What Are the Most Important Legal Issues in Human Resources Management?

Legal Issues in Human Resources Management

Laws and legislation affecting human resources in the U.S. can have an impact on the decisions you make for your business. Federal, state, and local governments continually adjust employment regulations. Keeping up with the legal changes can be more than a full-time job. As a business leader, how can you be certain you are up-to-date on the evolving laws and legislation affecting human resources?

The HR legal responsibilities businesses face increase each year. On average, small businesses spend at least $12,000 annually to manage government regulations and at least 10 hours every month deciphering and overseeing regulation compliance. Human resource management laws and regulations make up a bulk of the legal issues businesses face. The National Small Business Association conducted a survey to analyze the impact of regulations on businesses. They identified several areas of regulations that are confusing and burdensome to businesses. Four of these categories of regulations are directly related to HR administration and compliance.

Health Insurance and the Affordable Care Act

The 20,000 pages upon which the ACA and its regulations are written weigh in at about 200 pounds. And the ACA is getting heavier each year and is one of the current HR legal issues in the news. In just the first few months, the Biden administration has already made several significant changes to the ACA and has pledged more reforms to bolster the healthcare legislation.

In addition to increasing HR rules and responsibilities, the ACA is also getting a boost in oversight. President Biden is seeking a 10 percent budgetary increase for the IRS, a significant portion of which is going toward increased oversight on corporate tax returns. In 2015, the IRS calculated over $15 billion in ACA-related penalties to companies. With an increased oversight budget, businesses can expect closer scrutiny and increased penalties over ACA compliance.

All this means that ACA legislation applicable to human resource management will only get larger. The costs associated with the ACA go beyond administrative costs and penalties. Healthcare premiums for family coverage has risen every year and in 2019 cost an average of $14,000.

Even though the ACA increased their HR legal responsibilities, many businesses fear uncontrolled costs will continue to climb without further government intervention. The Kaiser Foundation conducted a survey that found that 85 percent of large employers believe the government should do more to manage healthcare costs. These businesses also said that they will be unable to provide health benefits if costs are not controlled.

As healthcare costs rise and government regulation increases, small and mid-sized businesses face the highest risks. These businesses endure the highest premium increases, in large part because they have a smaller pool of workers. Each major healthcare expense increases the average spent per employee, resulting in higher quotes from insurance providers. Partnering with a PEO can give small businesses the purchasing power of large corporations. Businesses that partner with a PEO can benefit from the PEO’s size and reduce their insurance premiums.

Payroll Tax and Employee Compensation Compliance

Paying employees for the time they worked seems like a simple equation. But payroll isn’t as simple as multiplying hours worked by hourly wage. The reality businesses face includes payroll tax deadlines, handling garnishments, and deciphering appropriate tax liabilities and HR laws by state, among other legal burdens.

And, businesses aren’t always doing a great job with payroll. The Workforce Institute found that over 50 percent of Americans dealt with paycheck errors. These errors are costly to businesses. If your business mistakenly overpays an employee, you may not see that money returned.

Payroll problems are just the kind of HR errors that contribute to employee turnover. High employee turnover is costly and sabotages a company’s productivity and product quality. Some experts estimate that each vacant position costs a company 50 to 200 percent of that position’s salary.

Payroll errors aren’t the only reason employee compensation is an important legal issue facing businesses. Correctly classifying employees is essential to compliance. If you misclassify employees, you risk penalties for unpaid taxes or noncompliance to ACA if your “part-time” employees are entitled to benefits.

Another legal risk, the types of employee classifications, can leave your business vulnerable to stiff penalties or even a criminal conviction. Like many regulations governing businesses, rules surrounding the classification of independent contractors change significantly as Presidential administrations change. Without appropriate guidance, businesses risk overlooking these changes and paying hefty fines for noncompliance.

Legal Issues Surrounding Retirement and Pension Plans

The regulatory burdens and legal issues surrounding retirement and pension plans have been around for years. But the coronavirus pandemic has added to the headache of managing retirement funds for employees.

