Is your recording keeping compliant with the law? How confident are you in how your company handles your personal information?
There are many rules and regulations in place regarding running a business. Staying in front of everything can be difficult and the consequences for non-compliance can be serious. As a business owner, it is your job to know and follow every applicable law, no matter how complicated they are or how often they change.
With new regulations, and updates to existing legislation, staying compliant is increasingly difficult. And even small mistakes and omissions, can lead to big problems. To help you find and correct problems in your business, we created this list of common mistakes businesses make and tips on how to avoid them.
Not keeping the right type of records
The Fair Labor Standards Act (FLSA) established minimum wage, overtime pay, recordkeeping, and other standards that organizations must follow. This act includes rules that require your company to collect and maintain specific information about your workers. While you can decide upon the format of your records, you have to include specific identifying information, including personal data, hours and wages.
Here is a list of basic requirements you must have on file:
1.Employee’s full name and social security number.
2. Address, including zip code.
3. Birth date, if younger than 19.
4. Sex and occupation.
5. Time and day of week when employee’s workweek begins.
6. Hours worked each day.
7. Total hours worked each workweek.
8. Basis on which employee’s wages are paid (e.g., “$9 per hour”, “$440 a week”, “piecework”)
9. Regular hourly pay rate.
10. Total daily or weekly straight-time earnings.
11. Total overtime earnings for the workweek.
12. All additions to or deductions from the employee’s wages.
13. Total wages paid each pay period.
14. Date of payment and the pay period covered by the payment.
Not keeping time records for the correct time period
In addition to the type of information you’re required to collect, you also have to safely store that information for a predetermined period of time. For instance, payroll records must be kept for three years. Timecards and related records must be kept for two years.
“Each employer shall preserve for at least three years payroll records, collective bargaining agreements, sales and purchase records. Records on which wage computations are based should be retained for two years, i.e., time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages.’ (Source)
Additionally, you may have to follow state rules regarding recording keeping. To make sure you’re in compliance with the law, you should audit your record keeping practices once a year. You’ll want to have a process in place for aging out inactive records into storage, as required by law. This includes checking with your state’s Department of Labor, staying up to date on any legislation impacting the storing of employee data, and continuing education for your HR and benefits staff.
Not paying terminated employees on time
Currently there is no federal law that requires a final paycheck to be given within a certain amount of time. There are, however, state laws that place time requirements on final paychecks. In some states, you may have to issue final paychecks immediately, while others allow you to issue them along with your normal pay cycle. Some states also make a distinction between an employee that is terminated and one that gives notices.
You’ll want to check your internal polices for issuing final paychecks against your state’s laws. Make sure everyone on your HR and payroll team understands the legal requirements as well as your processes for making sure you’re in compliance. To help you stay on track, you should have a checklist for dealing with terminated employees, as well as one for general employee offboarding.
Misclassifying workers as independent contractors
As a company, you have to pay income taxes, unemployment taxes, Social Security and Medicare taxes on your workers. Independent contractors, on the other hand, must handle these themselves. Misclassifying workers who don’t really live up to the IRS criteria for self-employment creates tax and legal problems.
Misclassifying employees as independent contractors has gotten some large companies in trouble, including FedEx and Flowers Food, the company behind the Wonder Bread brand. The problem comes from failing to meet the criteria required by the IRS for independent contractors, set up in what they call Common Law Rules:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
You should examine the Common Law Rules for independent contractors carefully before assigning this status to anyone. If you require them to report at a certain time, complete work in a specific way or set other requirements that closely guide their work, they are most likely an employee. If you truly aren’t sure, you should consult with an attorney. Additionally, you can submit a Form SS-8 to the IRS and they will officially determine the status for you. This can take up to six months though, so be prepared for a wait.
Keeping employee health info private
There are several laws in place regarding disclosing health information within the workplace and between outside parties and places of employment. This includes the Health Insurance Portability and Accountability Act of 1996 (HIPPA), the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA). Additionally, there are also state laws that place restrictions on collecting, storing and sharing private data.
Failing to protect health data, including unlawfully sharing and disclosing it, can lead to fines and legal problems. This can be as simple as having a manager disclose in casual conversation that a worker is taking time off due to stress. For this reason, it’s important that everyone within your organization understands their responsibility to protect personal information. The Department of Health and Human Services offers guidance and training materials that can help your organization stay compliance.
Failing to have an official employee manual
While there are laws requiring that notices be provided to employees and/or posted in the workplace on certain topics, there are no laws that require you to have an official employee manual. Having your policies and expectations in writing, however, does benefit your organization. You will want to include your attendance policy, dress code information, hours of operation, benefits information and policies surrounding leave.
You might need to create separate manuals to reflect local laws if you operate in more than one state. You may also want to have new employees sign a statement saying that they have received a copy of the handbook, and any time you issue an updated version. Just make sure that it’s clear that you’re only verifying receipt of the manual, and that the signature does not constitute any type of contract.
Creating an effective employee manual can be complicated. If you happen to use an outside company for HR and payroll support, ask them for help. Often times, administrative service companies have services to help you create a customized employee handbook.
Resources for small business
Now that you’ve seen some of the ways simple mistakes can lead to serious issues, you’re probably eager to learn how your company can stay out of trouble. The following resources can help you understand the laws and your responsibilities as a business.
The following resources can help you prevent small mistakes from causing big
List of every state’s Labor Office
Independent Contractor Info: Internal Revenue Service
Guide to protecting Personal Information: Federal Trade Commission
Health Information Privacy Guidelines: U.S. Department of Health and Human Services
Cybersecurity for Small Business: Federal Communications Commission
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.