What Is HR Compliance? What Employers Should Know

Gabrielle Sinacola | May 30, 2023

HR Compliance: Common Issues & Tips for Scaling Businesses

HR compliance has two main parts. First, you need to identify the laws and regulations that apply to your business, and then, you need to comply with them.

Both can be tricky. Businesses need to comply with federal, state, and local laws in every jurisdiction where they employ workers. Laws also change all the time, and government agencies won’t notify you of changes—it’s your job to stay up to date.

This can be particularly challenging for businesses with remote or distributed workforces: If you employ workers in 12 states and 36 localities, you’ll need to monitor employment law at the federal level and in 48 different state and local jurisdictions.

Proactively identifying potential HR issues and creating an HR compliance plan can help you maintain compliance and avoid fines or other penalties against your business.

What is HR compliance?

HR compliance is the process of developing and implementing workplace policies and procedures that align with federal, state, and local employment laws. An effective HR compliance program will keep you in line with all applicable laws and avoid any penalties or fines against your business.

An employment law is any law that governs the relationship between an employer and an employee. It’s a broad category—the U.S. Department of Labor alone enforces over 180 employment laws, and many US states and localities enforce additional laws and regulations.

Note that it’s not uncommon to hear employment laws referred to as labor laws (and vice versa)—many people use the two terms interchangeably. But labor law is technically a specific subset of employment law concerned with collective bargaining activities.

Here are a few major federal laws that are effective as of May 2023:

  • The Fair Labor Standards Act (FLSA). Enacted in 1938 and amended regularly, the FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards. As of 2023, it requires businesses to pay covered nonexempt workers a minimum wage of $7.25 per working hour and to provide overtime pay at one-and-a-half times the employee’s regular hourly rate if total work time exceeds 40 hours in a week.
  • The Family and Medical Leave Act (FMLA). FMLA was signed into law in 1993 and most recently amended in 2019. It entitles covered workers to 12 weeks of unpaid, job-protected medical, parental, caregiving, or deployment-related leave in a calendar year. It also provides 26 weeks of leave to care for an ill or injured service member.
  • The Occupational Safety and Health Act. This 1970 law created the Occupational Safety and Health Administration (OSHA). OSHA maintains an extensive list of general and industry-specific standards intended to ensure a safe workplace.
  • Equal Employment Opportunity laws. The Equal Opportunity Employment Commission (EEOC) is the federal agency responsible for preventing workplace discrimination. The EEOC enforces the Age Discrimination in Employment Act (ADEA), the Equal Pay Act (EPA), and the anti-discrimination provisions of the Americans with Disabilities Act (ADA), the Rehabilitation Act, and the 1964 Civil Rights Act.
  • Benefits administration laws. Laws governing employee benefits administration include the Affordable Care Act (ACA), which requires applicable large employers to provide or share in the costs of employee healthcare coverage for employees; the Employee Retirement Income Security Act (ERISA), which sets minimum standards for most voluntary health and retirement plans; and the Health Insurance Portability and Accountability Act (HIPAA), which prevents disclosure of an individual’s private health information without their consent.

10 common HR compliance issues

Businesses are complex organizations. They’re also made up of people, and people make mistakes: Even if you have the best intentions, it’s possible to slip up. Keep an eye out for these common HR compliance issues to avoid any accidental compliance violations.

1. Discriminatory interview questions

The EEOC’s anti-discrimination protections apply to both current and potential employees, which means that compliance issues can arise during the interview process. Interview questions that inquire about an applicant’s age, citizenship, marital or family status, religion, or arrest history are illegal.

Even seemingly innocent questions can lead to accidental violations—for example, “Do you need any information about schools in the area?” is an indirect inquiry about family status and could expose your business to an employment discrimination lawsuit.

2. Employee misclassification

Employee classification refers to the process of designating a worker as either an independent contractor or an employee of your business. Figuring out how to classify workers can be tricky: Different federal agencies use different systems to determine worker status, and state-level guidance also varies.

Because employee status confers protections on workers and increases a business’s tax obligations, proper worker classification is also a compliance issue. If you misclassify an employee as an independent contractor, you could be subject to fines, tax and benefit repayment, and even criminal penalties.

3. Unequal pay

The 1963 Equal Pay Act requires employers to pay men and women equally for equal work. Despite this, women earn an average of 82% of what men earn, as of 2023. Even if you intend to pay employees equally, gender pay inequities can develop over time.

As an example, if you use previous salary history to determine pay or offer extra compensation to attract key hires, you might end up inheriting unequal pay practices from other companies—If they pay men more on average, you will too.

4. Payroll issues

Payroll errors can cause late payment, underpayment, or improper tax withholding, all of which can lead to HR compliance violations and fines. Managing withholding is especially complex for employers with multi-state payroll.

Use a trusted payroll service provider and consider connecting your payroll processor with a compliance platform, like Mosey, to help you comply with tax withholding requirements in multiple states.

5. Information privacy issues

Businesses are legally required to handle sensitive consumer and employee information responsibly. As an example, HIPAA requires employers to protect the privacy of an employee’s confidential medical information obtained from a group health plan.

Consult a data privacy and security expert to make sure that your digital systems are secure, and handle paper documents with care: A locked file cabinet is a safe storage place, and your company storage closet is not.

