SOURCE: Marks Paneth & Shron LLP

Marks Paneth & Shron LLP

February 28, 2011 10:46 ET

New Risk to Small Businesses: Crippling Penalties and Fines When Companies Violate New Employment Regulations

Enforcement Rises and Regulations Get Stricter as Revenue-Starved Agencies Tighten Enforcement, But Companies May Be Too Small to Hire Human Resources Departments, and Can Be Blindsided by Violations That Lead to Fines and Lawsuits, Says Authority on Employment Regulation at Marks Paneth & Shron; an HR Compliance Assessment Is the Answer

NEW YORK, NY--(Marketwire - February 28, 2011) - To the wave of risks facing start-up businesses, add one more: crippling lawsuits and premiums that can result when the business fails to comply with dozens of new human resources laws and regulations.

Human resources laws are under constant revision, and revenue-starved agencies are tightening enforcement. But businesses that are too small to have human resources departments can be blindsided by the complex and overlapping demands of new federal, state and local employment laws and regulatory requirements. HR violations usually involve paperwork and are not hard to correct -- but they can lead to fines, expensive employee lawsuits and skyrocketing insurance premiums, according to an authority on human resources systems and regulations.

"Start-up businesses are at risk because they often don't have human resources professionals on hand to help manage the complexity, but can have very complicated HR arrangements, for example involving contractors and consultants," says Eric A. Marks, MPA, MBA, SPHR, partner in charge of the Human Resources Consulting Practice at New York accounting firm Marks Paneth & Shron LLP. 

"Entrepreneurial businesses with 50 or fewer employees should seriously consider an HR compliance assessment to make sure they're current with the myriad laws and regulations that are already on the books or are coming down the pike," Mr. Marks says.

Mr. Marks is available for interviews and can author a bylined article on the HR risks for start-ups and the benefits of an HR compliance assessment. He can discuss:

  • The new web of laws and regulations.  Among the many new requirements small employers must grapple with are:

    • A revision to the Family Medical Leave Act, which requires written notification for several kinds of leave;

    • Revisions to the Fair Labor Standards Act, which tightens job classifications and overtime eligibility, and may require revised job descriptions;

    • The Construction Industry Fair Play Act, which sets out new guidelines for independent contractors;

    • Hospitality Wage law revisions that change pay standards and set new minimum wages for tipped employees, and

    • New Jersey laws extending family leave benefits, and New York laws extending bereavement leave to employees with same-sex partners.

    • Revisions to the Americans with Disabilities Act and the Civil Rights Act are soon to follow. 

      "Many of these laws require new workplace policies, procedures and documentation, and there are penalties for noncompliance," Mr. Marks says.

  • Why small entrepreneurial businesses are at risk. "Large businesses have fully staffed HR departments to keep track of regulations and produce the necessary policies and documentation," Mr. Marks explains. "Small entrepreneurial businesses generally do not. There might be, at best, an office manager charged with handling HR among many other matters. It's asking too much to expect this person to stay current with a vast array of regulations that are constantly changing. Even businesses with one or two full-time HR staff may find themselves overwhelmed."

  • The size thresholds that trigger problems for small businesses. "Businesses reach 'complexity thresholds' -- sizes where internal systems aren't adequate and need to change," Mr. Marks says. "This can happen either as they grow or as they shrink. Companies that suddenly find themselves with 15, 20, 50 or 100 employees need to review and probably change their HR capabilities."

  • The signs and "trigger events" that show that a business is likely to have HR compliance problems. Size thresholds are just part of the story, Mr. Marks says. "Businesses also need to watch out for other developments that can point to trouble with HR compliance. Significant changes to the business such as mergers, or the retirement of senior managers; newly hired or promoted supervisors or managers who may lack HR experience; creation or revision of an employee handbook; changes in employee morale, turnover, attendance or disciplinary problems, taking on government contracts where compliance requirements are often stricter, and major changes in state or federal regulations -- any of these are danger signs. They signal that the business has a fresh need to address compliance and make sure its house is in order."

  • The risks for businesses that don't comply. "Many employers feel that they're protected by employment practices liability insurance, and in the short term they may be right," Mr. Marks says. "But in the longer term, excessive claims by employees will drive premiums up, and government assessments and bad will with employees can damage the business irreparably. It's much more cost-effective to take action up front by conducting an HR compliance review."

  • Why an HR compliance assessment makes sense how to conduct one, and where to turn for help. "An HR compliance review scans internal policies and outside developments, and detects gaps, or key practices that have been omitted," Mr. Marks says. "It flags missing, non-compliant or insufficient documentation, inadequate record-keeping, misclassification of jobs, and problematic policies and practices. Reviews also highlight key metrics such as turnover rates that businesses can use to flag future problems early.

"The best way for a small entrepreneurial business to conduct an HR compliance assessment is to engage experienced professionals. A team of HR professionals and labor attorneys can conduct a top-to-bottom review, suggest changes and provide assurance that policies and procedures are up to date. The team can also serve as an on-call resource to identify new developments that might require future review. This outside HR team can serve up to the point when the business is large enough to maintain its own larger-scale HR function -- and can also support that function going forward."

"The HR regulatory environment is complex and is only going to become more so," Mr. Marks says. "Entrepreneurial businesses owe it to themselves, their employees and their customers to get their HR house in order. A compliance review is the most effective and efficient way for the business to do exactly that, and be confident that it is out ahead of the curve on HR regulation."

For more information, or to schedule an interview or arrange a bylined article, contact Itay Engelman of Sommerfield Communications at (212) 255-8386 or itay@sommerfield.com

About Marks Paneth & Shron LLP

Marks Paneth & Shron LLP is an accounting firm with nearly 475 people, of whom 64 are partners and principals. The firm provides businesses with a full range of auditing, accounting, tax, bankruptcy and restructuring services as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit, professional and financial services and energy clients. Visit www.markspaneth.com for more information.

About Eric Marks, MPA, MBA, SPHR

Eric A. Marks, MPA, MBA, SPHR is the Principal-in-Charge of Human Resource Consulting at Marks Paneth & Shron LLP. Mr. Marks provides leadership in strategic human resource and specialized business management issues for the firm and its clients. Mr. Marks is a facilitator and consultant with more than 20 years of executive management experience. He has been responsible for developing processes and systems to improve organizational capability in key business areas such as goal alignment, performance management, accountability, leadership, career development, change management and succession planning.

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