Small businesses may never return to the times before out-of-control labor laws took their HR departments away, but that doesn’t mean they have no choice but to give up control.
Not long ago, a California builder went to work on a few new homes. He was a typical small business owner, an artisan, subcontracted for single skill: to craft and install the best handmade countertops you could find in the area.

When he got there, he saw the build had some unexpected visitors: enforcement agents from Cal/OSHA, the state’s workplace safety agency, were trolling the job site for violators.

And they hadn’t come alone. With them were field reps from ICE spot-checking jobsite personnel for illegals; Air Quality Management, giving the guys with diesel trucks a hard time; and the California Highway Patrol, taking referrals from the clean air guys.

The subcontractor cut a wide arc around the regulators. If he could just get by unnoticed, maybe he could start on the job he’d come there to do. Those countertops weren’t going to install themselves, after all.

If there’s a picture that can do justice to many states’ business environments, this might be it. Doing business in California, as in many other places, means every day navigating a minefield of unfriendly laws and regulations just so your work can get underway.

The impact falls hardest on small companies good at what they do — installing countertops, for example — but struggling to cope with the business of protecting themselves from litigation-happy lawyers and the state’s job-site trolls, of which there are more and more with each passing legislative session.

Issues such as these are supposed to be controlled by a company’s HR, or “human resources,” whose job only grows as doing business becomes more dangerous. Increasingly overwhelmed by legal issues, many independent companies are finding that to stay in business means handing that control to outside parties.

Small Businesses Face Threats From Without — and Within

First, there’s labor law: workplace regulations that prevent discrimination against identity and religion. Born from the hardships of real injured people, the intention behind labor laws is always good, so how can they be a bad thing?

The answer is: because of its effect on honest employers.

Plans to curb discrimination may be well-laid, but where it goes wrong is in the execution. Such laws are often penned with a broad brush but narrowly enforced, focusing on penalties and revenue collection. This gives government an incentive to levy fines whenever that means more money in its coffers.

And wherever money changes hands, lawyers are quick to move in. Labor law actions alone employ armies of attorneys whose goal it is to ensure that more labor law actions keep happening — never mind furthering individual rights.

Lawyers’ ability to create red tape and embroil businesses in lawsuits means that most employers are better off settling claims than disputing them, regardless of fault. But although clearing claims off the books is more efficient for businesses in the short run, it sends a signal to those seeking the money to come and get it.

These days the message to small businesses is this: Hire whoever walks through your door, and don’t dare fire them, or you’ll be fined by agencies and sued for discrimination. Find straight from the source the best lawyers near you.

How Small Businesses Are Losing Control Over HR

And that’s just the beginning. As businesses grow so does risk and responsibility.

Workers’ compensation, risk management, loss control, safety protocols, payroll reporting, direct deposit requirements, discipline documentation, labor board actions, compliance procedures, garnishment handling, handbook upkeep, benefits management: and as companies grow, the list gets longer and longer. Then even the best countertop-makers may find themselves out of their depth.

Once these things start to matter they never stop. The complexity ratchets one way.

The laws are always in flux. They’re passed, made public, litigated. Case law is made. Some people like the results. Some don’t. Amendments are passed, muddying the waters once again. The cycle repeats.

Compliance, documentation, garnishment, investigations, background checks — all the things that get in the way of doing business — become a full-time job, or several.

Even once they hire dedicated HR staff, most small businesses still need to bring in outside experts who understand the larger picture: business and labor attorneys, HR consultants, and a rotating team of service brokers to provide everything from benefits to payroll to premises liability.

That’s when managing the complexity itself gets complicated, and so many small businesses end up buying these services from a single provider.

But what businesses may gain in simplicity they often lose in control. Rather than freeing independent companies, big outsourcers may try to create dependencies while hooking small businesses on inflexible contracts. Cookie-cutter platforms and one-size-fits-all solutions lead many businesses to pay for even more services.

Good Partnerships Help Small Businesses Keep Control

Not all the news is dire. Small businesses still have options. There are now more ways to outsource HR, lessen risk, and reduce complexity without losing flexibility and control.

Boutique and midsize back-office companies offer made-to-measure services and have a greater investment in their business partnerships than larger administrative service organizations (ASOs) or professional employer organizations (PEOs).

Owners should look for honesty. The best providers aren’t the ones that will say anything to make you sign a contract. Good partners tell you about their own shortcomings and the challenges you still must face.

Small businesses may never return to the times before out-of-control labor laws took their HR departments away, but that doesn’t mean they have no choice but to give up control. Asking the right questions and entering the right partnerships can make the difference.

If you found this article helpful, may we suggest:

For more on how to deal with of regulatory headaches without losing control of your business, read What Are the HR Functions of a PEO?
For more on what it takes to build an all-star small business team, read Garry On: The People Who Make Great Entrepreneurs.
For more on how to make your small business more profitable in tough times, read How Today’s Small Businesses Are Successfully Boosting Profits.

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