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. 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 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.

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 issues get documented as they happen.

5. Missing required workplace postings

Federal and state law requires employers to display specific notices about employee rights. For remote teams this extends to electronic posting requirements. 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 policy and training is cited in nearly every hostile work environment claim.

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, do a 30-minute review of that state’s requirements before the offer letter goes out.

A founder with 25 employees starts feeling the HR pressure and starts thinking about hiring someone. They post the job, get resumes, and realize anyone worth hiring wants $60,000 minimum. Then they do the real math.

The true cost of a full-time HR hire

That’s $7,166/month for someone who — at 25 employees — will spend a significant portion of their time on tasks that don’t require their level of experience. And if they leave, you start over.

What you actually need at 15–40 employees

At this stage, most companies need about 15–20 hours of real HR work per month. That’s not a full-time job. Onboarding new hires, handling employee questions, keeping compliance current, reviewing offer letters, working through a performance issue. A fractional HR partner covers all of it — at a higher experience level — for $2,500–4,000/month. Roughly 30–45% of a full-time hire with more experience and no overhead.

When does a full-time hire make sense?

Generally around 75–100 employees, or when you’re hiring more than 5–8 people per month consistently. Many of our clients make that transition and come to us to help hire and onboard their first in-house HR person — which is one of the better uses of a fractional HR relationship.

The three most common HRIS platforms for companies in the 10–75 person range are Gusto, Rippling, and BambooHR. We are a certified partner on all three and have implemented each at real companies. Here is the honest breakdown.

Gusto: the right starting point for most companies

Gusto is where we recommend most clients start. It’s designed around payroll — auto-files taxes in all 50 states, handles direct deposit, and generates year-end W-2s without you touching anything. The HR features layered on top are good enough for companies under 40 people. The employee-facing experience is clean and people actually use it. Gusto’s limitation: it’s not a true HRIS — no robust performance management or deep automation. Starts around $46/month plus $6 per employee.

Best for: 1–50 employees, US-based workforce, payroll is the primary need, founder wants something that just works.

Rippling: the platform for companies that want automation

Rippling unifies HR, payroll, and IT — when you onboard a new hire you can automatically provision their laptop, set up their Slack and GitHub access, and kick off their onboarding checklist from one place. For a tech company with a distributed team, this is genuinely transformative. The downside: expensive, modular pricing surprises teams, and configuration takes real time to do correctly.

Best for: 20–200 employees, tech-forward companies, distributed teams, founders who want deep automation.

BambooHR: the best HR-first platform

BambooHR is the most HR-native of the three. Strong employee records, the best performance review workflows of any SMB platform, and excellent reporting. Also locally headquartered in Lindon, Utah. BambooHR’s weakness is payroll — it’s a paid add-on and not as strong as Gusto’s payroll engine. Many customers run payroll through Gusto and HR through BambooHR.

Best for: 20–150 employees, companies that prioritize culture and analytics, those with Gusto already running who want to add an HR layer.

Most founders have never been trained to fire someone. When the moment comes they either move too fast, say too much, or have no documentation to stand on. Terminations that get litigated are almost never the result of a bad decision to let someone go — they’re the result of how that decision was executed.

Before the conversation: build your documentation

The termination conversation should never be the first time performance issues are on record. There should be documentation of at least one verbal feedback conversation noted in writing, a written warning or PIP if issues were serious or ongoing, and a record of any accommodations or support offered. A timestamped email to your HR folder is enough. What it can’t be is nonexistent.

The conversation: what to say and what not to say

Opening: “I need to let you know that today is your last day with [Company].” Say this within the first 30 seconds. Do not build up to it.

Brief rationale: Give one clear factual reason. Keep it to one sentence. Don’t list everything that went wrong.

Logistics: Cover final paycheck timing, COBRA notice, equipment return. Have this in writing to hand them.

Close: “I know this is hard news. We’ll make sure the transition is handled respectfully.” Then stop talking. The instinct to fill silence with reassurance leads to statements that can be used against you later.

What not to say — ever

“We’re eliminating your position” — unless you actually are. If you backfill the role in 60 days this becomes evidence of pretext. “We’ve had so many complaints about you” — even if true, vague references to unspecified complaints are not defensible. “I personally wanted to keep you but was overruled” — never helpful and undermines the company’s position.

Final paycheck timing by state

Getting this wrong is an automatic violation. In California: final pay is due at the time of termination — not the next pay cycle. In New York: by the next scheduled payday. In most other states: by the next regular payday. Confirm your state’s requirements before the conversation happens.

Employees who experience a structured onboarding process are 82% more likely to still be at the company after one year. The companies that get this right have people who reach full productivity faster and feel confident in the role earlier.

Before Day 1: pre-boarding

Send all paperwork electronically within 24 hours of offer acceptance, introduce the manager via a short email or video, and set up their accounts before they show up. Nothing kills momentum like spending day one waiting for a laptop and a password.

Day 1: orientation and connection

Introductions to the team they’ll work with, lunch with their manager, and a clear picture of what week one looks like. They should leave knowing three things: what they’re working on first, who to go to for help, and that the company is glad they’re there.

Week 1: give them a real win

By end of week one, a new hire should complete one real piece of work — not busywork. This builds confidence fast. Confident people don’t quit in month two.

The 30/60/90 check-in cadence

Structured check-ins at 30, 60, and 90 days are the highest-return HR investment a growing company can make. These conversations catch problems before they become resignation letters — and they signal that the company actually cares how the person is doing.

Make it systematic

None of this works if it depends on a manager remembering. The process needs to live in your HRIS with automated task assignments and reminders. The manager’s job becomes execution, not design.

Remote hiring feels frictionless until it isn’t. A company hires a great engineer in California, a sales rep in New York, and a designer in Colorado. Payroll runs fine — until an HR audit or a disgruntled employee shows up. At that point, the company discovers they’ve been operating in three states without meeting a single requirement those states impose.

What hiring in a new state actually triggers

Every time you hire an employee in a new state: register as an employer there, register for state payroll tax withholding, register for state unemployment insurance, comply with that state’s wage and hour laws, provide state-mandated leave benefits, and display required workplace notices. Most payroll platforms handle the tax withholding automatically. What they don’t handle: registration requirements, state-specific leave policies, and wage and hour compliance.

The states that cause the most problems

California: Final paychecks due same-day for involuntary terminations. Meal break penalties per missed break. Non-competes unenforceable. Salary history questions banned. Pay ranges required in job postings. Every California employee needs a state-specific handbook addendum.

New York: Mandatory annual sexual harassment prevention training. Pay transparency law. Paid Family Leave with mandatory employee contributions.

Colorado: FAMLI — a paid family and medical leave program with mandatory employer and employee contributions since 2024. If you have a Colorado employee you may already owe back contributions.

The pay transparency trap

Over 15 states now require salary ranges in job postings. The obligation is triggered by where applicants are — not just where the role is based. If you post jobs nationally without salary ranges and have employees in covered states, you are already exposed.

What to do before your next remote hire

Before sending an offer letter into a new state, spend 30 minutes checking: employer registration requirements, mandatory leave programs, wage and hour rules, required notices, pay transparency requirements. It genuinely takes under an hour. Most companies just don’t know to do it.