HR Compliance: What Business Owners Need To Know
- Human Resources
6 min. Read
Last Updated: 11/28/2023
Table of Contents
Human resources compliance occupies an important niche in the corporate world. Businesses that fail to comply with local, state, and federal employment laws risk fines, lawsuits, and other unwanted headaches. When business leaders actively work to understand the importance of HR compliance, they can effectively incorporate it into their company's strategic goals.
What Is HR Compliance?
HR compliance refers to the policies and procedures that ensure your employment and work practices follow applicable laws and regulations.
Companies of all sizes face increasing HR complexities as the number of employment laws and regulations rise, and the risk of penalties for non-compliance has perhaps never been greater. When developing HR policies and procedures, business owners should know, for example, that:
- An employer must follow employment laws, including applicable federal, state, and local regulations.
- A business may be subject to an audit from an enforcing agency that may levy fines and penalties for non-compliance.
- Not knowing or understanding your compliance obligations is not an acceptable legal defense.
- A lawsuit settlement can bankrupt a company.
Regardless of a business's size or scale, timely and proactive compliance with federal, state, and local employment laws and regulations is critical. With the frequency and scope of audits by government agencies increasing, organizations must comply with ever-changing HR regulatory compliance mandates — or deal with the adverse consequences that may result from non-compliance.
What Is an Employee’s Role in Compliance?
It's not enough for businesses to know and understand the rules and regulations pertaining to their industry. Employees, too, should understand their roles and responsibilities in the daily operation of a business. Consider implementing training and support for employees on company policies and expectations so your organization benefits from employee participation and keeps mistakes or violations to a minimum.
Why HR Compliance Is Important
With business growth and adding employees come both new opportunities and new risks. It's common for business owners to grapple with complex OSHA regulations and hope their safety policies align with government standards. Without a definitive HR compliance policy in place, worker safety can be jeopardized, and the business itself may be exposed to legal issues based on federal and state regulations.
Simply put, non-compliance is not worth the risk. HR compliance efforts support that ongoing changes in employee-related laws are closely monitored and that HR policies are consistent (and non-discriminatory).
What Is HR's Role in Compliance?
What can HR leaders do to help meet a company’s larger human resources goals while complying with applicable laws and regulations?
One key role of HR in compliance is bridging the gap between the company's growth trajectory and objectives — and compliance practices that influence activities such as hiring, employee development, and retention. Striking the balance between strategy and compliance may start with a clearly defined set of goals.
HR Compliance Laws Employers Should Know
Numerous HR compliance regulations require attention from a company's HR team. Unfortunately, many business owners, while wanting to maintain their compliance, feel overwhelmed by this challenge (on top of all their other challenges). Too often, business owners only become aware of the need to comply with HR-related regulations when a state or federal enforcement agency contacts them. And that's typically too late.
Common human resources compliance responsibilities include adhering to laws and mandates regarding:
- Non-discriminatory postings and hiring
- Completion of Form I-9
- Conducting background checks
- Classifying employees as exempt vs. non-exempt
- Pay deductions
- Making payments for payroll and taxes
- Providing healthcare coverage
- Managing workers compensation insurance
- Responding to conflicts within the workplace
Understanding the company's strategic priorities is the foundation for a better understanding of how compliance concerns may impact decisions. HR goals should be designed to support company strategy, yet they must also consider the compliance implications.
HR Compliance Issues: Challenges Faced by Businesses
Business owners face demands on their time from every direction and may need to wear many hats — including that of the compliance officer. Most business owners want to comply but often feel overwhelmed and unsure of what should be done to meet requirements. Too often, business owners are unaware of the need to comply with human resource-related regulations until an enforcement agency contacts them, and by then, it's often too late. Government agency auditors aren't likely to give a casual reminder.
Let's look at a few important compliance topics every business owner should be familiar with:
Form I-9 is used to verify new employees' identity and authorization to work in the United States. Business owners should make sure they're up to date on the following items:
- Document storage requirements
- How to complete a Form I-9 and deadlines for completion, based on the employee's hire date
- Understand that you cannot mandate what specific documents a new hire presents (they're permitted to present any allowable document(s) listed on the form)
- The impact of errors: If any part of the form is completed incorrectly, fines can be costly
You must ensure that Forms I-9 are completed promptly, in compliance with the regulations and guidance provided, and properly retained on file (a best practice is to retain them in a consolidated, secure place separate from general employee files).
With the potential for significant fines for non-compliance, employment verification should be on top of business owners' HR compliance checklist.
