The mistakes that keep coming up — after 40 years of helping small businesses out of HR trouble.
In four decades of HR consulting, I've seen the same compliance mistakes over and over — not because business owners are careless, but because employment law is complicated, it changes frequently, and nobody told them what they didn't know.
Most of these mistakes are fixable before they become expensive. A few of them, once triggered, are not. Here's what to watch for.
This is the most expensive HR mistake a small business can make. The IRS and Department of Labor have strict tests for what qualifies as an independent contractor — and "we have a 1099 agreement" is not one of them. Misclassification exposes you to back payroll taxes, penalties, benefits owed, and potential class action liability. If you control when, where, and how someone works, they're almost certainly an employee — regardless of what your contract says.
Non-exempt employees must be paid 1.5x their regular rate for all hours over 40 in a workweek. No exceptions for "we give them comp time instead" (illegal for private employers in most cases), "they're salaried" (salary doesn't automatically mean exempt), or "they agreed to it" (employees can't waive overtime rights). Wage-and-hour violations generate back pay, liquidated damages, and attorney fees — often doubled by the court.
Every employer is required to verify employment eligibility for every employee using Form I-9 — within 3 business days of their start date. Fines for I-9 violations range from hundreds to thousands of dollars per violation. The most common errors: failing to complete Section 2 in time, accepting improper documents, and not re-verifying when required. Audit your I-9 files annually.
In most states, having a written anti-harassment policy and a documented complaint process is your primary defense against harassment liability. Without it, you're exposed. With it — if you respond promptly and appropriately when a complaint is made — you have significant legal protection. This is one of the simplest compliance steps to take and one of the most commonly skipped.
Federal FMLA only applies at 50+ employees — but many states have paid sick leave laws, family leave mandates, and bereavement requirements that apply to businesses of any size. California, New York, New Jersey, Washington, Massachusetts, Colorado — these states have significantly expanded leave requirements. If you have employees in any of these states, know the rules before you deny a leave request.
Exempt (salaried) employees must generally receive their full salary in any week they perform work — with very limited exceptions. Docking a salaried employee's pay for partial-day absences, slow weeks, or disciplinary reasons can destroy their exempt status — converting them to non-exempt retroactively and triggering back overtime for the entire period. Get this one wrong and the liability can be significant.
Federal and state law require employers to post specific workplace notices — FLSA, OSHA, EEO, FMLA (if applicable), state-specific notices. These must be physically posted in a place employees can see them. For remote workforces, electronic posting may be required. Fines for non-posting are generally modest individually but signal to auditors that you're not taking compliance seriously.
Terminating an employee without a documented performance or conduct history is an invitation for a wrongful termination or discrimination claim. Even in at-will states, a termination with no paper trail looks arbitrary — or worse, retaliatory. Document every warning, every conversation, every missed milestone before you get to a termination decision.
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You don't need to hire a consultant to do a basic HR compliance check. Work through this list at least once a year:
One more thing: If you haven't looked at your state's employment laws recently, look now. State legislatures have been very active on HR-related legislation — paid leave, salary transparency, non-compete restrictions, and more. What was legal two years ago may not be today.
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This article is for general HR guidance purposes only and does not constitute legal advice. Employment laws vary by state. Consult a licensed employment attorney for guidance specific to your situation.