Risk Area 01
Hiring & Onboarding Mistakes
Most HR lawsuits start before the employee's first day. The paperwork you skip during hiring becomes the evidence used against you later.
01
Missing or Incomplete I-9 Forms
🔴 Critical
▾
What it means
Every employee must complete Form I-9 within 3 business days of hire. Errors, missing sections, or late completion create per-employee fines. ICE audits are increasing — and they specifically target small employers.
✓ How to fix it
Audit your existing I-9 files today using the USCIS M-274 handbook as your guide. For new hires, create a Day 1 checklist that triggers I-9 completion before anything else. Store completed forms separately from personnel files.
Especially affects
All industriesHospitality & RetailStaffing Agencies
Do you have a complete, current I-9 on file for every employee?
02
No Written Offer Letter
🟡 High
▾
What it means
A verbal job offer is legally binding but nearly impossible to defend. Without a written offer letter, disputes over salary, title, start date, and at-will status become your word against theirs — and courts tend to side with the employee.
✓ How to fix it
Use a standard offer letter template for every hire. It must include: job title, start date, compensation, at-will language, and any contingencies (background check, drug test). Get a signed copy before the start date. Never let someone start without one.
Especially affects
Tech StartupsProfessional ServicesAny fast-growing team
Do you use a written offer letter for every single hire?
Risk Area 02
Contractor Misclassification
The IRS estimates misclassification costs the federal government $7 billion per year in lost payroll taxes. They are actively looking for it — especially in small businesses.
03
Using 1099s for Workers Who Are Really Employees
🔴 Critical
▾
What it means
If a worker meets IRS "behavioral control" or "financial control" criteria — meaning you control how, when, and where they work — they are likely an employee, not a contractor. Calling them a 1099 doesn't change the legal reality.
✓ How to fix it
Apply the IRS 3-part test to every contractor: (1) Behavioral control — do you control how work is done? (2) Financial control — do you control payment, expenses, tools? (3) Relationship type — is there a written contract? Is this work core to your business? When in doubt, classify as W-2.
Especially affects
ConstructionTech StartupsStaffingProfessional Services
Have you applied the IRS 3-part test to all your contractors in the last 12 months?
04
No Written Contractor Agreement
🟡 High
▾
What it means
Even if your classification is correct, no written agreement leaves you exposed. Without a contract, courts default to whatever classification provides the most protection to the worker.
✓ How to fix it
Every 1099 worker needs a written independent contractor agreement covering: scope of work, payment terms, IP ownership, non-disclosure, and a statement that they are not an employee. Review and renew annually.
Especially affects
All industries
Do all your contractors have a current signed written agreement?
Risk Area 03
Handbook & Policy Gaps
An employee handbook is not a nice-to-have. In most employment disputes, the first thing the opposing attorney asks for is your handbook. If you don't have one — or it's outdated — you lose your first line of defense.
05
No Anti-Harassment Policy
🔴 Critical
▾
What it means
A documented anti-harassment policy with a clear reporting procedure is one of the only ways to establish an affirmative defense against workplace harassment claims. Without it, you cannot argue you took reasonable steps to prevent harassment.
✓ How to fix it
Create a written policy that includes: definition of prohibited conduct, at least 2 reporting channels, investigation process, confidentiality commitment, non-retaliation statement, and consequences. Distribute to all employees and collect signed acknowledgments.
Especially affects
All industries — required in many states
Do you have a written anti-harassment policy with a documented reporting procedure?
06
Handbook Not Updated in 3+ Years
🟡 High
▾
What it means
Employment law changes constantly. A handbook from 3 years ago likely doesn't reflect current leave laws, pay transparency requirements, or remote work policies — many of which are now legally required in multiple states.
✓ How to fix it
Review your handbook annually. At minimum check: paid sick leave language (varies by state), salary history inquiry prohibitions, pay transparency requirements, remote work policy, and social media policy. Update at every major headcount or state change.
Especially affects
All industriesMulti-state employers
Has your employee handbook been reviewed and updated within the last 12 months?
Risk Area 04
Payroll & Overtime Errors
Wage and hour claims are the fastest-growing category of employment litigation. They're also the easiest for employees to win — because the math is right there in your payroll records.
07
Misclassifying Employees as Exempt from Overtime
🔴 Critical
▾
What it means
Not every salaried employee is exempt from overtime. The FLSA requires exempt employees meet both a salary test (currently $684/week minimum) AND a duties test. Calling someone a "manager" or paying them a salary does not automatically make them exempt.
