In many small and mid-sized businesses, Human Resources responsibilities end up in the hands of people who never intended, or were never trained, to perform HR. Accounting teams, office managers, or even the owner’s “right hand person” often find themselves handling sensitive employee matters alongside payroll and bookkeeping.
While these individuals do their best, HR requires specialized knowledge. Without it, businesses can unintentionally expose themselves to compliance failures, costly penalties, and operational disruption.
The real-life examples below involve a business with employees across multiple states; we’ll call them ABC Company. At ABC, HR responsibilities had gradually shifted to the staff accountant, illustrating how quickly complications arise when HR tasks grow beyond the original scope and expertise of someone’s role.
The Root Issue: Operating Without HR Infrastructure
Across every issue ABC Company faced, the underlying problem was the same: the business lacked foundational HR infrastructure.
They needed:
- A compliant employee handbook
- A consistent, automated onboarding process
- Proper state specific setup procedures
- Standardized processes for terminations and benefits
- Clear separation between HR and accounting responsibilities
Without these systems in place, even well-intentioned team members struggle to keep up with evolving regulations and compliance requirements.
How They Handled COBRA
One of the most common and overlooked compliance areas is COBRA administration (Consolidated Omnibus Budget Reconciliation Act of 1985), which governs the continuation of healthcare coverage after an employee leaves.
When an employee is terminated, employers must send COBRA notices and ensure insurance coverage ends on the correct date. But at ABC Company, HR responsibilities had been delegated to accounting, where generic online forms were used without full understanding of the proper process.
The result:
- Insurance coverage was not canceled properly
- COBRA notices were not sent
- The employer continued paying insurance for a former employee
Small administrative steps, when missed, can quickly become expensive and expose the employer to potential penalties.
Multi-State Hiring Is More Complex Than You Might Think
ABC Company also operated across multiple states, but the owner frequently hired and terminated employees without notifying the accounting staff who handled HR-related tasks.
This created a cascade of compliance issues:
- I-9 forms were incomplete or not completed at all
- There was no standardized process for verifying identity documents
- Required document storage practices were ignored, with I-9s mixed into personnel files or missing entirely
It wasn’t until after the confusion and mishandled steps that the accountant realized the company was not in compliance, raising concerns about potential audit exposure.
The challenges increased when ABC Company expanded into additional states. Critical steps were missed, including establishing unemployment accounts and properly configuring payroll tax withholding.
In one instance, it took eight months to obtain the required state account number, after employees had already been hired and payroll had been processed. This delay resulted in penalties, interest, and significant back-office cleanup.
When Accounting and HR Blur Together
Another common issue among businesses is the assumption that HR, accounting, and payroll functions are interchangeable. In reality, they serve very different purposes and require different expertise.
Without HR guidance, decisions around worker classification and benefits can quickly become risky.
At ABC Company:
- Benefits were extended to some 1099 contractors
- Employees received inconsistent benefit coverage
- Both practices can create potential misclassification issues and financial liabilities.
The accounting team wasn’t negligent; they simply didn’t know what they didn’t know. When the owner made decisions, they followed along without realizing the compliance implications.
Employee Files, Workers’ Compensation, and Other Hidden Vulnerabilities
Beyond onboarding and classification issues, ABC Company also lacked standardized employee file management.
Important records, including tax forms, insurance documents, disciplinary records, and workers’ compensation paperwork, were stored inconsistently or missing entirely.
New hire and termination checklists were also inconsistent or nonexistent, which led to:
- Delayed or forgotten benefit cancellations
- Gaps in workers’ compensation reporting
- Increased insurance costs
- Weak documentation when employee issues escalated into workers’ comp claims
These gaps may go unnoticed during normal operations, but they become serious liabilities during disputes, audits, claims, or litigation.
Payroll Complexity Without HR Oversight
ABC Company also managed a weekly payroll in another state involving union workers and certified government projects.
These environments require strict wage rules, reporting requirements, and documentation standards. Without proper HR oversight, the risk of payroll errors, compliance violations, and contract issues increases significantly.
Why This Should Concern You
Situations like this are more common than many businesses realize. As companies grow, Human Resources responsibilities often evolve informally rather than through intentional planning.
Many employers assume HR can simply be “figured out” along the way. In reality, HR compliance is complex, constantly evolving, and closely tied to legal obligations.
When HR responsibilities fall to untrained staff, even small oversights can snowball into significant risk.
The consequences can include:
- Fines and penalties
- Legal disputes
- Payroll and tax errors
- Benefit inconsistencies
- Workers’ compensation complications
- Audit exposure
What begins as a practical decision to “have accounting handle it” can quietly evolve into operational instability. The risk isn’t just administrative; it’s financial and legal.
If any part of this scenario feels familiar, it may be time to strengthen your HR foundation before an audit, claim, or dispute exposes your gaps.
To better understand how quickly employment regulations are evolving, we invite you to watch a recording of our recent webinar, “Massachusetts Employment Law Hot Topics for 2026” featuring guest speaker and employment attorney, Amanda Thibodeau, Partner at Prince Lobel Tye LLP. The session provides practical guidance for companies doing business in Massachusetts on wage and hour regulations, pay transparency and equity, workplace discrimination, leave laws, and other pressing compliance matters. It’s an opportunity to hear directly from a seasoned legal professional about the very issues that can put employers at risk.
How Commonwealth Payroll & HR Can Help
With decades of industry experience, CommPayHR brings unmatched expertise, resources, and a dedicated team to help you navigate the complexities of payroll, onboarding, benefits, and more. We don’t just handle your payroll, we partner with you to keep you informed and prepared for critical local and federal changes impacting your business. Our experienced professionals proactively update you on the latest regulatory developments, so you can stay compliant and focused on what matters most. Ready to get some expert HR guidance? Tell us what you’re looking for help with, and a member of our HR Services team will be in touch.
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