The dangers of non-compliance for your business

Our latest series of business definitions will explore “non-compliance.” According to the unabridged edition of the Collins English Dictionary, the definition of non-compliance (nɒnkəmˈplaɪəns ) is a “failure to comply; refusal to yield, agree, etc.”

Many of the examples of non-compliance in United States dictionaries surround healthcare, specifically regarding patient compliance. For instance, one example may be a patient who refuses to take prescribed medication. However, medical non-compliance is not the only version of non-compliance.

Today, we’re going to jump in a little further than your average dictionary or thesaurus. Obviously, as business professionals, we are far less worried about the medical definition of noncompliance and much more concerned about how it relates to the business world.

Today’s business owners have a wide array of concerns, the most primary concern is turning a profit and remaining successful. However, financial success is of little consequence if a government entity dissolves your company because you did not meet the legal requirements.

We’ll discuss what non-compliance is and how it impacts small business owners. We’ll touch on “the bad,” outlining the consequences of non-compliance and what could happen if you don’t follow official rules for your industry. We’ll provide some business-specific examples and cases of non-compliance to clarify the issue further. And finally, we’ll give you some tips for avoiding non-compliance.

What is corporate compliance?

Corporate compliance involves adhering to a wide range of laws and standards designed to protect a business’s agents, employees, and other stakeholders, all while making sure the company acts appropriately.

From obeying Occupational Safety and Health Administration (OSHA) guides to following standards for the payment of wages, businesses must comply with local, state, and federal laws at all times. Failure to do so would be a non-compliant action.

New businesses owners may find it challenging to keep up with all the regulations they must follow. However, it’s crucial for you to understand what may happen if you’re non-compliant in your business dealings.

Areas where compliance is necessary

Because of the vast number of government guidelines for compliance, it can be easy for business owners to find themselves in violation. This means leaving their companies open to financial penalties, lawsuits, audits, and even dissolution.

Having a complete and thorough understanding of corporate compliance is crucial to protecting your business. Below are just a few areas of the law in which failing to comply can cost you your business.

Wage issues

Employers who neglect to pay workers appropriate wages may risk violating compliance with their states’ minimum wage laws (not to mention federal wage laws). Along with ensuring that employees receive fair payment for every hour they work, many businesses are required to pay a higher price for overtime hours. Additionally, some employers may need to offer health insurance to their employees. Failure to adhere to all wage-compliance laws can result in audits and fees for the business in question.

Example: The Department of Labor’s Wage and Hour Division (WHD) recently obtained a consent judgment of nearly $1 million to secure the payment of back wages from Manna, a restaurant chain operating in New York.

Hiring

Asking inappropriate questions or engaging in improper conduct and discrimination during a job interview can leave companies vulnerable. For example, candidates who are asked how old they are may opt to sue for age discrimination if they don’t get the job. Following all hiring-compliance guidelines is the best way to avoid unpleasant legal action in the future.

Example: Businesses found to have discriminated against an applicant’s protected class (e.g., religion, national origin, sex, etc.) can expect to pay up to $300,000 in compensatory and punitive damages, depending on the size of the offending company.

Employing minors

If your business employs minors, federal regulations govern the age at which you can hire them, the number of hours they can work, and the lowest minimum wage you can offer. There can be strict rules that are specific to various industries. For instance, there are different age requirements for agricultural and non-agricultural businesses. Violations can cost a company thousands of dollars in fines.

Example: In 2012, the WHD fined Ultra Mart Foods $20,000 for violation of federal labor laws. The store allowed eight minors to work as scrap paper balers. It was the second time that the organization was fined for this offense.

Workplace safety

As a business owner, you have a responsibility to ensure the safety of everyone you employ. Not only does failing to meet safety guidelines expose you to lawsuits by employees injured on the job, it may also result in crippling fines from OSHA.

It’s also critical to ensure that your company has thorough workers’ compensation coverage to remedy workplace injuries and insulate yourself from lawsuits.

Workers’ compensation is required in every state except Texas, and it covers all medical costs and a percentage of lost wages if an employee is injured while working. Failure to provide workers’ compensation can result in steep fines or Stop Work Orders.