✓ How to fix it
Audit every salaried employee. Confirm: (1) they earn at least $684/week, (2) their primary duty meets one of the FLSA exemption categories (executive, administrative, professional). Document your analysis. When in doubt, classify as non-exempt and pay overtime.
Especially affects
Retail & HospitalityConstructionAny business with salaried staff
Have you formally reviewed exempt vs. non-exempt status for all salaried employees?
08
Improper Final Paychecks
🟡 High
▾
What it means
Most states have strict laws on when and how final paychecks must be issued. In California, an involuntary termination requires final pay on the last day. Waiting until the next regular payday is illegal in many states.
✓ How to fix it
Know your state's final pay law before you terminate anyone. Create a termination checklist that includes: final pay calculation, accrued PTO payout (if required by state), COBRA notification, and equipment return. Never delay final pay to "sort things out."
Especially affects
California employersMulti-state employers
Do you know the final paycheck deadline for every state where you have employees?
Risk Area 05
Multi-State Compliance
The moment you hire someone in a new state, you've entered a new legal jurisdiction. Federal law is just the floor — every state builds on top of it. Most employers don't find out what those rules are until they're being investigated.
09
Missing State-Required Policies and Postings
🔴 Critical
▾
What it means
Every state where you have employees requires specific workplace postings, policies (sick leave, pay transparency, harassment), and in some cases mandatory training. These are not optional — and they vary significantly by state.
✓ How to fix it
For every state where you have employees: (1) order current required workplace posters, (2) review state-specific sick leave and PTO laws, (3) check pay transparency requirements (CO, CA, NY, WA are strictest), (4) verify mandatory harassment training requirements.
Especially affects
All multi-state employersRemote-first companiesCA / NY / WA / CO employers
Do you have current, state-specific required postings and policies for every state where you operate?
10
Applying One State's Rules to All Employees
🟡 High
▾
What it means
Many employers use their home state's rules as the default for all employees. This creates violations in every other state. California employees have different meal break rights, overtime calculations, and PTO payout rules than Texas employees.
✓ How to fix it
Build a state-by-state compliance matrix covering: minimum wage, overtime rules, sick leave law, meal and rest break requirements, final pay rules, and required postings. Update it every time you hire in a new state. This is exactly what a HRCompliant audit produces for you.
Especially affects
Multi-state employersRemote teams
Do you apply state-specific rules to employees in each state rather than a one-size-fits-all policy?
Risk Area 06
Your Industry Changes Your Risk Profile
Beyond the universal risks above, your specific industry adds another layer of compliance requirements most generalist HR tools completely miss. Find your industry below.
11
Industry-Specific Compliance Gaps
🟡 High
▾
🏥
Healthcare / Medical
HIPAA staff training for all staff with PHI access · License verification before hire · Strict overtime rules for clinical staff · Mandatory vaccination documentation · ADA accommodation process
👷
Construction / Trades
Subcontractor misclassification (DOL's #1 target) · OSHA safety plan per job site · Prevailing wage on public contracts · Co-employer liability for sub violations · Proper equipment documentation
🛍️
Retail / Hospitality
Predictive scheduling laws (CA/NYC/Chicago) · Tip credit compliance by state · Minor labor laws strictly enforced · High I-9 volume risk from turnover · Meal and rest break requirements
💻
Tech Startups
Remote multi-state explosion · Contractor-heavy team risk · Equity comp tax documentation · Rapid scaling without onboarding process · IP assignment agreements often missing
🚛
Logistics / Transportation
DOT drug & alcohol testing programs · Hours-of-service record requirements · Owner-operator classification scrutiny · Multi-state driver compliance · Medical certification verification
🤝
Staffing / Recruiting
Joint employer liability for placed workers · Per-assignment I-9 requirements · ACA hours tracking across clients · FCRA compliance at high volume · Co-employment documentation
📊
Professional Services
Contractor vs. employee blur on project work · Non-compete enforceability (most are void) · Exempt status errors for salaried staff · Client-facing confidentiality policies · IP ownership documentation
💛
Non-Profit
FLSA applies fully — no exemptions · Grant-funded worker classification · Volunteer vs. employee line · 501(c)(3) board documentation · Conflict-of-interest policy requirements
Have you reviewed the compliance requirements specific to your industry in the last year?
Your Results
Your Exposure Summary
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Answer the self-check questions above to see your exposure summary here.
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This guide is for general informational purposes only and does not constitute legal advice. Employment laws vary by state and change frequently. Always consult a licensed employment attorney for advice specific to your situation. HRCompliant is not a law firm.