11/14/2014 03:56 pm ET Updated Dec 06, 2017

5 Ways Your HR Department Can Ruin Your Finances

By Morgan Quinn, Feature Writer

Your human resources department carries huge responsibilities with major legal and financial implications. While most HR departments have proper practices and procedures in place to reduce their liability, that doesn’t stop them from making mistakes. The consequences of these mistakes can be far-reaching and can impact employees’ finances greatly.

Here are five ways your HR department can mess with your wallet.

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1. Enrolling You in the Wrong Retirement or Health Care Plan

Human Resources can enroll you in the wrong type of retirement plan, like a traditional instead of a Roth 401(k), which has a major impact on your long-term retirement goals. Also, mistakes in health coverage enrollment can lead to employees overpaying or not having adequate coverage -- both have significant impacts.  

Or HR can just fail to enroll you at all. I had a former employer forget to submit the enrollment paperwork for my Flexible Spending Account. Luckily, I regularly submit reimbursement invoices, so the error was caught quickly. I would have been sorely disappointed had I waited until the end of the year to make a claim: I would have missed out on a major reimbursement and payroll tax savings.

2. Misclassifying You

The U.S. Department of Labor and the IRS have very strict guidelines when it comes to properly classifying employees. There are several classifications of workers, depending on the pay and type of work they do: independent contractors, hourly employees, salaried overtime exempt, salaried overtime non-exempt, and others, like interns and volunteers.

These classifications carry important implications of how overtime is paid, income is reported and more. Under the Fair Labor Standards Act, employers must abide by both federal and state classification laws, but employees can also face consequences. For example, you can end up paying back overtime because of a classification error.

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3. Not Properly Disposing of Sensitive Documents

Employer records are one of the top sources of identity theft. They might not seem closely related, but HR regularly collects, processes and disposes of sensitive materials containing employees’ personal information. The Fair and Accurate Credit Transactions Act and the Fair Credit Reporting Act protect the confident information of a business’ customers and employees.

HR can’t completely protect all employees against ID theft, but it should have processes in place for properly storing and discarding personal documents. 

4. Skipping Your Performance Evaluation

Performance evaluations provide many benefits to you as an employee: They're an opportunity to review your skill set, get aligned with your manager, monitor your growth and stay informed on the company’s vision. This is also an opportunity for you and your manager to discuss your future with the company and create a plan that will put you on a track toward a promotion or salary increase.

Human Resources and your manager should have a vested interest in your career growth and they should serve as a coach to help you reach peak performance. 

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5. Not Knowing When Employment Laws Change

Businesses must understand and stay up-to-date on labor laws, wage laws, recordkeeping and licensing regulations. These can frequently change without warning and employers are held responsible for staying informed. If your employer is found to be out of compliance, it might be subject to fines and disciplinary actions, and your paycheck could also take a hit -- you can owe for underpayment.

The best way to protect yourself against these mistakes is to stay informed and double check all your documentation. Don’t be afraid to ask questions or respectfully challenge the way something is done. After all, It's your money that's at stake.

Photo credit: Wharton | San Francisco

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