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Do Not Overlook HR: 6 Mistakes That Can be Costly for Your Startup

 

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In the process of building my company, I would often find myself jolted awake at 3 a.m. wondering if there was some regulation we were not compliant with. And how would I even know? So I’d grab my laptop and start searching everything from “What are the labor laws in my area?” to “Do I have to provide disability insurance?” After reading confusing, jargon-filled documents, I would glance over and see “6:00 a.m.” flashing across the clock, indicating that it was time to head into the office.
This scenario seems all too common for a busy startup founder. While many universities provide classes on negotiations or sales, often an entrepreneur is left without training on the actual legalities of running a company. I know I felt that way as we got off the ground. But this lack of education can lead to unintentional — and costly — mistakes.
Do Not Overlook HR
Last year, a former ZocDoc employee sued the company for a culture they believed replicated a college frat house. But why did not the employee speak up sooner? Many startups do not have the right infrastructure to deal with HR infractions and collecting feedback from employees is not a priority. Offering employees an open door policy with management and a forum to voice grievances can make all the difference.
Having company policies outlined can prevent confusion and avoid preventable litigation. For instance, as BoardVitals grew, it was important for all members of the team to be on the same page about company policies. In our onboarding guide, we created a central document where employees can learn about sick days, vacation time and company procedures. This sort of guide helps employees get up to speed on company policies and inner workings. From harassment to vacation policies, having pertinent information outlined ensures that both management and staff are on the same page. And in the unfortunate case of workplace malice, an onboarding guide can point everyone in the right direction of where to get help.
Watch Out for Unintentional Discrimination
Whether you are conducting an interview or having lunch with a colleague, it is important to note what constitutes a legitimate question and what is unacceptable per US law. While many know that it is illegal to discriminate against age, sex and nationality, it is not as well known that it is also illegal to discriminate against smokers and those who speak English as a second language. You can read up on unintentionally illegal interview questions here.
Learn Local Labor Laws
Each city and state have their own set of labor laws. For instance, each state directs employers exactly when to pay employees. As a company with employees and partners around the US, it was crucial for us to ensure compliance right from the beginning. From lunchtime mandates to required medical leave, becoming well versed in these laws helped keep my business out of trouble with the law, as well as my employees happy.
To avoid paying exorbitant fees and backpay, it is also important for a founder to get up to speed on payroll withholding for each of their employees. Most states require employers to pay state unemployment, workers compensation, payroll taxes and medicare. The Department of Labor offers a wide range of valuable information on their website. Keep in mind that healthcare mandates kick in at different stages of company growth as well.
Keep an Eye on Government Compliance
Farmers and merchants alike must abide by regulatory statutes applicable to their trades. In the healthcare industry, HIPAA (Health Insurance Portability and Accountability Act) set the precedent for healthcare startups working with secure patient data. Any company now working with protected health information must abide by a set of standards to prevent against fraud and data loss.
As a company in this space, I have worked with others struggling with HIPAA compliance. In part, HIPAA is a moving target because you define your policies and procedures, and then implement based on a rubric you have developed. It is not an easy process and can require specific hosting companies and consultants.
In our case, compliance with the ACCME guidelines for offering continuing medical education credits has been a lengthy process. Frequently, we require 2 independent physicians to audit our content and establish that it is not influenced by commercial entities.
Whether you are in healthcare and mandated to provide CME Credits, or in hospitality and need a food handler’s permit, it is worth looking into your industry’s laws and regulations.
Know the Mandated Employee Benefits
Although you may offer employees 3 weeks of vacation and health insurance, you might not be giving them their state-mandated benefits. Some of these include sick days, disability insurance and medical leave. Sometimes cities are also involved — we learned that New York City has a form that must be individualized to the employee and sent out. So for us, when a new employee joins we ensure they are given all New York City-specific paperwork in an initial orientation.
If you have over 50 employees you are also required to give up to 12 weeks of unpaid, job-protected leave to employees for illnesses and childbirths. For a full overview, I suggest the SBA’s website.
Correctly Classify Your Employees
A San Francisco-based cleaning company was recently forced to cease operations after a series of allegations about the manner in which they classified contractors. While many employers can benefit from contractors, it is important to note the requirements of the arrangement. This can kill your company, as penalties can be several times annual wages depending on the infraction. If you are unsure about classification, the IRS has established a set of guidelines to help employers learn the difference between contractors and employees.
From initial entity incorporation to managing payroll, a founder is responsible for every aspect of the company — including compliance with all local, state and national laws. While these tips provide a baseline of advice, you may also want to consult a startup lawyer who can help you audit.

 


 

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

Image credit: CC by bark

About the author: Daniel Lambert

Dan Lambert is cofounder and CEO of BoardVitals, a leading provider of medical test preparation and Continuing Medical Education (CME).

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