It’s in every business’s best interest to have an HR compliance checklist. After all, compliance is a top area of focus and concern for both human resources departments and company executives. Before drawing up your list, it's a good idea to understand the nature of compliance and how it should be handled throughout the company.
What is HR compliance?
HR compliance is a process of defining policies and procedures to ensure your employment and work practices demonstrate a thorough understanding of applicable laws and regulations, while also being aware of the company's larger human capital resources objectives.
Companies of all sizes face increasing HR complexities as the number of employment laws and regulations are on the 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 regulations is critical," notes Paychex HR consultant Jillienne Allgauer. "With the frequency and scope of audits by government agencies increasing, organizations must comply with ever-changing regulatory mandates — or deal with the adverse consequences that may result from non-compliance."
What is HR's role in compliance?
What can HR leaders do to help ensure that they meet a firm's larger human resources goals, while also staying in compliance with applicable regulations?
One of the key roles of HR departments 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.
Understanding the company's strategic priorities lays the foundation for a better understanding of different scenarios and how compliance concerns may impact decisions. HR goals should be designed to support company strategy, yet they must also consider different scenarios and the compliance implications.
What are some examples of HR compliance issues?
HR-related compliance centers around employee-related matters, including when and how to pay overtime, employee documentation that must be maintained, administering benefits, hiring procedures, and separation policies. Some examples of issues you might face include the following:
If your goal is to increase diversity within your organization, what compliance factors come into play when reaching out to potential candidates? Alternatively, how does managing costs for benefits and compensation amid the federal, state, and local laws that regulate these areas impact what path your company will follow?
Understand what your responsibilities are when it comes to offering retirement plans, health insurance, and other types of employee benefits. Generally, the more employee benefits an employer decides to offer, the more complex compliance management can become.
New regulations shouldn't necessarily require HR leaders to advocate for a change in strategy. Rather, every major decision should be balanced by looking at the potential pros and cons of each path, including compliance considerations, to determine the best way forward.
Compliance challenges that businesses face
Business owners face demands on their time from every direction and may need to wear many hats — including that of the compliance officer. According to Paychex HR generalist Shannon Anderson, most business owners she works with want to be compliant, but they feel overwhelmed and aren't sure of what should be done to meet requirements. Too often, business owners aren't aware 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 take a look at a few important compliance issues every business owner should be familiar with:
Form I-9 is used to verify both the identity of new employees and their authorization to work in the United States. Anderson urges business owners to 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 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 in a timely manner and in compliance with the regulations and guidance provided, and that they are properly retained on file (a best practice is to retain them in consolidated, secure folders for active and terminated employees, outside of the general personnel file).
With immigration issues at the forefront of enforcement, complying with the most recent standards and requirements for employment verification should be on top of business owners' 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 free of discrimination in compliance with applicable federal, state, and local 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 in place 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?
Even still, when it comes to ADA compliance in particular, this can be a complicated issue for many organizations. A February 2019 Paychex Small Business Pulse Survey* found that 40 percent of businesses either don't know or don't have the infrastructure in place to properly record-keep, comply with, or manage employee expectations when it comes to this regulation. Navigating the regulation itself was the top challenge for businesses, followed by determining when to consider termination and managing a potential shift in workload, respectively.
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 either exempt or non-exempt from some or all of 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 applicable overtime rate for hours worked over 40 in a workweek.
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, such as averaging hours over multiple workweeks.
Employees must record all hours worked, including work performed outside of regular working hours or off work premises even if the work was not authorized or requested. It's your responsibility to make sure time cards are correct.
However, employers should avoid adjusting the weekly salary of an exempt employee due to the quantity of hours worked. Such action could jeopardize the salary basis test and the individual's exempt status.
Improper salary deductions for exempt employees
Some examples of improper salary deductions include partial-day absence or a full-day of pay because your business was closed due to inclement weather.
Non-exempt employees don't generally need to be compensated for time spent in training if all the following apply: attendance is outside 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.
