The 7 HR Compliance Mistakes That Get Growing Companies Sued

When you have 20 employees, HR compliance feels like something for companies with actual HR departments. That’s the trap. Federal and state employment law applies to companies with as few as one employee. The mistakes that create liability aren’t exotic — they’re the same seven issues we see in almost every company that comes to us after something has gone wrong.

1. I-9 errors sitting in files for years

The I-9 is the most audited employment document in the US. ICE conducts thousands of employer audits annually and penalties start at $272 per error, climbing past $27,000 per violation for repeat offenses. The most common mistakes: sections completed by the wrong person, missing documents, or I-9s that were never completed at all. When we audit a new client’s files, we find I-9 errors in roughly 80% of them. The fix is straightforward — an audit and a clean process going forward — but most companies don’t know they have a problem until an auditor shows up.

2. Misclassifying employees as independent contractors

This is the single biggest liability for growing companies. The IRS, Department of Labor, and most state agencies use different tests to determine contractor status — and most founders are applying none of them. If someone works exclusively for you, follows your schedule, uses your tools, and does work that is central to your business, they are almost certainly an employee under the law. We have seen six-figure settlements from this at companies with under 30 people.

3. Offer letters that create unintended obligations

Copy-pasted offer letters are everywhere at growing companies. An offer letter that implies guaranteed employment, uses the word “permanent,” or makes vague promises about equity without referencing plan documents can be cited in a wrongful termination claim. Every offer letter should be reviewed before it goes out — especially if it was copied from somewhere else.

4. No documented performance process before a termination

Most wrongful termination claims succeed not because the employer did something wrong — but because they can’t prove they did things right. If you terminate someone without documented feedback or a written PIP on record, you’ve handed them a stronger claim. The fix is a simple, consistent process where performance issues get documented as they happen, not after you’ve already decided to act.

5. Missing required workplace postings

Federal and state law requires employers to display specific notices about employee rights — minimum wage, FMLA, workers’ compensation, OSHA, and more. For remote teams this extends to electronic posting requirements. This is easy to fix, but most companies haven’t thought about it since they signed their first lease.

6. No harassment prevention training or policy

Several states now require mandatory harassment prevention training for all employees including remote workers. Even where it’s not required, the absence of a written policy and training is cited in nearly every hostile work environment claim. A clear policy in your handbook and annual training are the minimum viable compliance.

7. Hiring in a new state without understanding local requirements

The moment you hire your first remote employee in California, New York, Colorado, or Washington, you’ve entered some of the most complex employment law environments in the country. Every time you hire into a new state, spend 30 minutes reviewing that state’s specific requirements before the offer letter goes out. It takes less time than dealing with what happens when you don’t.