Example: If you’re alerted to an OSHA violation, don’t hesitate to correct it. Allegations of blocking exits and hazardous conditions at a Boston-based Dollar Tree Store resulted in a fine of $177,800.

Licensing

For many businesses, staying compliant requires holding various business licenses and permits. For example, a restaurant that sells alcohol must possess a license from the Alcohol and Tobacco Tax and Trade Bureau in addition to a current health permit. Hair salons, barbers, and insurance companies are examples of businesses that require licenses and permits.

You may not only need to file for federal licenses and permits but state and local ones as well. Many municipalities have a licensing and authorization division that will better guide you in this area.

Example: The state of Mississippi recently closed a woman’s eyebrow threading business because it was operating without a required esthetician’s license.

Labor law poster

All US businesses are required to display current federal and state labor law posters in a conspicuous area visible to all workers. Federal and state labor law is continually changing, and your signs must reflect the most recent changes at all times. These posters inform workers of the rights they’re entitled to in the workplace.

For a service that automatically creates and ships both federal and state compliance posters, check out QuickBooks Poster Compliance Service.

Example: A Syracuse-based restaurant owner recently paid $184,000 in labor-law penalties. One of the included violations was the fact that the man did not display a required minimum wage poster.

Tips for avoiding business non-compliance

Worried about how to remain compliant? Consider implementing some of the following tips to help ensure that you’re compliant.

Hire a compliance officer

A compliance officer is a dedicated employee well-versed on the rules and regulations of your industry. As a small business owner, you may not have the funds or the need to hire a full-time compliance officer, but you may benefit from compliance officers who offer hourly consulting services.

Consider having an officer who conducts an audit and identifies the areas of your business where you need to improve. After making improvements, the compliance officer can do a follow-up to make sure you’re in good standing.

As your business grows, you’ll find that there are entire agencies dedicated to compliance. Much like how you can hire a human resources agency to handle HR, you can do the same for compliance. Keep this in mind as you expand your business. When doing so, take time to perform an advanced search and find a reliable, trustworthy compliance agency.

Change your corporate culture

Another tip for ensuring compliance is to change your company culture. As a small business owner, you’re the leader of your firm, and you set the example for others. If you show that you don’t care about compliance, then others will follow suit.

For instance, imagine you run a factory and don’t abide by OSHA standards. You leave wires out on your work floor and don’t clean up spills. Why wouldn’t your employees do the same? You’ve created a toxic, non-compliant culture.

If you notice that there are areas where you need to improve, perhaps consider having a sit-down meeting with employees. Stress to them the areas in which your company is lacking and why it’s critical to make improvements. If your employees are more aware of what compliance is and why it’s essential, they’ll be less likely to make mistakes.

Maintain paperwork and hire a trustworthy registered agent

Every business is required to have paperwork on file in the state in which they conduct business. Reporting requirements include things like annual reports and licensing forms. Many of these forms require yearly submissions. Even worse, the deadline for filing these forms can vary from state to state.

If your company exists in multiple states, you may find it challenging to keep track of the administrative upkeep. Unfortunately, accidentally missing a deadline could have severe consequences for your business.

If you’ve registered your business entity with a state and operate as a partnership, LLC, or corporation, you are required to maintain a registered agent. Many business owners view this as a formality and may even list themselves as the registered agent. A registered agent is someone who is present at a business address in that state during regular work hours and can receive legal correspondence on behalf of the company.

Hiring a reliable registered agent can help ensure that you don’t miss vital state deadlines and are compliant in filing paperwork.

Use reliable accounting software

Gone are the days when you could keep and track your business finances in an Excel spreadsheet. You should upgrade to reliable accounting software. Accounting software can help ensure that your business is compliant with a host of issues, including:

• Payroll
• Filing state and federal taxes
• Establishing nexuses and collecting sales tax

Today’s top accounting software is programmed for every state. The software makes it easy for you to maintain corporate compliance while expanding across state lines.

Keep your business compliant

As a small business owner, it can be tempting to cut corners to protect your bottom line. However, doing so can jeopardize your business. Not only do you have a legal obligation to pursue compliance, but an ethical one as well. Making efforts to remain compliant will keep you out of trouble and help you reach new heights.