HR Compliance: What Business Owners Should Know

Human resources compliance is about following the law, but it can also be a strategic cornerstone for your business—a high-stakes venture that can either help or hinder growth. Failure to comply with local, state, and federal employment laws could result in fines, litigation, and damaged trust. To protect your employees, business reputation, and future growth, you must understand the importance of human resources compliance and create a strategic plan that ensures alignment between business goals and compliance needs.

What Is HR Compliance?

HR compliance is the process of ensuring that a business adheres to applicable HR laws, regulations, and guidance from enforcing agencies, including developing policies and procedures that support adherence to those standards.

As employment laws and regulations have evolved, compliance has become increasingly complex, and the risk of penalties for non-compliance has escalated. To stay ahead of the curve, you will need to:

• Understand and take steps to comply with applicable employment laws at the federal, state, and local level
• Be prepared for a potential audit from an enforcing agency in an effort to avoid potential fines and penalties for non-compliance
• Understand that a lack of knowledge about your compliance obligations is typically not an acceptable defense for non-compliance

Know that risks associated with lawsuits related to HR non-compliance can bankrupt a company.

According to Paychex’s 2025 Priorities for Business Leaders survey, business leaders spend 5.3 hours a month managing compliance with wage and hour laws, while complying with workplace safety laws takes an average of 5 hours a month.¹ Business owners should continue to audit their compliance programs to ensure compliance with ever-changing mandates regardless of size or scale. Failure to do so may result in legal repercussions, penalties, and fines.

Areas of HR Compliance

Keeping track of the many areas that affect HR compliance gets complicated quickly. To remain aware of your compliance-related requirements, you must understand and adhere to rules that may come from several different areas, including but not limited to:

• Statutory compliance: Your business must follow employment-related statutes that regulate the workplace. Statutory compliance in HR includes minimum wage, employment taxes, equal opportunity employment, insurance, and other federal and state mandates.
• Regulatory compliance: Regulatory compliance covers rules established by government agencies or regulatory bodies such as the Federal Trade Commission or the Department of Labor.
• Contractual compliance: Contractual compliance refers to stipulations in legally binding contracts between your business and other parties, including employees, independent contractors, third-party service providers, and clients. If your company employs workers represented by a union or a collective bargaining agreement, you must understand and follow the agreement. Its rules may cover wages, anti-discrimination policies, and worker rights.

Why HR Compliance Is Important

As you grow your business and expand your workforce, you will encounter new opportunities and risks. It's common for business owners to grapple with complex OSHA regulations, application of laws to remote workers, and other compliance matters. Having a definitive HR compliance program that is regularly reviewed and reinforced may help your business avoid exposure to costly legal penalties for non-compliance with federal and state requirements.

Maintaining compliance with employment laws becomes even more complicated when companies have locations in multiple states or employ remote workers outside the state of operation. An increase in remote work use may increase potential fines and penalties for a given employer.

Non-compliance may simply not be worth the risk.

What Is HR's Role in Compliance?

What can your HR leaders do to help meet human resources goals while following applicable employment laws and regulations?

Incorporating compliance into your HR strategy starts with setting clearly defined goals. The HR department is critical in bridging the gap between overall organizational goals and strategic HR objectives, including compliance practices that can influence hiring, employee development, and retention. HR leaders can ensure that company goals align with compliance needs by crafting goals that propel the company forward while navigating the challenges of adhering to legal requirements.

HR Compliance: Laws and Regulations Employers Should Know

Numerous employment laws and regulations require attention from a company's HR team. Unfortunately, many leaders struggle to stay current on HR-related laws and requirements and all their other responsibilities. Too often, they become aware of compliance problems only when a state or federal enforcement agency contacts them or an employee files a claim against them. And at that point, it could be too late.

If that sounds familiar, don't panic. You can help prevent compliance violations by staying aware of legal requirements in areas like these:

• Non-discriminatory job postings and hiring
• Awareness of anti-discrimination laws
• Form I-9 compliance
• Conducting background checks
• classifying employees as exempt vs. non-exempt
• Pay deductions
• Making payments for payroll and taxes
• Providing healthcare coverage
• Required Federal and state labor posting
• Managing workers' compensation insurance

In addition to the key compliance areas highlighted above, be familiar with specific employment laws that affect these responsibilities. Below is a detailed list of federal employment laws that play a crucial role in guiding HR compliance efforts:

