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April 20, 2021 | HR Compliance | Posted by Ascentis Thought Leadership

Noncompliance: The Biggest Price to Pay

Regulatory compliance is a complicated thing to manage even in the best of times. In times of turmoil and business disruption like we've seen over the past year, compliance becomes both a greater challenge and a greater necessity. Tricky issues like drastic increases in employee furloughs and unemployment benefits threw many employers for a loop in 2020. For CFOs and other financial professionals, developing a plan and getting the tools in place to ensure compliance is an absolute must. As regulations evolve, political administrations change, and workplace health and safety receives a renewed focus, committing to compliance needs to be near the top of any employer's agenda.

Knowing the Risks of Noncompliance

It probably goes without saying, but noncompliance is more than just bad business practice. It's also a legitimate financial risk on several fronts. A few of the numerous ways compliance violations can impact your bottom line include:

  • Fines and penalties: Direct fines are probably the most obvious risk with compliance violations, and for good reason -- falling short of federal, state, and local regulations can often incur significant financial penalties. For organizations that also do business outside the United States, there are also a number of international rules to abide by. To illustrate those risks, here are a few key regulations and the penalties that go with them.
    • The Fair Labor Standards Act (FLSA) covers areas like overtime, minimum wage, and child labor. Violations can carry fines of $1,000 to $10,000 per infraction, and can even lead to criminal convictions in extreme cases.
    • The Family and Medical Leave Act (FMLA) requires employers to provide workers with job-protected leave for a variety of issues. FMLA fines are less strictly defined but range from $170 to thousands of dollars depending on the offense.
    • Employers who are required to abide by the Affordable Care Act (ACA), which mandates healthcare coverage for full-time employees, face penalties of $2,570 and $3,860 for each violation.
    • Violations involving worker classifications and legal work status can lead to fines as high as $20,000 for repeat offense.
    • For businesses that operate in the European Union and certain other countries, failure to protect private employee data under the General Data Protection Regulation (GDPR) can incur fines up to 4% of a company's worldwide revenue.
  • Potential lawsuits: Compounding the financial damages from fines and penalties, organizations that violate compliance standards can also open themselves up to lawsuits from affected employees. In a famous case, a Massachusetts employer that was found to have wrongfully terminated and employee who was on FMLA leave was ordered to pay a total of $1.3 million for back wages, loss of future earnings, emotional distress, legal fees, and more. That doesn't even take into account the potential for class-action lawsuits, which could rack up an even bigger financial hit.
  • Reputational damage: A less tangible but possibly even more damaging consequence of compliance violations is the harm done to an employer's reputation. In the era of social media, a business that violates worker protection regulations such as FMLA and FLSA can quickly develop a reputation as an untrustworthy employer. That can have lasting financial impacts as fewer quality hires apply for roles, existing employees lose trust in workplace safety and security, and vendors and business partners reconsider their association with an organization whose history of noncompliance is public record.

Understanding your industry

One of the trickier challenges of regulatory compliance is that it looks very different from business to business. A long-term healthcare facility may have very different regulatory expectations than an industrial manufacturer, for example. Different industries also face different union requirements, and those in turn may vary widely between different states and locations. Knowing exactly what regulations impact your specific business and industry on the federal, state, and local levels takes extra diligence, but the potential financial impact of noncompliance makes it more than worthwhile.

Choosing your tools

One of the biggest reasons that compliance remains such a challenge is that it comes from all directions. Different employers face different regulations administered and enforced by different agencies. Even within a single business, some departments can be profoundly impacted by regulations that barely touch other elements of the company. When it comes to complex issues like managing leave and overtime, following the letter of the law isn't always the easiest thing for managers to get a handle on.

Automated compliance solutions have become almost a necessity for any business with multiple divisions and operations. Too many companies make do with piecemeal compliance solutions that may catch issues in one area of the business but overlook them in another. When regulations are updated, there's no guarantee that older tools will evolve automatically along with them.

While no solution can promise 100% protection against compliance violations (and if you find one that does, it's too good to be true), a customizable, automatically updating, systemwide compliance tool can go a long way toward keeping your organization on the right side of the law. Find out more about how Ascentis workforce management software can provide you with tools and scans that help your business avoid the financial pain of noncompliance.

With more than 35 years of experience in providing Software as a Service (SaaS) solutions, Ascentis thought leaders have become a respected source for insights, tips, and innovations in the Human Capital Management (HCM) space.