6 HR Mistakes That Can Be Costly For Your Startup

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.

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 had overlooked. And how would I even know if we were compliant?

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, lengthy, jargon-filled documents, I’d 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, entrepreneurs are often 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.


1. Don’t overlook HR

Last year, a former ZocDoc employee threatened to sue the company for a culture they believed replicated a college frat house. Why didn’t the employee speak up sooner?

Many startups don’t have the right infrastructure to deal with HR infractions and collecting feedback from employees isn’t 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. 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.


2. Watch out for unintentional discrimination


  • Are you married?

  • Do you have children?

  • What country are you from?

  • Do you have any outstanding debt?


These are just several of the illegal interview questions that could unintentionally put your startup in hot water. Whether you’re conducting an interview or having lunch with a colleague, it’s important to note what constitutes a legitimate question and what’s unacceptable per U.S. law.

While many know that it’s illegal to discriminate against age, sex and nationality, it’s not as well-known that it’s also illegal to discriminate against smokers and those who speak English as a second language.


3. Review 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 U.S., it was crucial for us to ensure compliance from the beginning. From lunchtime mandates to required medical leave, becoming well-versed in these laws helped keep my business out of legal trouble and keep my employees happy.

To avoid paying exorbitant fees and backpay, it’s also important to get up to speed on payroll withholding for each employee. 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.


4. 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) sets 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’ve 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’ve developed. It’s 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 two independent physicians to audit our content and establish that it’s not influenced by commercial entities.

Whether you’re in healthcare and mandated to provide CME Credits, or in hospitality and need a food handler’s permit, it’s worth looking into your industry’s laws and regulations.


5. Know about mandated employee benefits

Although you may offer employees three 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’re given all New York City-specific paperwork in an initial orientation.

If you have over 50 employees you’re 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.


6. 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’s 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’re 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.


This article has been edited and condensed.

Dan Lambert is the co-founder and CEO of BoardVitals, a leading provider of medical test preparation and Continuing Medical Education (CME). Connect with @boardvitals on Twitter.


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