Breaks and meal periods
The FLSA doesn't require you to provide meal 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 for purposes of 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 will likely be compensable and count as time worked for non-exempt employees.
For home-based workers, traveling to the office may be considered compensable and time worked. Other types of travel may also be considered compensable under federal and state wage and hour regulations.
Effective ways to keep up with compliance issues
Ensuring compliance in HR can be a tall order, but here are three pointers to get you started:
- Conduct an internal human resource audit of strengths and weaknesses of existing compliance levels. If unsure about where to begin, seek a subject matter expert's advice or research requirements on the enforcing government agency's website.
- Ensure that anyone accountable for compliance in the organization is properly trained. Remember, supervisors and managers represent the business in day-to-day employment decisions.
- Finally, install a monitoring mechanism to ensure that internal processes for compliance are up to date and consistently followed.
Once you gain a thorough understanding of your current practices and identify any gaps that may lead to compliance issues, you can begin to set priorities and draw up a plan to strengthen your processes.
An HR compliance checklist for businesses
Ultimately, it is critical that today's HR leaders balance HR strategy and compliance. By instilling an overarching strategy that lays out your company's goals and objectives – and ties that to compliance planning — firms can make more informed decisions that may minimize risk and keep compliance as an achievable goal.
Many organizations find it useful to develop a checklist that functions as a compass for areas that they must keep in mind at all times. As noted above, some key areas to monitor and ensure are compliant at all times include:
- Completion and compliant retention of Form I-9
- Ensuring non-discriminatory hiring practices
- Accurate classification of exempt vs. non-exempt employees
When a sensitive area is part of the decision-making process, it's immediately highlighted and they can take a deeper dive into how different outcomes could impact business performance.
The compliance outsourcing option
Many businesses choose to outsource certain HR functions to help mitigate these potentially costly HR pitfalls. Doing so can mean having access to experienced professionals who serve as HR compliance resources and can provide in-depth, up-to-date knowledge of federal, state, and local laws and regulations.
Some businesses, however, may be hesitant to go this route, and assume that having a limited budget won't make human resources outsourcing feasible. There may also be the perception that outsourcing is designed to help only larger operations streamline their business functions and cut down on costs. But there's an increasing need for businesses to consider the financial and other potential practical benefits of outsourcing HR functions to a trusted provider. Anderson believes outsourcing can help by giving businesses "a customized HR schedule of deadlines and timelines and due dates."
An HR assessment and HR compliance audit checklist are additional tools to help to assess current knowledge. On an ongoing basis, Anderson notes that businesses can also be kept on track with customized HR action plans and road maps.
Benefits of getting HR compliance help
Potential cost savings
In many cases, HR outsourcing helps save costs and alleviates administrative burdens. Outsourcing may also help in-house staff focus their efforts on core business functions without additional overhead.
On-hand HR expertise
The greatest challenge is that failure to comply with applicable employment laws can lead to penalties, loss of business license, or lawsuits from employees or former employees. Outsourcing HR functions to a trusted provider can help business owners better understand the laws and regulations that apply to them.
Access to the latest technology
HR outsourcing can allow companies that may have minimal resources to use cutting-edge technology that could otherwise be costly to maintain on their own. With an outside expert running some of the functions, businesses may enjoy better and more innovative technological systems without necessarily having to own them.
If HR teams are looking to focus their efforts on areas of the business that have a direct impact on the bottom line, outsourcing HR functions may be a worthwhile consideration. Without the compliance knowledge, depth of expertise, and technological advancements that a professional HR outsourcing service can provide, businesses could be at an increased risk for non-compliance, costly employee lawsuits, and other HR pitfalls.
* Data reflects results from a Paychex Business Survey, which was conducted online between Feb. 15-26, 2019 and polled 500 randomly selected principals of U.S. companies with 1-500 employees. The margin or error for this study was +/- 4 percent.