Top 5 Simple Ways Small Business Owners Are Failing to Protect Themselves (#4 is Critical)
Updated: Feb 2, 2022
Business owners don't start businesses so they can worry about employee compliance and legal mandates.
They start businesses so they can help people, make money, obtain status, and gain freedom.
But here's the rub: if you don't worry about the compliance and legal stuff, you'll never make it far enough in business to really help people, make money or obtain status and freedom.
I get it though, for most small businesses 90% of the time there won't be a need to have the compliance and legal stuff locked down and in place.
It's kind of like life insurance when you're young – you probably won't need it; but if the unthinkable happens and you do need it, that policy will protect and preserve your family.
However, unlike life insurance, it's not just a one-and-done set up. You have to be vigilant every day you're open for business and have employees working with you.
For most small business owners that's a heavy burden. And the more employees you hire – and depending on your industry – the heavier the burden.
So with their fingers crossed we watch business owners either "sweep that burden under the rug" and hope it doesn't get uncovered, or simply don't know what the laws are in the first place.
Or there's the other approach of naively believing they don't have to worry about employee compliance and legal mandates because they'll "never need it". Again, like life insurance, you don't need it until you need it. But then it's too late.
Consider a few quick real life examples:
Example 1 - Withholdings Error
A small business owner finally hires an office manager to help relieve his clerical workload.
As usual in a new small business, that office manager will wear several hats.
Among her list of duties the owner has asked her to manage payroll for the 6 total employees in the company.
A couple months goes by and the owner receives an audit notice from the State indicating his withholdings may be inaccurate.
He and the office manager spend the next 3 months working through the audit, end up getting fined $15,000 for the errors and have to pay all the back taxes from the errors.
A small, and probably honest, mistake costs dozens of extra hours and thousands of dollars.
A fine like that for a small business can be fatal.
Example 2 – Company Employee Handbook
A home service company allows their technicians to keep company trucks at their homes between workdays.
A tech drives the truck to the grocery store, off hours, with his wife. En route they get in a wreck and the wife is severely injured.
They sue the company AND WIN – simply because using the truck for non-work purposes was not spelled out in the employee handbook.
The company didn't have a handbook because they thought they didn't need one.
Again, simple error that has HUGE financial consequences that can send the company packing.
These are 2 of hundreds of examples of business hardship that could easily have been avoided if the right protections and compliance were in place.
So, based on the 25 years of history here at Teamworks Group serving and working with companies to help them succeed, here's a Top 5 list of ways we see business owners failing to protect themselves. (not in any particular order)
Top 5 Simple Ways Business Owners Are Failing To Protect Themselves
#5 – Miss Classification of Employees
Is the person an employee or subcontractor? Are they exempt or non-exempt?
The line between these classifications can be fuzzy.
Most business owners get these wrong simply because they don't know the laws, and it's easier to just do the simplest thing.
But getting them wrong is like attaching a long wick to your business and lighting the other end: it might not get you right away, but when it finally catches up it can blow up in your face.
I'm talking major fines, having to pay huge amounts of back-taxes, law suits, and potential bad ratings from a disgruntled current or former employee.
Spending a little extra time to get it right and maintain proper status will have a huge impact on your bottom line and culture year over year as well as to your own sanity.
#4 – Not Standardizing Company Guidelines and Employee Handbooks – and Not Treating Employees Equally With Respect To Those Guidelines
Remember example #2 I shared above? A similar situation happened with a different company where a tech got drunk, took a work truck and got in a wreck.
But the company didn't fire him because he was a "great" employee and worked real hard.
A year later a different tech did the same thing, but the company fired him. Well he went straight to the State and complained that he was fired unfairly and had been discriminated against.
Boom! Not following company guidelines equally across employees blew up in their face.
Company guidelines and an employee handbook are simple things to make and keep updated. Business owners don't do it because it takes time.
But the opportunity cost of not doing it can be HUGE!
