Navigating the ever-changing landscape of federal and state labor laws is more than just a legal obligation—it’s a financial imperative. Hefty fines, sometimes exceeding five figures, can harm your business and turn HR from an asset into a liability.
Understanding the cost of poor HR is also about safeguarding your company’s reputation and ability to attract and retain talent. When you understand your legal requirements, take proactive steps to avoid costly fines, and have a trusted PEO partner to help guide you, you can ensure compliance and maintain a thriving work environment.
Here are seven key areas where HR non-compliance can lead to significant fines and penalties (and what you can do to avoid them):
1. Work Authorization Documentation
Federal law requires every employee to have a complete Form I-9, verifying the person has legal work authorization in the US. Non-compliance fines can range from $281 to $2,789 per Form I-9 paperwork violation. The penalty is even higher (ranging from $698 to $5,579) for businesses who knowingly recruit, refer, or employ individuals without US work authorization.
I-9 compliance can be paper-intensive, but working with a PEO can help you manage it efficiently. For instance, our experts at Aspen HR can help you with:
- Auditing existing I-9s for all employees
- Gathering any missing information to ensure you stay in compliance
- Keeping I-9 documents and other sensitive employee information secure
- Meeting applicable state-specific I-9 e-Verify requirements
2. State Criminal History and Salary History Laws
If your company conducts background checks during the hiring process, you’ll need to comply with “ban the box” laws that prohibit asking candidates about their criminal history until a conditional offer has been made. Additionally, some states have passed salary history bans that attempt to address gender pay gaps by prohibiting questions about an applicant’s current or past compensation. Penalties vary by state but can be in the thousands. For example, Illinois fines companies $5,000 per salary history violation. With knowledgeable HR guidance, you can limit these risks, attract top talent, and comply with applicable law.
3. Employee and Contractor Classifications
Misclassifying employees as independent contractors or exempt from overtime can result in fines of $1,000 or more per violation. Additionally, you may be liable for the following penalties:
- Back pay: Unpaid overtime pay that the misclassified employee would have earned
- Payroll taxes: Back taxes, including Social Security and Medicare contributions, plus IRS penalties and interest for unpaid payroll taxes for each misclassified employee
- Workers’ compensation insurance: Medical expenses and lost wages for misclassified workers who experienced an injury and were denied workers’ compensation coverage
- Employee benefits: Costs for health insurance, retirement benefits, and paid leave that misclassified employees would have been eligible to receive
To avoid these penalties, you’ll need to classify employees based on their job duties and other criteria established by the Fair Labor Standards Act (FLSA). Partnering with a PEO like Aspen HR can ensure proper classification and compliance with FLSA and state-specific requirements. We can help with the following:
- Auditing employee job descriptions and conducting thorough job duty analyses
- Providing guidance on classification criteria
- Implementing best practices for worker classification
4. Equal Pay Requirements and Payroll Accuracy
Ensuring pay equity across your workforce isn’t just about fairness; it’s also required by law. For example, the Equal Pay Act prohibits gender-based wage discrimination between men and women performing similar roles. Violations are subject to a monetary penalty of up to $1,100 per offense.
Certain payroll errors, such as violating state minimum wage and income tax withholding laws, can also result in fines. For example, in Connecticut, wage payment violations can lead to fines of up to $5,000, felony charges, and possible jail time. Since state wage laws vary widely, it’s wise to work with your PEO partner to ensure accurate payroll processing and compliance with all relevant laws.
5. Family Medical Leave Act (FMLA) and State Leave Laws
Non-compliance with FMLA—such as not providing employees with their entitled leave or failing to pay them as required during a leave—can result in fines of $211 per violation. Although this amount may seem small, it can quickly accumulate with multiple violations over time. Additionally, you may be required to provide back pay and reinstate any lost time-off accruals. A PEO can help you comply with FMLA and the dozen or so state leave laws, which also carry penalties for non-compliance.
6. Benefits Administration
Several laws, including the Employee Retirement Income Security Act (ERISA), Affordable Care Act (ACA), and Consolidated Omnibus Budget Reconciliation Act (COBRA), govern the administration of employee health and retirement benefits. With the ACA, for instance, failing to offer affordable healthcare coverage can result in penalties between $2,970 and $4,460 per full-time employee. Additionally, not meeting COBRA benefits continuation requirements can lead to tax penalties of $100 per day for each qualified individual, or $200 per day for multiple family members. Compliance with these laws involves meeting minimum legal requirements for benefits and understanding the necessary filings and communication deadlines. Partnering with a PEO benefits provider can help you stay on track.
7. Workplace Discrimination
To ensure non-discriminatory hiring and HR management practices, you must comply with Equal Employment Opportunity Commission (EEOC) and Americans with Disabilities Act (ADA) requirements. Penalties for EEOC violations, such as discriminatory pay, promotion practices, and workplace harassment, can include financial penalties ranging from $50,000 to $300,000, depending on the size of your workforce. Similarly, if your business doesn’t provide the required accommodations for individuals with disabilities, you could be liable to pay up to $75,000 for a first violation and $150,000 for subsequent violations. Instead of risking these costly penalties, you can enlist the help of strategic HR support to keep your workplace and HR processes free of discrimination.
Ensure Compliance and Peace of Mind with Aspen HR
Even the most innocent of HR mistakes can be costly for your business, but thankfully, many non-compliance penalties are entirely avoidable. Aspen HR offers the expertise and resources to help you stay compliant and provide a superior work environment for your employees. We’re the only PEO with an in-house employment attorney to help clients navigate HR compliance. And, our clients receive employment practices liability insurance (EPLI) for added protection, at no additional cost.
Speak to a member of our team and discover how we can help your business thrive.
