPAA (Health Insurance Portability & Accountability Act)
  • Wellness Program Disclosure, if applicable
  • Grandfathered Plan, if applicable
  • Medicare Part D
  • Health Exchange Notice
  • Summary Plan Descriptions (SPDs or SPD Wraps)
  • SMM (Summary of Material Modifications)
  • SBC (Summary Benefits & Coverage)

It is great when you have excellent brokers and providers who assist with notices, but it is you who will be fined if something is not complete.

Solution: Know all employee notice requirements, make sure ownership is assigned to get them out, and use good tools and resources to get them done on time. Have systems in place to be able to show what was sent to whom, how, and when.

Compliance Mistake #7:

Problem: Not training supervisors. Supervisors need training in responding to complaints, handling requests for medical leave or disabilities, interviewing, selecting, managing performance, handling corrective actions, giving feedback, team building, keeping documentation, and handling terminations.

What supervisors say and do can create a risk to your company, as they are representatives of your organization. Their decisions, actions, and inaction not only impact your potential for a lawsuit, but drive morale, engagement, turnover, motivation, and your overall work environment.

Solution: Make sure supervisors are trained and skilled in all employment and people management practices.

Compliance Mistake #8: 

Problem: Some organizations are unclear on what constitutes work time, especially in areas of breaks, arriving early, working late, meeting attendance, and travel time.

Solution: Create clear work time definitions and practices to obtain accurate time worked records. Establish policies for handling non-exempt travel, breaks, and meeting attendance.

Compliance Mistake #9:

Problem: Not having a clearly defined process for how the rate of pay is determined. Some apply no logic as to how pay is set other than it felt right or it was what employees were willing to work for.

The problem is this leads to potential pay discrimination against women and minorities.  In addition, employers may be paying too much or too little with no connection to the market or internal equity. Your pay system may not be driving your desired results and behavior or allowing you to attract and retain the best talent.

Solution: Establish a pay system with pay range minimum, midpoint, and maximum guidelines for each position based on market survey data and correlation with a job evaluation process that factors in internal equity. Have a process for assigning new hire offers, equity adjustments, pay reviews, and promotions.

Compliance Mistake #10:

Problem: Not keeping employee handbooks up-to-date with robust policies and best practices. Many employers don’t have a handbook at all, don’t keep them updated, or pull a copy off the internet and call it their handbook.

A good handbook communicates expectations, establishes consistent practices, and allows for set decisions on important things like vacations, holidays, and handling of time off. Having employees sign an acknowledgment of receipt further protects the organization with evidence that employees know the policies, requirements, and resolution process.

Solution: Create a good employee handbook and have it reviewed by a specialist to make sure you have strong policies to govern your employment practices. Evaluate your handbook at least annually and establish a relationship with professionals to keep you aware of needed changes.

Completing an employer compliance checkup and analysis will help you understand if you have areas of concern.

Employment Law and Employer Compliance

Reviewing all employment practices function by function is the best method to uncover missing practices or violations. Having a comprehensive professional review done by an independent organization is recommended to ensure you are not missing something important.