• Fair Labor Standards Act (FLSA): The FLSA regulates human resource activities concerning wages, overtime pay, employment of minors, and recordkeeping requirements.
• Family and Medical Leave Act (FMLA): The FMLA provides certain employees with up to 12 weeks of job-protected, unpaid leave for specific reasons, including birth, adoption, or serious illness of an immediate family member.
• Occupational Safety and Health Act (OSHA): OSHA oversees workplace health and safety regulations and standards, including employers' responsibility to provide a safe, hazard-free workplace.
• Title VII of the Civil Rights Act of 1964: Title VII protects workers from discrimination
• Americans with Disabilities Act (ADA): The ADA protects workers from discrimination based on a person's disability or perception of a disability.
• Age Discrimination in Employment Act (ADEA): ADEA against individuals aged 40 and older. 40 and older.
• Equal Pay Act (EPA): The EPA requires that men and women receive the same pay for substantially equivalent jobs.
• National Labor Relations Act (NLRA): NLRA protects the right of workers in the private sector to seek better working conditions and representation without fear of employer retaliation.
• Immigration Reform and Control Act (IRCA): IRCA requires employers to know their employees' immigration status and refrain from knowingly hiring undocumented immigrants.
• Genetic Information Nondiscrimination Act (GINA): GINA prohibits employers from making employment or health insurance decisions based on an individual's genetic information.
• Pregnant Workers Fairness Act (PWFA): This law makes sure pregnant employees get reasonable adjustments at work, like lighter duties, to support their health and well-being.
• Uniformed Services Employment and Reemployment Rights Act (USERRA): Protects the jobs of individuals who serve in the military, ensuring they can return to work with the same pay, benefits, and seniority as if they never left. This law provides peace of mind for service members while they fulfill their duties.
• Fair Credit Reporting Act (FCRA): Ensures fairness and accuracy in how credit reports are used, especially during hiring. Employers must notify candidates if a credit check is part of the process and get their permission, promoting transparency and trust. This legislation plays a vital role in promoting equal opportunities for job seekers.

As you develop your company's strategic priorities, understand that compliance concerns may affect key decisions. HR goals should support company strategy and strictly comply with human resource laws and regulations.

HR Compliance Issues: Challenges Faced by Businesses

As a business owner, demands on your time surge from every direction. You likely need to wear many hats in a given week, including that of the human resource compliance officer. Like most owners, you want to comply, but you may feel overwhelmed and unsure of what steps you should take.

Unfortunately, many business owners remain unaware of compliance mishaps until an enforcement agency contacts them. By then, it's often too late, and government agency auditors aren't likely to give a casual reminder.

To avoid these kinds of dicey scenarios, brush up on your knowledge of critical HR compliance topics like these:

Form I-9

Form I-9 is used to verify a new employee's identity and authorization to work in the United States. To meet legal compliance guidelines, be sure you understand:

• Document storage requirements
• Form I-9 completion processes and deadlines based on the employee's hire date
• Acceptable documents, including the stipulation 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

It is your responsibility as the employer to ensure that Form I-9 is completed promptly and in compliance with applicable laws and regulations. This form must be properly retained, ideally in a consolidated, secure place separate from general employee files.

Non-Discriminatory Hiring

Federal anti-discrimination laws are enforced by the Equal Employment Opportunity Commission (EEOC) and include the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), the Genetic Information Nondiscrimination Act (GINA), Title VII of the Civil Rights Act of 1964, the Pregnancy Discrimination Act (PDA) of 1978, and the Pregnant Workers Fairness Act (PWFA) of 2023. maintain a workplace free from discrimination and in compliance with applicable federal, state, and local labor laws.

Ask these questions to help verify employment law compliance for your business:

• Do I know which federal, state, and local anti-discrimination laws apply to my business?
• Have my managers been trained in these employment laws recently?
• Do I have policies to communicate our efforts to comply?
• Have I analyzed company practices for making employment decisions, including recruitment, hiring, promotion, and access to training?

FLSA Exempt vs. Non-Exempt Status

Under the FLSA, enforced by the U.S. Department of Labor (DOL), employees are classified as exempt or non-exempt from some or all the provisions of the law. 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.

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. However, these designations are not interchangeable. Exemption status is determined based on wages and job duties, and non-exempt employees may be paid a salary, by the hour, or in other ways.

Sick Leave Laws

Sick leave laws vary widely by jurisdiction, with some requiring paid time off for illness or to care for a family member. For example, California's Paid Sick Leave law generally entitles all employees to accrue and use paid sick days, while New York employers provide paid sick leave based on company size, with not all employers required to do so. Non-compliance can result in fines and damage to employee morale. Review your leave policies regularly to ensure they align with the laws in each location where you operate, especially if you have remote employees.

