Tips for HR/Compliance Challenges by Company Size: Startup to 20 Employees

July 7, 2025

As a startup or small business with 1-20 employees, your HR strategy may not be formalized, and HR tasks are likely handled by the founder or a team member. However, this leads to basic compliance tasks being overlooked, creating serious risks.

Key Challenges for Startups to 20 Employees:

  • No Dedicated HR Team: Often, HR functions are handled by the founder, but without HR expertise, compliance issues can slip through the cracks.


  • Basic Compliance Issues: Overlooking requirements such as I-9s, employee files, and posters can lead to compliance issues and fines.


  • Payroll Errors: Misclassifying contractors vs. employees (1099 vs. W-2) is a common issue that can lead to audits and penalties.


  • Lack of an Employee Handbook or Policies: Not having formal policies or clear procedures for onboarding, hiring, or firing creates inconsistencies.

Likely HR Headaches:

  • Wage & Hour Compliance: You risk misclassifying employees, which can lead to lawsuits.


  • Hiring/Firing Without Documentation: Making these decisions without proper documentation can lead to wrongful termination claims.


  • Inconsistent Onboarding: A lack of structured onboarding leads to confusion and inefficiency.

How a PEO Helps:

  • Turnkey Compliance Support: PEOs handle all compliance needs, so you don’t have to worry about missing any important filings or regulations.


  • Access to Benefits: Even small businesses can offer benefits typically reserved for larger companies.


  • Shared Liability (Co-employment): With a PEO, compliance risks and liabilities are shared, helping protect your business.

Pro Tip:

There are over 600 PEOs nationwide. Work with a PEO Broker (like us!) to get side-by-side comparisons and unbiased guidance—at no cost to your business.

Need help getting started?

Stay tuned for the next post in this series, where we’ll explore HR challenges for businesses with 25-50 employees!