Small Business Compliance: Staying on the Right Side of Regulations

Time Business News

6 days ago

One of the biggest challenges that small businesses face is remaining in compliance with federal, state, and local laws. These can change at any time; for example, an unrelated Act of Congress can result in additional regulations or restrictions on businesses in other sectors.
Let's take a look at types of compliance and a few examples, and then we'll examine the best methods for small businesses of all sizes to understand what, how, and to whom they'll need to report. These methods include searching for regulatory compliance services and hiring specific staff for compliance.
Some forms of compliance, like adhering to OSHA standards and hiring paperwork requirements, are rather obvious. However, there are others that might not come to mind immediately or not every business owner might know about.
For example, some states charge a 'franchise tax' on businesses that have a physical presence within their borders. If a business owner in one state without such a tax ends up moving to a different one that does have one, they might not initially be aware that they owe money.
Common types of compliance include financial (like earnings statements, IRS filings, and sales tax receipts), human resources, industry-specific mandatory training and certifications, contractual, and many others.
According to the Small Business Administration, there are two main categories of compliance with which businesses need to comply: internal and external.
Internal compliance is primarily related to paperwork and documentation, like those that you generally wouldn't show anyone outside the company unless you were involved in a court case or had some other reason.
For example, imagine a company co-founded by two people who each own a 50% stake. However, after a few months, they decide the company should be split 60-40, as one person has more of a hands-on role than the other.
This deal should be documented in the event that the company is sold or the person with a 40% share claims their reduction in ownership never took place. Without that internal record, sorting out the proper proceeds of a sale can be difficult.
External compliance refers to paperwork or documentation filed with an outside party, usually some level of government. The penalty for not filing these on time can range from fines to, in extreme cases, a company having its business license revoked.
For example, imagine a small business that has had a total of 45 employees throughout its entire 20-year existence. However, due to an increase in business, they hire 20 more people for a total of 65. Under the terms of the Affordable Care Act, any business over 50 people must require 'comprehensive and affordable' healthcare to its employees.
Since they've been under the threshold for so long, they might not know that it's required. However, if one of their employees gets insurance from the federal marketplace, the company would face a fine of over $100,000. A simple and accidental compliance issue can have massive repercussions for businesses.
One popular strategy to make sure everything is filed in a timely manner is a small business compliance checklist that includes federal, state, and local regulations.
Outside of standard IRS tax filings, businesses in most industries won't have to file many reports with the federal government. However, you'll need to be in compliance with federal advertising rules, OSHA regulations, and other laws that can lead to massive fines.
Most states have regulatory guides available on their websites that explain what paperwork needs to be filed with each state office. In most industries, the only city or county paperwork you'll need to file will involve income tax requirements, but you'll want to check their websites, too, just in case.
Due to the importance of making sure these deadlines are met, job postings for dedicated compliance employees have increased significantly in the past few years. According to Statista, there were over 350,000 compliance officers employed in the United States during Fiscal Year 2022.
However, this usually isn't a practical solution for small businesses, as the Bureau of Labor Statistics reports that the median wage for a compliance officer is $75,670 per year, which most startups or small businesses may not be able to afford.
One popular solution is using regulatory compliance services that know the state and federal requirements for your location and industry. By letting these experts handle your compliance paperwork, you'll no longer have to worry about missing deadlines or making sure you've sent every required document to each entity.
These regulatory compliance services allow small business owners to spend more time focusing on cultivating and expanding their businesses. By spending less time focused on paperwork, they can spend more time interacting with clients and growing the customer base.
For those who would like to go a bit further, outsourcing HR entirely to a human resources company is a great way to save money and ensure all relevant paperwork is filed before their respective deadlines.
They also handle hiring employees, payroll, and most other standard HR duties. The biggest benefit is that these organizations often have thousands of employees all over the country, which means they'll have access to significantly better healthcare plans with lower premiums than most small businesses would be able to get.
Complying with governmental laws, rules, and regulations can be a difficult experience for many small businesses, especially with so many deadlines and different entities to whom the paperwork is to be delivered. However, by maintaining compliance checklists and staying vigilant, the work can become easier. It may also be a good idea to contract with a regulatory compliance company or an HR company, as it'll reduce the total cost of overhead and prevent any paperwork mistakes or missed deadlines in the process.
TIME BUSINESS NEWS