3 Hidden HR Compliance Risks Every SMB Should Know

Quick look: To succeed, small companies must grow. However, HR risks lurking in the background can detract from important business development initiatives. Here, we explore three hidden compliance issues business leaders must keep top of mind and how a PEO’s HR risk management experts can allow them to focus on flourishing, not fine print.

Growing a business requires a focus on flexibility, adaptability, creativity, and quick problem-solving. With so many tasks on their to-do lists, small business leaders understandably may not be aware of the multitude of intricate compliance risks facing their organizations.

The following three HR risks are potentially residing within well-meaning companies—and can be mitigated by partnering with a professional employer organization (PEO) that provides comprehensive HR risk management services.

1. Evolving employee acquisition and termination protocols

To secure top talent before competition can scoop them up, many employers aim to fill open positions as quickly as possible, sometimes resulting in imprecise HR administration. However, recruiting-related HR risks continue to increase, and business leaders must be aware of:

• Artificial intelligence (AI) regulations: When used in tandem with human experts, AI can help organizations source prospects, prioritize candidates, remove recruiting bias, and more. However, employers must be aware of laws pertaining to its usage. For example, employers in New York City must obtain a “bias audit” for all automated decision tools.
• Salary transparency laws: A growing number of cities and states, again including New York City, require employers to include salary ranges in job postings and advertisements.
• Interview bias: Bias isn’t always obvious, especially during the hiring process. Hiring managers must understand the many types of interview bias and methods to avoid it.
• Remote workforce concerns: Hiring across the country (and the world) can open many doors for small businesses, but it also can create legal headaches if employers are unaware of how payroll, tax, and workplace safety laws differ geographically.

The potential risks extend to the employee termination process, as well. During this time, employers will be expected to provide documentation regarding the employee’s performance, proof of warnings issued, and communications demonstrating the organization has conducted itself within the scope of the law.

Lack of complete documentation or incomplete record-keeping can pose major problems as business leaders try to prove just cause for an employee termination. Standardizing the process for hiring and tracking employee performance generates a valuable paper trail protecting companies in the unfortunate event of a dispute.

While small businesses retain control over who they hire and fire when partnering with a PEO, the recruiting and HR professionals there can help them steer clear of non-compliance.

2. Increasing technology threats

Digital transformation is here to stay in the workplace—in fact, global spending on digital transformation technologies and services is expected to reach $3.4 trillion by 2026. While these tools help drive efficiency, productivity, and sustainability, they also generate risk.

Common cybersecurity threats can include malware, ransomware, phishing, social engineering, third-party breaches, and cloud-based attacks. Staying shielded against cybersecurity attacks is a must for small businesses in particular. Unfortunately:

• Almost half of all breaches impact businesses with fewer than 1,000 employees.
• Small businesses experience 350% more social engineering attacks than larger companies.
• The average data breach costs almost $3 million for businesses with fewer than 500 employees.

The privacy of an organization’s client and employee data also creates risk for small businesses. For example, New Jersey’s Data Breach Notification Amendment expanded the definition of personal information and revised notification requirements for various kinds of breaches. The law,  P.L.2019, c.95, defines personal information as:

• Social Security numbers
• Driver’s license or state identification card numbers
• Bank account numbers or credit/debit card numbers, in combination with other identifying information that could allow access to a financial account (like usernames, email addresses, passwords, and security questions)

Outsourcing HR administration can help organizations remain shielded from cyberattacks. The enterprise-level software PEOs and their customers use is a secure way to store all sensitive employee information. Built-in protections like end-to-end encryption and restricting access to certain departments or employee tiers ensure employers operate within best practices, thus protecting their exposure. Additionally, PEOs can provide an Information Protection Plan, cyber liability insurance, and employee education on cybersecurity best practices.

3. Misclassification of employee time off

Correctly classifying employee time off can be tricky for employers. Not all time off is not created equally. Paid leave, unpaid leave, personal time off, and medical leave each come with a set of qualifying events, communication requirements, and record-keeping regulations business owners must follow to the letter. There are many questions to consider when an employee requests (and takes) time off:

• Is the time off regulated by the Americans with Disabilities Act (ADA)? 
• Does the time off pertain to the Family and Medical Leave Act (FMLA)?
• Is it a workers’ compensation-related issue?
• When does the clock start ticking?
• Have you properly tracked the amount of time off taken?
• Are you applying the same standards across all employees at all locations?

For many small business leaders, a PEO partnership can help vastly with navigating employee time off rules and regulations. Outsourcing HR administration to federal and jurisdiction-specific employment law experts ensures you appropriately issue and track employee time off.

There’s safety in numbers

When small businesses rely on a PEO for HR risk management, they gain support and guidance to help keep them compliant with ever-changing hiring, termination, cybersecurity, and employee leave laws.

One of the most cost-effective ways for companies to ensure they’re protected from HR risks is to partner with a PEO whose team already possesses expertise in the rules and perils associated with their industries. With dedicated risk and compliance experts on your side, you can be sure no matter which laws change or where your day-to-day focus is pulled, remaining compliant will never be an issue.

Additionally, a PEO can provide daily support for Leaves of Absence (LOA), FMLA, and more. And ExtensisHR’s complimentary, full-cycle recruiting solution provides job advertisement creation, interview assistance, multistate compliance for remote workers, and more.

PEOs also assist in keeping small businesses secure. For example, ExtensisHR’s Information Protection Plan (a part of its Employer Protection Plan), ensures a company’s technology platform is monitored and updated with the latest enhancements to cybersecurity, data protection, incident response, operational risk management, controls assurance, client security management, workforce protection, business resilience, third-party management, security testing and analysis, critical incident response team, and awareness training.

ExtensisHR also offers cyber liability insurance, which covers expenses to defend against damages resulting from your liability to a third party or regulator from a failure in your security, data breach, or privacy violation. This covers costs including but not limited to replacing permanently impacted computer systems, restoration of digital assets, breach response, cyber extortion, business interruption, and extra expenses.

The right PEO can help small business leaders conquer the above HR risks (and more). Contact the experts at ExtensisHR to learn more today.