Consequences of Non-Compliance with Employment Laws
By Dan Darabaris
Running a small business is challenging. You’re focusing on attracting and retaining workers, generating new customers, keeping abreast of the competition, deadlines, supply chains . . . The list of your day-to-day tasks and stressors goes on and on. I’ve found that one thing that really stresses employers is complying with employment laws. Knowing what you must do, what you can’t do, how to correctly file paperwork, along with how to submit and store it requires staying on top of ever changing rules and regulations. As an outsourced HR professional, I’ve seen first hand what a mess it can be when small business owners try to handle employment compliance on their own. It’s scary! One mistake or failure to follow a rule can result in dire consequences.
What Happens If You Violate Employment Laws
Federal and state governments take employment law enforcement very seriously. Businesses must educate themselves about the labor laws they are required to follow and know how to properly address health and safety, child labor, minimum wages, overtime, workers compensation, anti-discrimination, mandated leaves, record keeping, and more. Ignorance or a mistake is no excuse for a violation. Failure to comply could have the following, quite damaging, repercussions.
Penalties
The most common penalty for violating a labor law is a fine. How much you will have to pay hinges on a variety of factors such as which law you violated and the size of your company. Depending upon the violation, you may also have to provide back pay and benefits. It’s important to note that the penalty is for each occurrence. For example, each time someone is paid incorrectly, the government can look back three years, or longer if it is deemed willful. This can mean up to 52 penalties per year for each employee and can amount to hundreds of thousands of dollars.
Prison Time
It’s possible that if you don’t have the money to pay the penalties, the court could order you to be imprisoned. If you committed a felony in conjunction with the violation, say falsifying business records to try and cover your violation, you could face prison time on top of paying penalties.
Civil Lawsuits
In addition to the government coming after you, so could your employees. Your workers can sue you for claims related to discrimination in your workplace, workplace harassment, sexual harassment, illegal interview questions, wrongful termination, overtime violations, illegal decisions about medical requests, docking pay, unpaid wages, failure to provide breaks, failure to maintain time records, and more. These lawsuits can be time consuming and quite costly – you can also be required to pay for the employee’s legal fees incurred. It’s important to note that protections from being incorporated do not apply to sexual harassment claims. That means, regardless if your company is an LLC, the courts can go after personal assets to pay judgments.
Audits
A single complaint can trigger an audit by a government agency, and that can snowball if more violations are found. Not only is the audit a time consuming nightmare, it can result in the penalties mentioned above, and also restitution if monies are owed to employees.
Damage to Reputation
Not complying with employment laws can have a negative impact on your business’s reputation. Your actions, or failure to act, can become public knowledge, damaging your relationships with all stakeholders. Workers won’t want to be associated with your business. Customers may boycott your products and services. And investors will shy away.
Business Closure
If the violations are severe enough, government agencies can even shut your business down.
The best way to avoid such repercussions is to be sure to have an experienced HR professional guiding you in terms of compliance.
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