The CARES Act opened 401k’s to employee withdrawals related to hardships faced due to Covid-19. With 14 percent of Americans tapping into their retirement savings as a result, chances are your small HR department was scrambling to keep up with the administrative fallout. Amid the extra busy work, HR professionals also had to be on the lookout for further changes to the SECURE Act.

Originally established in 2019, the SECURE Act underwent further changes late in 2020. The law makes retirement plans more affordable for businesses and easier for employees to participate. It’s one of the many ways the federal government is revamping its regulations surrounding retirement plans in an effort to increase employee participation.

The ever-changing landscape surrounding retirement plans is one of the reasons small business owners cite retirement and pensions as one of the most burdensome areas of regulations. Retirement plan sponsors face serious penalties for noncompliance with ERISA, the federal law that governs voluntary retirement plans. Just one improper distribution can cost your company $16,000.

Workplace Safety Compliance and Legal Issues

The Occupational Safety and Health Administration, also known as OSHA, oversees the employer responsibilities and laws that protect employees in the workplace. OSHA fines can top $134,000. Like all government regulations, labor laws for employees routinely expand and change.

The coronavirus pandemic spurred expanded OSHA-related regulations and hefty fines. In 2020, OSHA fined businesses $4.2 million for infractions relating to COVID-19 precautions. Businesses with a small HR team may struggle to keep up with evolving rules.

There were 2.8 million workplace injuries in 2019, according to the Bureau of Labor Statistics. As onerous as OSHA compliance may seem, companies with just over a 9 percent reduction in injury rates saved an average of $350,000. Keeping workers safe is one of the most important legal and ethical issues in human resource management.

Due to the legal risks of workplace safety, workers’ compensation insurers routinely schedule audits. Your HR staff can spend countless hours preparing for these audits. Insurers require access to tax forms, accounting ledgers, and payroll records as well as other documentation. Auditors will be looking for compliance issues to the many federal and state laws governing workplace safety.

PEO Can Reduce Legal Issues in HR Management

Government penalties and fines aren’t the only consequences of the mistakes businesses make when handling important legal issues in HR management. Employee lawsuits cost an average of $250,000. These lawsuits arise from a variety of breaches in employee management, from discrimination to retaliation to privacy issues.

A PEO may be able to help you reduce your risk of employee lawsuits and penalties resulting from non-compliance. Although your employees are critical to the success of your business, the accompanying HR burden isn’t central to your core business. As a result, only one or two people in your organization may fully understand the legal issues in HR management.

A PEO, however, specializes in HR management. The fully staffed, expert team at a PEO can help you navigate the complex legal issues in HR management. When government regulations are updated or changed, the PEO can help you make the necessary adjustments.

The PEO will also take over payroll, benefits administration, and workplace safety issues. Because PEOs efficiently and effectively manage all aspects of HR for their clients, businesses that partner with a PEO save an average of $1,775 per year per employee. These businesses also enjoy increased growth and higher employee satisfaction.

Most importantly, PEOs can expertly navigate complex legal issues in HR management. Business owners spend a significant amount of time deciphering the legislation or regulation that will apply in all work situations their employees face. When they partner with a PEO, owners no longer have to stress over government regulations affecting human resource management. Instead, they can focus on their core business.

Final Thoughts

Important legal issues in human resource management affect nearly every aspect of your business. If you’re like most business owners overburdened with running your business, you probably don’t want to spend a significant amount of time deciphering human resource management laws and regulations. Small and mid-sized businesses can be challenged to stay up-to-date on the changing legal environment of human resource management. These businesses are also at a disadvantage when purchasing the insurance and benefits that help attract high-quality talent.

A PEO can help you navigate the complex issues and challenges of HR in legal services. Partnering with a PEO will also help your business purchase more affordable benefits for your employees. Most importantly, a PEO will protect you from the legal issues of HR management while you focus on tasks related to your core business. 

Do you want to learn more about how a PEO can simplify your HR? Contact us today.