This article was updated on July 10, 2018.
Regulatory compliance is a major area of focus for HR leaders and executives at organizations of any size, but compliance management for midmarket companies carries its own set of unique challenges. When your organization is too large to manage risks with spreadsheets but lacks the compliance staff of larger peers, required activities can cut into profitability.
The ADP 2015 Midsized Business Owners Study found that 41 percent of midmarket business owners rank compliance as a top concern, and 36 percent faced unexpected penalties for noncompliance in the past year. Among the quickly changing regulatory requirements, how can business owners stay compliant and productive at the same time?
To help you shape your strategy, here are five of the most pervasive — and possibly dangerous — compliance myths that midsized owners should rethink immediately.
Myth #1: My Industry Has the Hardest Regulatory Requirements
It's true that certain industries, such as finance or health care, are subject to more rigorous regulatory requirements; however, no organization is "safe" from the challenges of compliance. Compliance requirements and challenges can vary significantly depending on a wide array of factors, such as the number of employees with seasonal or variable schedules.
For example, according to an ADP case study, restaurant CFO Bruce Clark faced a compliance challenge that required monitoring both part-time and full-time employees with variable schedules throughout the year to remain compliant with both the Affordable Care Act (ACA) and the Fair Labor Standards Act (FLSA) and their changing regulatory requirements. He, therefore, turned to a time and labor management system that could "identify and address compliance issues that may result from interactions with government agencies before they become a problem."
Myth #2: My HR Technology Protects Me
With over one-third of midmarket organizations facing unexpected compliance fines, according to the Midsized Owners Study, it's clear that many organizations mistakenly believe they're protected. Tammy McCutchen, principal at Littler Mendelson's Washington D.C. office, has found that some of the costliest wage-hour mistakes are caused by systems for timekeeping and other key activities. For example, "While employees must be paid for all hours worked, many timekeeping systems default to scheduled hours. If employees perform work before or after their shifts, your technology set up could be introducing liability. You should require all non-exempt employees to punch in and out," McCutchen advises.
Myth #3: Wage Garnishment Is Relatively Simple
Think your organization doesn't need to worry about compliance with wage garnishment laws? According to research from ADP, the opposite is more likely true. "New and evolving legislation" could be impacting your organization. In some cases, employers could be liable for 100 percent of an employee's garnishment if they fail to adhere to processes correctly. Expertise and technological upgrades can help ease this burden and help employers stay current and compliant with all applicable legislation.
Myth #4: ACA Reporting Is an Annual Activity
If your midsized organization is one that handles all ACA compliance activities internally, there's even more reason to avoid viewing ACA reporting as an annual activity. In fact, there's no better time than the reporting "offseason" to ensure your infrastructure is prepared.
The ADP Midsized Owners study indicates that only half of business owners are confident in the interoperability of their payroll, HR and benefits systems to generate the data needed for reporting. Whether you're among the 50 percent concerned with data quality, or just trying to optimize processes, there's no better time than the present to seek out the expertise necessary to make sure your data quality, processes and systems are both strong and agile enough to navigate the sometimes circuitous path to compliance.
Myth #5: The FLSA Changes Are No Big Deal
The DOL's overtime pay rule was enjoined, nationwide, by a Texas federal court judge on Nov. 22, 2016, just before the new requirements were set to take effect on Dec. 1, 2016. The rule would have more than doubled the required salary level, from $23,660 to $47,476 for a full-year worker, to qualify for the FLSA "white collar" exemptions. The DOL has appealed the ruling.
The Department of Labor's "Duties Test" used to determine employee eligibility for exemption was not impacted by updates to the FLSA. However, as organizations face changes to compliance requirements, you shouldn't wait to review whether your executive, professional and administrative employees legally qualify for exemption.
Compliance management for midmarket companies has never been simple, and updates to the FLSA and changes in other applicable legislation haven't made the task any easier. By employing the right combination of technology and expertise, midsized business owners can turn their previously reactive compliance efforts into more forward-thinking and agile compliance solutions.