For small and midsized businesses, jumping through never-ending compliance hoops can quickly become an exhausting exercise that leaves them with less time to focus on their main mission: Growing their bottom line.
Many of these companies have lean HR teams who juggle everything from payroll to recruiting. That means they can’t always keep up with evolving regulations around paid sick-leave, overtime pay rules, and the Affordable Care Act (ACA). As a result, midsized employers are increasingly stressed about the volume of government regulation and are experiencing a growing number of fines and penalties for noncompliance.
According to the latest ADP Midsized Business Owners Study which surveyed more than 700 business owners, senior level and C-suite executives at U.S. companies with 50-999 employees, two in five ranked the amount of government regulations as their top business concern, a significant spike over the previous year.
Despite this increasing concern, about 80 percent of respondents expressed confidence that their companies would be compliant with payroll tax laws and government workforce regulations. This may be a misperception since they also reported an increasing number of compliance penalties. More than one-third of midsized employers said they experienced unintended penalties as a result of noncompliance, and nearly half didn’t know how many fines they incurred or how much they cost their organizations.
Of the midsized businesses that could recall the amount of fines they received in the previous 12 months, the average number doubled over the past four years to 13. Some of the leading reasons for these fines included noncompliance with payroll taxes, workers’ compensation, and sales and use taxes.
While business owners still reported less confidence in compliance with ACA regulations as compared to payroll tax laws and workforce regulations, the gap is narrowing. Compared to the previous two years, confidence levels in ACA compliance remained constant while confidence in compliance with payroll tax laws and workforce regulations dipped.
In fact, concerns over tax law compliance jumped at a higher rate than any other in the most recent study, with 18 percent of respondents ranking this as their number one worry compared to just eight percent the year prior. Further, worries over complying with wage and hour regulations showed a marked increase over prior years, with about one-third of study respondents expressing high levels of concern. This could be due to the fact that the number of wage and hour lawsuits rose nearly eight percent to 8,781 cases last year alone. Also, the U.S. Department of Labor recently unveiled sweeping changes to the Fair Labor Standards Act overtime rules. These regulations — which haven’t been updated in over a decade — are estimated to make nearly 4.2 million current workers eligible for overtime pay.
In order to comply, employers need to evaluate their employees’ current classifications and confirm compliance. They should then evaluate whether they will either raise salaries to maintain an exempt status, or maintain the level of pay and begin paying overtime when the employee works more than 40 hours in a single week.
Here are a few things midsized businesses should consider to help navigate the increasing layers of overall regulatory complexity.