Save yourself lots of time and money by spending a little time each month keeping things current and training your people; and be sure to treat everyone equally with respect to your company guidelines and employee handbook.
#3 – Labor Law Posters and Compliance With Safety Training and Injuries
Labor law posters are required, by law, to be posted in a conspicuous area where all employees can easily consume the information about their rights and privileges.
Additionally, if you work in an industry where physical harm is a potential for your people, then keeping up on industry standard compliance and safety training is crucial.
Usually, business owners neglect safety training and compliance first because of time – "I'm just too busy for that" – but also because of an implicit trust (or hope) that their people won't do anything stupid and nothing bad will happen.
Accidents, however, are not always the fault of the injured person.
If you have a worker fall of a scaffold or warehouse racking and break their back, the first thing to be questioned in the W/C case will be whether there was adequate safety training, AND THEN they'll ask if the employee was following prescribed safety measures.
The case workers will not lean on common sense. They will side with the worker and question if the company provided them with the necessary training and info to keep them safe.
If they think you failed to provide those things you'll get slapped with a huge fine and have to cover medical expenses for the injury.
This could not only put your business out but potentially put you in debt for the rest of your life.
Don't be the proverbial Ostrich in the sand and hide your head from danger. Get compliant and train your people regularly and correctly.
#2 – Tax Payments, Quarterlies, W-2's and 1099's Sent Out On Time – and Filed Correctly
Again, a small thing, but is often a cause of unnecessary frustration and financial pain.
The IRS assesses a penalty for late 1099's & W-2's between $30 - $100 per form depending on the tardiness of the filing.
For small businesses the penalty is capped at $536,000 if more than 30 days late and before August 1; and $1,072,500 for forms filed after August 1.
You also risk ruffling some employee feathers if they don't have their tax docs asap.
Find a good accountant if you don't already have one and keep yourself from getting fined and stay out of "employee jail".
#1 – Incorrect Workers Comp and General Liability Policies
Workers Comp (W/C) policies protect you if one of your people get injured on the job.
General Liability (GL) policies protect specific physical assets in case of damage.
W/C policy premiums are based on total payroll while GL policies are based on either revenue alone, or both revenue and total payroll.
So what's the big deal?
Business owners run in to trouble here because they have to estimate those amounts; and to save on the premium amount, they estimate low.
When the policy starts they have to tell the insurance company how much total payroll or revenue they think they'll have for the upcoming 12 months.
The premium is set based on those numbers.
But here's the catch: at the end of the 12 month period for that policy, if they ended up making more money than they originally said, and/or ran more payroll than they said at the beginning of the policy, they'll get slapped with a huge assessment to make up for the premiums they didn't pay during that period.
And by huge assessments I'm talking upwards of over $100,000. SO IT'S A BIG DEAL!
The most pain free way to handle this is to get a payroll company to manage your W/C and GL accounts because they'll collect the premiums automatically based on your actual payroll and revenue amounts.
This way when the insurance company comes knocking at the end of the policy term with a huge bill, the payroll company will have that money in the bank and pay it straight away.
Whew! Huge time, labor and sanity savings.
So it's a bit of a burden to "run" a company and stay compliant and keep yourself protected.
Yeah the laws and red-tape can be frustrating and annoying.
Trust me, I get it.
But consider your investment. You've gone all in and have started or are running a business.
You or a buddy or a family member has mortgaged a house for start up capital, maybe you've got a bank loan, or maybe you decided to use up the last of your savings in the hopes that you can make it big or at least get ahead and have a more comfortable lifestyle.
Don't squander that investment by letting a few small things turn into a hurricane and wipe you out.
Having a successful business isn't just having a great product and great team – you have to have all your "ducks in a row" and someone watching to make sure they stay that way.
We see businesses get crushed all the time because they fail to protect themselves.
Don't be a statistic.
Either get these 5 items in place or connect with a credible outsource partner to help with the burden.
You and your business are worth it.
What do you think? What are other ways small business owners could better protect themselves?