employer compliance

Employer Compliance Checkup

The employment laws that apply to an organization are based on the number of employees, states where they have employees, whether or not a business is done with the government and which benefit plans are offered.

The following employer compliance checkup questions and analysis will help you understand if you have areas of concern.

Compliance in Employment

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 from 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 for work hours in excess of 40 hours per week? Do you meet state-specific requirements for minimum wage and overtime? Do you pay for required training time, unauthorized work time, prep time & 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 in 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, and Maternity– If applicable, do you follow family medical leave requirements? Do you have a qualifying process and use proper documentation for all FMLA situations? Do you notify employees of their FMLA leave rights? Are supervisors trained to handle requests for medical, maternity and military leave? Do you have clear policies for all leave situations, especially medical, maternity and military leave?
  • 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?
  • Benefit 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 hazards communication program? Do you maintain required OSHA log 300 for all accidents? Do you meet hazard communication requirements?  Do you have EPA concerns?

Biggest Employer Compliance Mistakes

  • Employer Mistake #1:

    Incorrectly classifying employees as exempt or salaried. Some employers classify employees as exempt from the Fair Labor Standards Act (FLSA) to save money and eliminate hassle. Exempt employees don’t get paid breaks, don’t have to track work hours, and are not entitled to overtime pay (time-and-a-half) when they work more than 40 hours in a defined work week. The problem, paying them a set salary each week with a puffed-up job title, 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 law requires employees to be paid a set salary of at least $455 per week and to pass one of the allowed job exemptions: Executives, Professionals, Administrative, Computer Related/IT, and Outside Sales.

    Keep in mind, when the Department of Labor (DOL) reviews your position classifications, they look at what the person does most of the time on the job, not their job title. If an Executive Assistant is to pass the Administrative test, for example, they must be able to show that they regularly exercise discretion and independent judgment with respect to matters of significance.

    Employer Mistake #2:

    Classifying employees as independent contractors.

    Some companies feel that having employees is too much hassle, and they make them independent contractors so they don’t have the worries of Social Security taxes, unemployment, worker’s compensation, benefits, and so on. If you use this approach, you’ll find yourself paying back taxes, unemployment, workers’ compensation fees, and fines.

    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.

    Mistake #3:

    Allowing non-exempt employees to perform work off the clockWhat 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.

    Mistake #4:

    Terminating employees who are out on medical or sick leaveWe 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 allows up to 12 weeks of protected job leave for employers with 50+ employees within a 75-mile radius for employees who have been with the company for at least one year and worked a minimum of 1,250 hours in the previous year.  The definition of disability has been expanded under the American Disabilities Act, making it much easier for someone to 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 which instruct employees and supervisors on how to handle all leave situations, especially medical-related leave.

    Mistake #5:

    Taking corrective actions without following set practices or policy guidelinesMany 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. It is a good idea to use a positive discipline approach where there is less punishment and 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.

    Mistake #6:

    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.

    Mistake #7:

    Not training supervisors. Supervisors need training in responding to complaints, handling requests for medical leave or disabilities, interviewing, selection, 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 are 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.

    Mistake #8:

    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.

    Mistake #9:

    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.

    Mistake #10:

    Not keeping employee handbooks up-to-date with good policies and practices. Many employers don’t have a handbook at all, don’t keep them updated, or pull some 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 furthers 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.

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

by Ken Spencer, President, HR Service, Inc.

Scroll to Top