To legally operate, a business needs to comply with certain requirements regarding its labor practices, safety procedures, transactions, and more. That’s why, before you launch a business, you need to know the appropriate industry regulations while ensuring you maintain a log of dates and costs related to compliance. Moreover, it’s important to conduct compliance training for employees for small and large businesses alike!
We share what startups and small businesses should know about compliance so you’re aware of why compliance training courses are crucial in the workforce.
Types of Compliance
Compliance regulations are divided into two categories, which are internal and external.
Internal compliance measures are usually required by state governments for specific business entities. They are formed and enforced internally by the upper staff.
On the other hand, external compliance refers to requirements imposed and enforced by the state or federal authorities.
Internal Requirements for Business Operations
Small businesses, including LLCs, won’t have similar requirements as corporations do. However, they are still strongly advised to store clear and updated records of business transactions, relevant changes in operations, and adjustments to standards. Compliance kits and document templates help organize and fulfill internal compliance requirements.
These internal requirements are made to ensure companies are run with integrity and free from corruption.
External Government Requirements
External requirements are sanctioned by the state the business is incorporated in. These are sample external requirements for corporations:
- Annual statement or report
- Franchise tax
- To follow the Fair Labor Standards Act
The fees and due dates for reports will vary from state to state, so it’s crucial to research the states you’ll operate in.
While regulations mentioned above are applicable to every business, there are certain industries governed by additional compliance requirements. For example, there is the Occupational Safety and Health Administration, which is responsible for ensuring the safety of workers across industries. They offer informative primers to maintain compliance for organizations within certain industries.
Consequences for Non-Compliance
Because internal requirements are designed to ensure ethical and optimum business operations, it’s up to the higher staff to determine the appropriate penalties for violations. Some examples include reprimands, probation, or dismissal, depending on the violation.
As for external requirements, the consequences are imposed by state authorities. Penalties can range from small amounts to severe consequences. The exact amount and punishment would vary from state to state. If companies don’t meet external requirements, they may be considered as “piercing the corporate veil,” thus eliminating the company’s limited liability protection. This makes the business owner responsible for damages and losses if a lawsuit is brought up against the business.
That is why it’s in the company’s best interest to follow requirements to a T and maintain good standing. This can be done through conducting a risk analysis, audits, and reviews, taking more steps to protect data and worker safety, and the like.
Wrapping It Up
Now that you know more about compliance, make sure you train your employees on the appropriate topics well.