Federal anti-discrimination laws enforced by the Equal Employment Opportunity Commission (EEOC) include the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), the Genetic Information Nondiscrimination Act (GINA), and Title VII of the Civil Rights Act of 1964, all of which prohibit discrimination in employment based on protected classes. It's important to ensure a workplace is free from discrimination in compliance with applicable federal, state, and local labor laws.
When it comes to compliance with these laws, employers should ask themselves:
- Do I know which federal, state, and local employment laws prohibiting discrimination in recruitment and hiring apply to my business?
- Have my managers been trained on these laws recently?
- Do I have policies to communicate our efforts to comply with these laws?
- Have I analyzed company practices for making employment decisions, including recruitment, hiring, promotion, and access to training?
Exempt vs. Non-Exempt Status
Fair Labor Standards Act (FLSA) regulations regarding employee classifications for exempt versus non-exempt status are often confused with the designation of hourly versus salaried employee payment methods.
The U.S. Department of Labor (DOL) aims to ensure employees are paid in compliance with the federal wage and hour law. Under the law, employees are classified as exempt or non-exempt from some of or all the provisions of the FLSA. Non-exempt employees must be paid at least minimum wage for all hours worked up to 40 in a workweek and the appropriate overtime rate for hours worked over 40. State wage and hour laws may also be applicable.
Risk Factors for a DOL Wage and Hour Audit
To help achieve and maintain compliance with applicable wage and hour requirements, it is important for payroll, HR, legal, and other groups at your company to work together. Consider whether you and your partners need to address the following potential risks to help your business avoid a DOL audit:
Does your regular rate of pay include wages, commissions, shift or job differential, premium pay for hazardous work, non-discretionary bonuses, and other incentive payments? Include them in your calculations for overtime where applicable and avoid shortcuts.
Employers must pay employees for all time considered to be hours worked, regardless of whether the work is performed at the employer’s premises, another designated worksite, the employee’s home, or some other location. It's your responsibility to make sure your employees are paid correctly.
Generally speaking, non-exempt employees do not need to be compensated for time spent in training if all the following apply: attendance is outside the employee's regular work hours, training is voluntary, it's not directly related to the employee's job, and the employee does not perform any productive work during the training.
Breaks and Meal Periods
The FLSA doesn't require you to provide meals or rest breaks, but some states do. If your business does provide rest breaks, the FLSA dictates that employees must be paid for breaks lasting 20 minutes or less. These breaks must also be counted as time worked when calculating overtime hours for non-exempt employees.
If your business provides a meal period (typically 30 minutes or more), it generally doesn't need to be compensated as work time if the employee is completely relieved from duty.
Traveling from home to work and back doesn't generally count as paid travel time, but travel from one job site to another should likely be compensable and count as time worked for non-exempt employees.
For home-based workers, traveling to the office may be compensable as time worked. Other types of travel may also be compensable under federal and state wage and hour regulations.
HR Compliance Best Practices
Here are pointers to help you with HR compliance (more specifically, on changes affecting your business):
Stay on Top of the Changing Landscape
Laws governing HR compliance and related matters are often changing. Compile a user-friendly sheet outlining specific HR compliance issues that affect your business. Put your business on a subscriber list for DOL and other government agency updates. Study press releases published by local, state, and federal HR-related lawmakers.
Conduct an HR Compliance Audit
Once you have a working knowledge of HR compliance, it's time to undertake a company-wide HR audit to ensure your policies and procedures are current and comprehensive. This is also an excellent opportunity to provide managers with appropriate compliance training to ensure appropriate awareness of this practice's importance.
Outsource HR Compliance Support
Many businesses outsource certain HR functions to help mitigate potentially costly HR pitfalls. This option offers access to experienced professionals who serve as HR compliance resources and can provide up-to-date knowledge of federal, state, and local laws and regulations.
There's a misconception that outsourcing HR compliance functions is too costly or only meant for big companies. In fact, the financial exposure businesses might face by failing to provide complete compliance may far outweigh the expense of outsourcing this vital function to a knowledgeable third party.
HR Compliance Is a Good Business Practice
Compliance in HR isn't a practice some businesses should adhere to while others don't need to. All companies must comply with local, state, and federal employee-related regulations regardless of size. Failure to do so can prove costly, damage a company's reputation, and present difficulty in attracting and retaining qualified talent, for example.
Outsourcing this function offers potential cost savings and a reduction in administrative burdens. A trusted provider with experience and knowledge of HR compliance matters can help ease concerns and help you ensure compliance in HR, not to mention their access to innovative technology that might otherwise be too costly for a business to maintain on its own.
With the compliance knowledge, depth of expertise, and technology updates that a professional HR outsourcing service can provide, HR managers (and the companies they work for) can focus on strategic issues and help shape the future of their organization.