The Most Common Employer Mistakes that Cost You Time and Money

Running a successful business is challenging, and even the most experienced leaders can make employer mistakes that cost both time and money. Recognizing these common pitfalls is crucial for avoiding them and ensuring your company thrives. In this blog, we'll cover the most frequent errors and provide actionable advice on how to steer clear. 

Cash Flow Issues: The Silent Business Killer

One of the most critical aspects of running a business is managing cash flow, and running out of cash is the most common reason businesses fail, according to advisory group CB Insights. Many small business owners, particularly those with visionary or growth-focused mindsets, lack the financial management skills necessary to keep their companies afloat.

The expertise related to core services or products are where business owners typically shine, but those skills are often totally different from the expertise needed to successfully run and manage a business.

Monitor Your Cash Flow Regularly

To avoid cash flow issues, which are a frequent employer mistake, it's essential to monitor your cash flow regularly. By tracking cash flow on a weekly or monthly basis, you can spot potential shortfalls early and make adjustments before they become a serious problem. Using cash flow statements and projections can help you understand where your money is going and plan for upcoming expenses. 

Overburdened Owners: The Danger of Doing It All

A common employer mistake among small business owners is trying to handle everything themselves. According to a 2022 Capital One Business survey, nearly half of small business owners reported feeling burned out, and more than half hadn’t taken a vacation in the past year.

This tendency to shoulder all responsibilities can make sense in a cash-strapped small organization, but it can also lead to overwhelm and burnout, ultimately harming the business.

Delegate to Focus on Strategic Growth

Delegation is key. By trusting employees or outsourcing specific tasks, owners can focus on strategic decision-making and growth rather than getting bogged down in day-to-day operations.

Overconfident Owners: The Danger of Thinking You Know It All

Business owners can overestimate their own knowledgeability when it comes to dealing with the legal and administrative side of their business. For example, the Society for Human Resource Management (SHRM) describes a story where an employer terminated an employee after verifying that she wasn’t eligible for time off under the Family and Medical Leave Act. That’s all they needed, right? Unfortunately, the FMLA is only one regulation among many, and the former employee was covered by the Americans with Disabilities Act.

Trust Subject Matter Experts

It’s all too easy for employers to think they’ve done their due diligence but, inexpert in the subject matter, end up missing something crucial. Don’t get overconfident; let genuine subject matter experts deal with situations that need true expertise. One of the best investments a business can make is in a PEO or similar HR partner.

Launching Without a Plan: The Road to Nowhere

Launching a business without a well-thought-out plan is one of the most common employer mistakes. It can be compared to setting off on a long journey without a map. While some argue that business plans are unnecessary, evidence suggests otherwise. Entrepreneurs who develop formal business plans are 16% more likely to achieve viability than those who don't.

"Too many businesses start without a basic plan, and if you fail to plan, you are essentially planning to fail,” says Deacon Hayes, financial expert and founder of WellKeptWallet.com. “A startup should map out a business plan, even if it is just one page. It should include how much it costs to operate, how much they anticipate selling, who would buy their product and why."

Payroll Pitfalls: A Source of Costly Errors

Payroll management is another area where small businesses frequently stumble because payroll errors are so surprisingly common. Underpayments are the most common problem and can lead to back wages and potential litigation, while overpayments directly cut into profits. In fact, many of the 13.6 million American workers who say they’ve been overpaid indicate they’d only report the overpayment if it exceeded $463. That’s potentially a lot of money for employers to be losing at scale.

Leverage Modern Payroll Systems

To avoid these issues, consider investing in a modern payroll service or system that automates the process and is executed by dedicated subject matter experts.

Employee Misclassification: A Legal Quagmire

Misclassifying employees as independent contractors is a mistake that can have severe legal and financial repercussions. In extreme cases, misclassifying workers can end up leading to the closure of the business.

The IRS has a complex, 20-factor test to determine worker classification, and navigating it can be challenging. As a result, misclassification is widespread.

According to the National employment Law Project (NELP), “reports show that 10 to 30 percent of employers (or more) misclassify their employees as independent contractors, which indicates that several million workers nationally may be misclassified.” The think tank Century Foundation, for example, estimates that as many as 2.1 million workers just in the construction sector are either misclassified or paid off the books.

To avoid this costly mistake, employers should familiarize themselves with IRS guidelines and seek legal advice when in doubt.

Ignoring Compliance: A Risky Oversight

Compliance with employment laws is not optional, yet many small and midsize businesses underestimate its importance. Legal missteps can result in costly litigation, with defense and settlement costs averaging hundreds of thousands of dollars and taking almost a year to resolve.

For example, failing to accommodate an employee under the Americans with Disabilities Act (ADA) before terminating them, as described above, could result in a lawsuit—even if other grounds for termination exist.

Stay Ahead of Compliance with Proper Training and Expert Guidance

Businesses must ensure that they are aware of all applicable HR laws and train their managers to navigate this complex legal landscape. Seeking legal counsel before making significant HR decisions can prevent costly mistakes.

The Overarching Solution to These Common Mistakes: Proactive Prevention

The common thread running through these employer mistakes is a lack of preparation and an overreliance on doing everything in-house. By planning ahead, delegating tasks, seeking expert advice, and investing in the right tools and services, businesses can avoid virtually all of these pitfalls.

In doing so, they not only save time and money but also position themselves for long-term success. With foresight, planning, and a willingness to seek help pay crucial roles, employers can sidestep these blunders and focus on growing their businesses.

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