Non-Discriminatory Interview Questions

Interviews are critical to hiring, but asking the wrong questions can land you in hot water. Questions that could lead to uncovering a candidate's protected status under anti-discrimination laws, such as age, marital status, or religious beliefs, are off-limits. Questions like "Do you plan on starting a family?" are unacceptable. Avoid questions that could distract from a candidate's qualifications and training. Focus on job-related questions that allow candidates to showcase their skills and experience. Train your interviewers on appropriate questioning and provide guidelines to help ensure compliance and a fair hiring process.

Background Checks (Criminal)

Criminal background checks are common, but following the law is important. Many states and cities have "Ban the Box" laws that restrict questions about criminal convictions on job applications or don't allow asking until after a candidate has been offered a job. Additionally, using background information to discriminate against candidates is illegal under federal discrimination laws. To stay compliant, ensure your background check policy complies with applicable laws and consider working with a third-party provider specializing in legally compliant background screening.

Payroll

Mistakes with payroll and employment taxes can hurt employee morale and lead to costly non-compliance penalties. Errors like miscalculating wages, missing deductions, or filing taxes late are more common than you might think. For businesses with employees in multiple locations, navigating different tax rules can make things even trickier. A reliable payroll system—in-house or through a service—can help keep everything on track. Regularly reviewing your payroll processes can also catch minor problems before they become bigger headaches.

Workers' Compensation Insurance

Workers' compensation coverage is mandatory in most states and protects both employees and employers in the event of a work-related injury or illness. Failure to file claims or provide adequate coverage can lead to penalties and lawsuits. Do your part to prevent injuries with a safety program and by training managers on proper incident reporting.

Regularly review your workers' compensation insurance to ensure it meets minimum standards in every state where employees work. A well-administered program helps reduce risk and demonstrates care for employees' well-being.

Final Wages

Mishandling final wages is an easy compliance oversight. Many states have laws regarding timely payment of final wages, with some requiring payment on an employee's next regular pay date or the day they leave the company. Not complying can result in stiff penalties and lawsuits. Know your state's final pay laws to reduce these risks. Ensure your payroll team knows the procedures and consider integrating termination notices into your workflow. Automated payroll systems can also help with accuracy and speed up the process.

Termination Processes

Termination of employment is a delicate process that can quickly become messy if not done right. Skipping steps like documenting performance issues or ignoring company procedures can lead to wrongful termination claims. Always approach these situations carefully—review thoroughly, document your decision, and follow your company's termination process from start to finish. If you're unsure about anything, consult an attorney to ensure you do it right and fairly.

Record Retention

Federal, state, and local laws require you to retain different records for different periods—from 3 years for payroll records to 30 years for workplace injury logs. Not retaining required records can lead to audits, investigations, and penalties. Create a record retention policy that complies with the laws and ensures all employees handling records know the policies. Electronic records can help with compliance, where permitted.

Workplace Retaliation

Retaliation claims are among the most common charges filed with the EEOC. Workplace retaliation occurs when an employer takes adverse action – such as termination, demotion, or hours reduction – against an employee for exercising their protected rights, such as filing a complaint or participating in an investigation. Have a clear process in place for handling complaints and investigating allegations. Train managers on behaviors that could be interpreted as retaliatory and take proactive steps to ensure a trustworthy workplace. A few simple steps can help prevent costly litigation and maintain employee confidence.

Train Managers and Supervisors

HR and compliance professionals can't be everywhere at once, so it's essential to train managers and supervisors to recognize compliance red flags and handle common issues. This could include simple protocols for addressing harassment claims or handling worker's compensation incidents.

Employee Handbook

Your employee handbook is one of your most important tools for clear communication and compliance. But if it's outdated or missing key policies, it can create confusion and even open the door to legal trouble. For instance, if anti-harassment guidelines or remote work policies aren't included, it may lead to claims of unfair treatment. Make it a habit to review and update your handbook regularly to stay aligned with current laws, workplace trends, and your company's values. It's also a good idea to have an employment law expert review it to ensure everything is legally sound and up to date.

Risk Factors for a DOL Wage and Hour Audit

To achieve and maintain HR compliance, departments like payroll, HR, and legal must work together to address potential risks. Evaluate compliance requirements and practices in the following areas to help your business avoid an audit:

Pay Issues

Does your calculation of the regular rate of pay used to pay non-exempt employees overtime include wages, commissions, shift or job differential, premium pay for hazardous work, non-discretionary bonuses, and other incentive payments? If so, include them in your calculations for overtime where applicable and avoid shortcuts.

Offsite Work

Employers must pay employees for all hours worked, regardless of whether the work is performed on the employer's premises or remotely, at another designated worksite, in the employee's home, or at another location. You must ensure your employees are paid correctly according to applicable HR laws and regulations.

