Don't Underestimate the Devastating Consequences of HR Mistakes

The functional area of human resources is no less complex than accounting. There is a mind-numbing list of things that a competent HR professional needs to know about.

learn more about Doug and Polly White

By Doug and Polly White

Opinions expressed by Entrepreneur contributors are their own.

Too many people think that human resources is a low-skill role that primarily involves paper pushing and can be done by essentially anyone. Nothing could be further from the truth.

The functional area of human resources is no less complex than accounting. There is a mind-numbing list of things that a competent HR professional needs to know about, such as the Family and Medical Leave Act, COBRA, wage and hour rules, affirmative-action programs, worker's compensation, unemployment hearings, hiring guidelines and termination procedures. It is truly scary.

Related: 5 Vital HR Tasks Startups Must Complete Before Hiring

It can be very expensive to get these things wrong. For example, one mistake many small businesses make is to classify a group of employees as exempt (ones who do not receive overtime pay) that should be non-exempt (those that receive overtime pay). In such cases, the result of a wage and hour audit can be financially devastating. In addition to fines, your business will have to pay the overtime that it should have been paying.

You may not have to go back many years for this to be a big number. Because you won't have good records of the overtime hours worked by employees you thought were exempt, the auditors will estimate this number for you. Trust us, the estimate will not be on the low side. While the costs can cripple your business, the time spent on the audit and fixing the mistakes can be equally damaging.

For years, many small businesses have been able to fly under the radar. This is changing. The Obama administration has put a focus on giving all workers a pay increase. The Department of Labor and IRS are making the rules more difficult for small businesses and have greatly increased enforcement efforts.

The chance of an audit is much higher than it was only a few years ago. Attorneys are now advertising on television trying to get potentially misclassified people to come forward. When it comes to most HR rules, small businesses are much better off being safe than sorry, but you can't be safe if you don't know the rules.

Related: 3 Innovative Ways to Structure Your HR Department

If you have even one employee, many federal and state employment regulations apply. To make sure your business is compliant, pursue one of two options:

1. Hire a qualified HR professional.

The best way to know that a prospective HR person is well qualified is to hire someone who holds an HR designation from the HR Certification Institute or the Society of Human Resources. People who hold these designations have passed a test ensuring that they know the rules and regulations.

Find out if potential candidates hold a current designation. To maintain this designation, HR professionals have to meet continuing education requirements that ensure they remain abreast of changes in their discipline.

2. Get outside help.

Many companies need professional HR help, but can't afford a full-time professional. In such cases, hire a fractional HR manager or a consultant. Again, make sure that your outside help has the proper designation and that it is current.

Such a person can help your business establish proper processes and procedures to ensure it remains compliant. A less knowledgeable person (for example, an administrative assistant) can implement the procedures. The HR professional will be available to help on an as-needed basis and she or he can periodically review the work to ensure things remain on track.

Human resource issues are important. Don't take shortcuts that could cripple your business.

Related: A New Wave of HR Technology Is Disrupting the Market

Doug and Polly White

Entrepreneurs, Small Business Experts, Consultants, Speakers

Doug and Polly White are small business experts, speakers and consultants who work with entrepreneurs through Whitestone Partners. They are also co-authors of the book Let Go to GROW, which focuses on growing your business.

Related Topics

Editor's Pick

The Dark Side of Pay Transparency — And What to Do If You Find Out You're Being Underpaid
Thinking of a Career Change? Here Are 4 Steps You Can Take to Get There.
A Founder Who Bootstrapped Her Jewelry Business With Just $1,000 Now Sees 7-Figure Revenue Because She Knew Something About Her Customers Nobody Else Did
Everything You Need to Know About Franchise Law
Business News

Report: Amazon, Jeff Bezos Eyeing Purchase of AMC Theaters

AMC operates 600 theaters across North America, Europe, and the Middle East.

Science & Technology

Digital Transformation Is a Must. Here's How the Voice of the Customer Should Help Drive It.

Digital transformation will help your organization survive, but to get it, you need to listen.

Business Culture

How to Unlock Your Team's True Potential by Creating a Team of Leaders

A team of leaders is crucial for your business to stay ahead of the curve and out-think your competition.