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?

📧 Email: Suzanna@PEOForTheCEO.com

📅 Book a free consultation: https://calendly.com/suzanna-yourpeoadvocate

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