Startups and small businesses often operate with a tight budget and may be tempted to cut corners when it comes to compliance and HR processes. However, it is crucial, especially in the early stages of a company, to ensure that all hiring processes are done compliantly. Failure to do so can result in costly legal battles, tarnished reputations, and even the downfall of a company. In this article we will discuss some of the top reasons why startups need to hire compliantly.
According to LinkedIn, “Finding and keeping top talent is one of the most crucial and challenging aspects of running a successful startup.” This should come as no surprise in today’s day and age when we can all clearly see that the Future of Work will largely be driven by the fight to recruit and retain critical change-makers responsible for some of the most important innovations of our time.
1. Legal Compliance
One of the main reasons why startups need to ensure they hire compliantly is to avoid any legal troubles. Compliance laws vary by state and can be quite complex. The failure to abide by these laws can result in costly penalties and lawsuits. When hiring employees, it is crucial to be aware of federal and state laws relating to issues such as immigration, equal employment opportunity, wage and hour laws, and record-keeping requirements.
Getting hit with a fine, lawsuit, etc. for a new startup could spell certain death for the company, its employees, founders, and investors. This is why encouraging compliant hiring practices is first up on the list.
2. Reputation & Vision
Startups often rely on their reputation and vision to attract top talent, clients, and investors. Non-compliant hiring practices can tarnish a company’s image and result in the loss of potential business opportunities. Non-compliance can also result in negative press coverage, which can be detrimental to a company’s brand image.
Wellfound (formerly AngelList Talent) breaks down a number of key benefits for folks wanting to work at startups, but one that pervades them all is the feeling that employees (and prospective employees) are working toward something greater than themselves. When getting hit with bad press, lawsuits, or anything else, it’s hard for employees to hang onto that vision.
3. Employee Retention
Adopting compliant hiring practices can have a positive impact on employee retention. Compliant hiring practices can help to ensure that employees are properly vetted and qualified for the job. This can lead to more successful and productive employees, which can ultimately result in a more positive work environment and increase employee retention rates.
Top talent in 2023 largely knows what they are worth, and while extremely beneficial for the workforce, can pose unique challenges to enterprises. With more and more Millennials and Zoomers maintaining minimal loyalty to their employers, startups specifically need to do everything in their power to retain good employees, including making sure their hiring compliance and by extension, how they comp employees, is ironclad.
4. Cost-Savings & Risk Mitigation
Hiring compliantly can actually save startups money in the long run. Non-compliant hiring practices can result in costly legal battles, penalties, and even loss of business opportunities. Additionally, non-compliant hiring practices can lead to high turnover rates, which can be expensive in both time and money.
Nike is currently being aggressively pursued for widespread misclassification with fines of upwards of $530m USD. While an extreme example, it provides context for how serious and cash-intensive these risks can become.
5. Attracting Top Talent
Startups need to be able to attract top talent if they want to succeed. Adhering to compliant hiring practices can help to attract qualified candidates who value companies that follow the law. Individuals are more likely to be interested in a company that has strong compliance practices in place, as it is an indicator of a company’s commitment to ethical and legal practices.
6. Investor Relations & Fundraising
Besides creating a favorable reputation in the market, compliant recruiting practices can also attract funding and investment from venture capitalists. The increasing emphasis on ethical business practices in the market makes it easier to secure funding if the startup founders demonstrate a compliant and ethical business operation.
It should come as no surprise that if potential investors and partners find compliance issues during due diligence, or even down the road, that they’ll be jumping ship as soon as they possibly.
In reality, non-compliant hiring practices can be devastating for business, primarily for startups, which may not be equipped to handle the complications of legal action. By investing in a compliant recruitment strategy, startups can save themselves from legal challenges and create a positive reputation for their brand. Recruiting legally benefits startups in the long-term by saving time, resources, and money, keeping compliant preferences at the forefront of their HR policies, and ultimately, increasing the likelihood of business longevity and success.
Curious why GreenLight is the leading solution on the marketplace for both startups and enterprises? We are experts at compliance, risk-mitigation, and even provide a whole suit of payroll and benefits for your extended workforce. Book a demo today and let us show you why we’re the best.