  • Recruitment, Selection & Staffing – Do your recruitment ads, job applications, interview questions, and selection practices inadvertently obtain information on a candidate’s age, sex, religion, race, national origin, color, genetics or sexual preference? Is there intentional or unintentional bias or discrimination in your hiring practices? Are all communications, questions and selection practices job-related?  Do you and others involved in candidate selection save the necessary information to defend hiring decisions?
  • Compliance in Staffing – Do you keep resumes, applications and interview notes for at least 6 months? Are all supervisors involved in interviewing and selection trained to ask the right questions, avoid the wrong ones and make decisions absent of illegal discrimination?
  • Compliance in New Hires & Onboarding – Do you establish a clear understanding of “at-will” employment through your job offer letters, employee agreements, new hire documents, and employee policy manuals? Have you created unintended employment agreements, contracts, or benefits? Do you collect fully completed I-9 documents, W- 4s, benefit enrollment forms and other required documents? Do you classify employees correctly as exempt or non-exempt according to the Fair Labor Standards Act? Do exempt employees meet both the salary and job tests?  Do your independent contractor arrangements meet all requirements for a 1099 classification? Do you meet new hire reporting requirements with your local Work Force Services organization? Do you have workers’ compensation insurance on all employees?
  • Compliance in Salary – Wage & Hour – Do you collect and track hours for all nonexempt employees? Do you pay overtime in accordance with applicable law? Do you meet state-specific requirements for minimum wage and overtime? Do you pay for required training time, unauthorized work time, prep time, and travel time? If bonuses are paid, do you calculate overtime based on the total average wage? Are exempt employees paid a regular set wage? Do you pay exempt employees for the entire day for any day where they work any time? Do you meet state lunch and break requirements? Do you have written authorization for all payroll deductions? If you employ minors under the age of 18, do you meet special work hours, breaks and job restriction requirements? 

Compliance with Employment Files & Posting Requirements

Do you keep employee files and information restricted and secured? Do files keep confidential information separate from supervisor-accessible information?  Do you display all required state and federal workplace posters?

  • Leave Management: FMLA, Military, Maternity, and other leaves– If applicable, do you follow leave requirements? Do you have a qualifying process and use proper documentation for all leave situations? Do you notify employees of their leave rights? Are supervisors trained to handle requests for all types of leaves afforded to employees? Do you have clear policies for all leave situations?
  • Disability – Do you make reasonable accommodations, if requested by disabled employees? Are supervisors trained in how to respond to requests for work accommodations related to a disability? Do you have a formal process to review and approve requests for accommodation?
  • Terminations – Are you wrongfully terminating employees?  Do you meet WARN requirements for reductions in force? Do you meet federal and/or state requirements for final paychecks, payment of wages and unused vacation/PTO? Do you properly handle COBRA for qualified individuals? When discharging employees, are they handled professionally without escalating conflict or anger?
  • Corrective Action – Do you handle all employment decisions and actions consistently and fairly? Do you have defined disciplinary actions? Do you clearly define expectations and situations that warrant corrective action? Are leaders trained in how to coach employees and resolve non-performance issues?
  • Policies and Procedures – Do you have an up-to-date employee handbook? Are you missing any critical policies or procedures? Do you collect an acknowledgment of receipt from all employees? Are policy changes clearly communicated? Are all policies followed? Do you state that you have the right to modify your policies and practices? Are supervisors restricted from making binding statements contrary to policy in your handbook?
  • Benefits Administration – Are employees enrolled or provided with a waiver of medical and dental benefits within 30 days of eligibility?  Do you meet employee health and welfare notification requirements? Do you have COBRA administration in place that meets all federal and state COBRA requirements? Are you compliant with HIPAA regulations? Do you provide a Summary Plan Description or SPD Wrap for all health and welfare benefits?
  • Compensation – Do you pay similar wages for individuals in the same position? Do you have a method to assign pay differences that is job-related? Can you defend pay differences for women and minorities in comparison to white, male employees?
  • OSHA/Safety – If applicable, do you meet all OSHA requirements? Do you have safety policies and practices that address all safety risks? Do you have the required protective gear? Are employees trained in safety requirements? Do you have a hazard communication program? Do you maintain the required OSHA log 300 for all accidents? Do you meet hazard communication requirements?  Do you have EPA concerns?

Knowing where your employment laws risks are and taking steps to comply are essential in today’s ever-changing, increased enforcement environment.

Managing Employment Law & Other HR Compliance Needs

Employer compliance with employment law and other HR regulations can seem like a daunting task, but it is essential for your business success. Luckily, you don’t have to manage compliance alone. 

If you need help meeting your HR compliance needs, contact us to get started analyzing your needs to create a personalized management plan.

Author: Ken Spencer, President, HR Service, Inc.

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