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. HR employment laws mandate that these breaks must also be counted as time worked when calculating the hours worked 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.

Travel Time

Traveling from home to work and back doesn't generally count as paid travel time, but non-exempt employees should be compensated for travel from one job site to another.

Traveling to the office may be compensable for home-based workers as time worked. Other types of travel may also qualify for compensation under federal and state employment laws and regulations.

How To Improve HR Compliance

Here's a practical guide to help businesses navigate compliance challenges and reduce risks across the employee lifecycle:

Audit Existing Policies and Practices

Start by evaluating your current policies and procedures to identify gaps or outdated information. Conduct regular payroll, benefits, and employment classification audits to ensure they meet federal, state, and local laws. Spotting and addressing inconsistencies early can help you avoid more significant issues down the line.

Documentation

When a compliance issue, workplace conflict, or employee complaint arises, having thorough documentation can make all the difference. Develop a clear protocol for how your team will investigate, record, and address these situations. Consistently applying this process helps resolve issues fairly and builds trust and credibility with your employees.

Communicate With Employees

Clear and open communication is the foundation of employee compliance. Share updates about company policies, expected workplace behavior, and how to report concerns in a way that's easy to understand. Leadership plays a crucial role here—when managers model compliance and encourage honest conversations, employees feel more comfortable speaking up and reporting potential issues without fear of retaliation.

Conduct Ongoing Training

Provide regular training sessions for employees and managers on compliance topics like workplace harassment. Tailor training sessions to address specific topics within your industry or geographic region and reinforce these lessons through periodic refreshers.

Leverage Technology To Streamline Compliance

Technology can take some of the stress out of managing compliance. HR software makes handling tasks like payroll, benefits, and employee classification easier by automating the more complicated processes. Many tools also help you stay on top of compliance deadlines, securely store important documents, and prepare reports for audits. Using the right technology saves time, reduces errors, and keeps your business running smoothly.

Foster a Culture of Accountability

Accountability starts with making sure everyone understands their role in creating a fair and compliant workplace. Employees should feel comfortable speaking up about concerns without worrying about negative consequences. Leaders play a big part in setting the tone. When managers follow the same rules they ask of their teams, it builds trust and shows that compliance is a core part of how the organization operates, not just a box to check.

Monitor Legal and Regulatory Updates

Keeping up with laws and changes in workplace regulations is crucial for staying compliant. To stay ahead of new requirements, consider signing up for industry newsletters, attending HR conferences, or consulting an employment attorney. You might also assign someone on your team—or an external expert—to track these changes and help your business adapt quickly when needed.

Conduct Regular Compliance Check-ins

Set aside time for regular check-ins with HR and leadership to review your policies, spot any new risks, and determine where improvements are needed. These reviews allow you to catch potential issues early and ensure your practices keep up with your business as it evolves. Compliance isn't something you can tackle once and forget about—it requires consistent attention and effort.

Engage External Experts When Needed

Work with employment attorneys, HR consultants, or PEOs to access expertise on complex compliance matters. External professionals can provide information on your business needs, especially for intricate challenges like multi-state operations or union negotiations.

Stay Updated on the Legislative Landscape

Laws governing HR compliance and related matters are continually evolving. Here are a few ways you can stay informed:

• Consider working with an HR professional to understand specific HR compliance issues that affect your business
• Subscribe to updates from the DOL and other government agencies
• Review press releases published by local, state, and federal HR-related lawmakers

Conduct an HR Compliance Audit

Once you know human resource laws, conduct a company-wide HR audit to ensure your policies are current and comprehensive. This is also an excellent opportunity to provide managers with compliance training and keep everyone in alignment.

Outsource HR Compliance Support

Consider working with an external HR services provider to get the support you need, remain compliant, and mitigate potentially costly pitfalls. HR outsourcing provides access to experienced HR professionals who serve as compliance resources and provide up-to-date knowledge of federal, state, and local employment laws and regulations.

HR Compliance Is Good Business Practice

Human resource compliance is critical for all companies, regardless of size, number of employees, or location. Failure to follow local, state, and federal HR laws and regulations can prove costly, resulting in fines, damage to your reputation, and difficulty attracting and retaining talent.

Outsourcing this function to an experienced provider can help ease HR compliance concerns and reduce burdens on your administrative team. An HR provider can also provide technological support that might otherwise be too costly for your business to maintain independently.

Working with a professional HR outsourcing service provides essential support for you as the business owner and your HR managers, from comprehensive compliance knowledge and depth of expertise to innovative technology updates. With these resources, you can shift your focus to strategic issues supporting broader organizational goals and shaping your company's future.