6. Noncompliant leave policies

Figuring out and complying with your obligations under FMLA is important. It’s also fairly straightforward. Complying with state or local leave policies can be trickier.

This is particularly true if your business employs workers in multiple jurisdictions: Five states require employers to provide short-term disability insurance to employees, and 12 states and the District of Columbia require covered employers to provide some amount of paid family leave.

Consult a compliance professional (or use Mosey’s platform) to identify and comply with all applicable state and local leave laws.

7. Mismanaged benefits

Some employers are legally required to provide certain employee benefits, such as workers’ compensation insurance and health insurance coverage, and some states require employers to reimburse remote workers for certain-work related expenses.

Employers also need to administer benefits according to applicable employment law. For example, employers must promptly file workers’ compensation claims, and any employer that offers a group health, dental, vision, or other employer-sponsored plan subject to ERISA requirements must provide employees with ERISA Wrap documentation.

8. Multiple State and Local Regulations

Operating in multiple states presents a unique set of challenges, especially for the HR departments of businesses that employ people in several states. Each state has its own regulatory environment, and sometimes even cities within states have their own rules.

To avoid the pitfalls that come with trying to follow a patchwork of regulations, it’s essential to stay updated on localized laws, which Mosey can help you manage efficiently with real-time updates.

9. Privacy Concerns of Recruitment Technology

The efficiency of modern recruitment technology is undeniable, these tools can gather sensitive personal data, triggering privacy issues. HR leaders must ensure that these technologies are compliant with changing laws on data privacy and sharing.

Candidate privacy will only become more important as businesses start using artificial intelligence in recruitment tools. Businesses that clarify their commitment to data privacy and are transparent about their data usage will maintain the integrity of their employer brand and make themselves more desirable to applicants.

10. Union Laws

When your workforce is unionized, a new set of rules comes into play. HR teams have to consider regulations set forth by the National Labor Relations Act and additional state-specific laws.

This often involves navigating a complex array of union rules, employee rights, and collective bargaining agreements. Properly adhering to these laws lets employees know what to expect from their leaders and keeps them informed about their rights. A compliance platform like Mosey can be a valuable resource here as well, providing up-to-date information on what steps you need to take for full compliance.

6 ways to stay on top of HR compliance effectively

HR compliance is important for businesses of all sizes and at all stages of growth. As you add to your team, however, it becomes even more critical to have an HR compliance plan in place.

Larger companies are generally subject to more requirements, and managing your existing ones will become more complicated and time-consuming—especially if you employ people in different states.

Your risk exposure will also increase, meaning that you will be more likely to experience a violation, and the consequences for violations may be more severe.

These six tips can help you stay compliant as your company grows.

1. Build your compliance team

Build out your team to meet your changing compliance needs. If you don’t yet have an HR business partner or head of people operations, you might start by hiring one. If one dedicated team member isn’t enough, consider supplementing with additional resources.

A common rule of thumb is that companies need one to one and half HR professionals for every 100 employees, but Indeed reported in 2023 that the average has risen to 2.57 for every 100 employees.

2. Document policies

Record all HR policies and procedures in your employee handbook or accompanying documentation, and make sure that documents are accessible to your entire team.

If your employees work remotely, consider using remote collaboration software or a shared drive to host an updated version of your employee handbook and notify employees of any policy changes.

3. Use a multi-state compliance system

If you employ workers in multiple states, you’ll be subject to multiple sets of employment laws and regulations. You might also have tax withholding, registration, and reporting obligations in multiple states.

Consult an expert in multi-state compliance or use a multi-state compliance platform like Mosey to identify applicable laws and keep track of critical compliance tasks.

4. Monitor for changes

Employment laws change all the time—which means that compliance management is an ongoing task. Mosey can proactively alert you to changes in applicable laws before they go into effect. If you choose not to use a compliance platform, you’ll need to follow individual states’ legislative processes to stay up to date.

5. Conduct an HR audit

Conducting an HR audit is one method of ensuring compliance with new legislation or changing compliance obligations. To perform an audit, your HR manager will develop an HR compliance checklist that is specific to your business activities and reflects current requirements.

You’ll then review all policies and procedures against the list, making sure that your policies do everything that they are required to do (and avoid doing anything that isn’t allowed).

6. Automate Compliance Tasks

In the rapidly evolving landscape of HR compliance, manual tracking just doesn’t cut it anymore. Automating compliance tasks can substantially ease your HR departments’ workload and help your company grow faster.

Whether it’s sorting out eligibility for new hires or adapting to local levels of workplace safety standards, automation ensures you’re always a step ahead. A proactive approach not only minimizes the risk of non-compliance but also lets your HR team focus on strategic tasks like retention and onboarding.

Mosey is the complete system for state compliance in all 50 states, without the expensive legal and accounting fees. Stay organized across all types of business compliance—HR, payroll, insurance, registration, and tax requirements—for each location in one place. The platform tracks requirements so you will never miss important deadlines with timely alerts and always-on monitoring for upcoming requirements and new legislation. With Mosey, you can manage everything you need for your business compliance in one place. Want to learn more? Schedule a demo—our team is excited to meet you.

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