Running a small business is challenging, and studies reveal that only 1 in 3 businesses make it past a decade. While this can be attributed to the operational and economic risks that start-ups face, non-compliance issues also contribute to business failure. 

As a business owner, you’re so caught up in driving organizational growth that you neglect one of the most critical elements of success; business compliance. You, however, need to minimize legal liability by adhering to the set laws & regulations, else you risk being penalized. Here are the top 5 non-compliance mistakes you might be making and how you can avoid them. 

1. Failure to Adhere to Current Laws and Regulations

As an employer, it’s your duty to comply with new employment laws and regulations. Understandably, the cost and time it takes to remain compliant is usually high, and small businesses often find the entire process overwhelming. In fact, a U.S. Small Business Administration survey revealed that the compliance costs in small companies are usually higher than larger firms by up to 60%. However, the penalties for non-compliance are very harsh and can result in business failure.

Make sure you also adhere to the applicable registration and reporting requirements in your state. For example, if you’re a Texas employer, you’re required to register with the Texas Workforce Commission if you’re liable for unemployment insurance tax in no more than 10 days. 

It’s also important to note that regulations are constantly changing, so watch out for new laws. 

2. Poorly Drafted Employment Agreements

The foundation of a healthy employer-employee relationship is a properly drafted agreement. Make sure you include terms such as the classification of the worker ( exempt/non-exempt, independent contractor, or employee), the duration of the employment terms, and the rights & restrictions of the worker once the contract is over or upon termination. The compensation and benefits packages should be clearly laid out, including your vacation policy, sick days, and time off. 

Poorly drafted employment agreements only open your business up for legal liability, so be very specific. You should also be mindful of the employee’s prior obligations from their previous employer, including non-disclosure agreements and sensitive documents. 

3. Failure to Implement Restrictive Covenants

Confidentiality agreements are great tools for protecting your business’s intellectual property on the termination of an employee’s contract. Make sure you draft restrictive covenants or mandates for employees that leave your company. For instance, you could craft a non-compete agreement that prevents a worker from starting a business similar to yours within the same locality and during a specified time frame. 

This will protect your business relationships and organizational goodwill. You should, however, note that non-compete agreements are enforceable at the state level, and only 47 states allow them. The terms of the non-compete should also allow for reasonable time & geographic scope and should be meant to protect your business’s legitimate interests. 

4. Inadequately Coordinating HR  Functions

Most small businesses often overlook coordinating HR functions and ultimately end up wasting valuable resources correcting mistakes. For instance, if one of your employees changes their family status, you need to adjust their payrolls and benefits to reflect this change. 

If your HR functions aren’t well-coordinated, transferring the information from one function to another increases your risk of errors. You could even end up making the wrong deductions opening you up for liabilities. 

Most small businesses use different systems to solve this issue, but you also have to integrate the different software and constantly monitor them to ensure they’re running properly. This is more costly and takes a lot of time. 

5. Failure to Consult With an Employment Attorney

Employment-related laws are often more complex than they seem. Unfortunately, small business owners mainly rely on their HR functions or ignore some employment laws in a misguided attempt to reduce their expenses. This not only opens them up for legal liability but also diminishes their ability to address employee issues effectively. 

Think of your business as an investment; for it to grow and increase its profitability, you need to protect it at all costs. Ensure you engage an experienced employment attorney who can help you bridge the gaps between your company procedures and the necessary compliant policies. This will ultimately shield your business from harsh penalties and expensive lawsuits. 

Protect Your Small Business by Avoiding the Above Legal Mistakes

Employment-related liability is common among small businesses, mostly due to non-compliance. By avoiding the above mistakes, you shield your business from liability lawsuits and ultimately enhance its profitability. 

The small business legal landscape is highly dynamic, and labor regulations are often amended & updated. You need to frequently review your policies to ensure you avoid the pitfalls of non-compliance. Some of the areas you should pay special attention to include workplace safety, licensing & permits, hiring policies, and wage & payroll issues. 

Make sure you also perform regular HR audits, as this will help you identify any discrepancies in your current procedures.