HR Compliance: What Business Owners Should Know

Human resources compliance is about more than just following the law. It is a strategic cornerstone for your business and 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 HR compliance and create a strategic plan that ensures alignment between business goals and compliance needs.

What Is HR Compliance?

Compliance in HR encompasses an awareness of all the applicable HR laws and regulations for your business. It also includes the policies and procedures that ensure adherence to those regulations.

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:

• Follow all applicable HR employment laws, including federal, state, and local regulations
• Be prepared for a potential audit from enforcing agencies that may levy 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 a recent Paychex study, about 50% of business owners say maintaining regulatory compliance is extremely or very challenging.¹ As audits by government agencies and employee lawsuits increase in frequency and scope, all organizations—regardless of size or scale—must comply with ever-changing HR compliance mandates. Failure to do so may result in legal repercussions, penalties, and fines.

Sources of HR Compliance

Keeping track of the many areas that impact 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 comply with government laws, or statutes, that regulate the workplace. Statutory compliance in HR includes areas like 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 laid out in legally binding contracts between your business and other parties. These may include employees, independent contractors, third-party service providers, and clients.
• Union Law Compliance: If your company employs union workers, you must understand and comply with the union's collective bargaining agreement. These rules may cover wage discussions, anti-discrimination policies, and worker rights.

Why HR Compliance Is Important

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

About 56% of business leaders cite risk management and workers' compensation as their top HR challenge in the next 12 months.¹ Maintaining compliance with employment laws becomes even more difficult when companies have locations in multiple states or employ remote workers outside the state of operation. With remote work on the rise, penalties for employer-related violations can soar as high as $1,240 per worker annually.²

Non-compliance is simply not 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?

Striking the balance between HR strategy and compliance starts with a clearly defined set of goals. The HR department plays a crucial role in bridging the gap between overall organizational goals and strategic HR objectives, including compliance practices that influence hiring, employee development, and retention. By crafting goals that propel the company forward while navigating the challenges of adhering to legal requirements, HR leaders can ensure that company goals align with compliance needs.

HR Compliance Laws and Regulations Employers Should Know

Numerous HR compliance laws and regulations require attention from a company's HR team. Unfortunately, many leaders struggle to stay up to date on HR laws and requirements on top of all their other responsibilities. Too often, they become aware of HR compliance problems only when a state or federal enforcement agency contacts them. And that's typically too late.

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

• Non-discriminatory postings and hiring
• Completion of Form I-9
• Conducting background checks
• Properly classifying employees as exempt vs. non-exempt
• Pay deductions
• Making payments for payroll and taxes
• Providing healthcare coverage
• Ensuring labor posters are up to date and visible to all employees
• Managing workers’ compensation insurance
• Responding to conflicts within the workplace

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

• Fair Labor Standards Act (FLSA): The FLSA regulates human resource laws concerning wages, overtime pay, hour limits for minors, and recordkeeping requirements.
• Family and Medical Leave Act (FMLA): The FLMA 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 without jeopardizing their job.
• 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 human resource laws protect workers from discrimination based on race, color, religion, sex, and national origin.
• Americans with Disabilities Act (ADA): The ADA provides guidance on how not to discriminate on the basis of a person’s disability.
• Age Discrimination in Employment Act (ADEA) ADEA prohibits age-based discrimination for individuals aged 40 and older.
• Equal Pay Act (EPA): EPA laws ensure 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 adhere to the relevant HR employment laws.
• Genetic Information Nondiscrimination Act (GINA): GINA prohibits employers from making employment or health insurance decisions based on an individual's genetic information.

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

HR Compliance Issues: Challenges Faced by Businesses

As a business owner, demands on your time surge in 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 the Form I-9 is completed promptly 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), and Title VII of the Civil Rights Act of 1964. All these laws prohibit discrimination based on protected classes of workers. Employers must maintain a workplace free from discrimination and in compliance with applicable federal, state, and local labor laws.

Ask these questions to 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 U.S. Department of Labor (DOL) law governing wages and hours, employees are classified as exempt or non-exempt from some 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.

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 salaried or hourly.

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 a DOL audit:

Pay Issues

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? 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, 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 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.

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.

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

HR Compliance Best Practices

How can you ensure that your business remains compliant with all relevant human resource laws? Use the following best practices to stay current.

Stay Updated on Changing Legislation

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
• Study press releases published by local, state, and federal HR-related lawmakers

Conduct an HR Compliance Audit

Once you have a working knowledge of 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 comply with 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 partner can also provide technological support that might otherwise be too costly for your business to maintain on its own.

Partnering with a professional HR outsourcing service provides essential support for you as the business owner as well as 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 that will support broader organizational goals and shape your company's future.

¹2024 Priorities for Business Leaders, Paychex

²Wages and the Fair Labor Standards Act | U.S. Department of Labor (dol.gov)