What Are the Goals of HR Compliance and Why Is It So Important?

What is the purpose of HR compliance?

Within the U.S., state, and local governments, laws and regulations exist to establish a framework for the employer-employee relationship and to protect workers’ rights. Businesses must comply with requirements that apply to their business, which can vary depending on factors such as company size or industry.

The goals of HR compliance within a company relate to adherence to labor laws, but the method in which a company achieves compliance can vary. For example, a larger corporation may have more resources to provide in-depth employee training, conduct regular and extensive HR audits, and mitigate compliance risks with an internal HR compliance team.

For small and mid-sized companies, limited resources can result in a bare bones compliance strategy. To try to stay on top of it all, your organization may need to rely on external sources rather than internal experts for labor law updates, or you might turn to an HR outsourcing provider like G&A Partners for support.

What does an HR compliance team do?

Large companies often have an HR compliance team dedicated to ensuring HR compliance goals are met and the business and its employees are adhering to applicable employment laws and regulations. Because labor laws can be confusing and challenging to track, an HR compliance team often includes experts across various areas of HR and labor law, such as payroll, tax, and benefits.

Consider some of the tasks an HR compliance team manages:

• Tracking labor laws at the federal, state, and local levels – including any location where your employees work
• Notifying workers of specific laws and rights
• Crafting policies and procedures
• Conducting audits and revising current policies and the company’s employee handbook, as needed
• Training employees on the requirements, policies, and procedures
• Monitoring employees for compliance and enforcing policies, including taking disciplinary action when necessary
• Reporting workplace incidents
• Investigating employee complaints

For small and mid-sized businesses, dedicating a team to HR compliance is unlikely given the resources required. That means the responsibility often falls to the business owner or the person handling daily administrative HR tasks. But without keen attention to HR compliance, your small business risks facing costly fines, penalties, or even lawsuits due to noncompliance.

That’s why more and more small and mid-sized businesses are turning to an HR outsourcing provider to help manage HR compliance. This could be an HR consultant, a professional employer organization (PEO), or even an employment law attorney. No matter the option you choose, expert compliance guidance can provide tremendous peace of mind – helping you stay up to date on changing regulations so you can avoid costly legal mistakes.

What are the benefits of HR compliance?

One of the most notable benefits of HR compliance is the reduced risk of penalties, fines, or lawsuits. Consider that the Occupational Safety and Health Administration can fine businesses approximately $16,000 for a serious violation, a failure to pay a nonexempt employee overtime can result in tens of thousands in backpay, and repeated compliance offenses determined to be willful disregard can result in government oversight of a business. In short, the stakes are high.

Additional benefits of HR compliance, include:

Safer Workplace

Many labor laws are designed to reduce the risk of workplace injuries or illnesses. This is particularly important in industries such as manufacturing, construction, or healthcare, where hazards are more prevalent.

Inclusive Work Environment

Adhering to laws related to equal employment opportunities, anti-discrimination, and anti-harassment helps businesses cultivate a more inclusive workplace that ensures fair treatment for all employees.

Improved Trust with Employees

When your employees know their rights are protected and your company is operating within legal boundaries, it builds a sense of security and fairness.

Better Employee Morale

A commitment to compliance also demonstrates to employees that you value them and their well-being, which further strengthens the employer-employee relationship and improves employee morale.

Improved Recruitment and Employee Retention

When your business provides a safe, fair, and equitable workplace and demonstrates it values and cares for its employees, you are likely to have higher employee retention rates and a better reputation, making it easier to attract top talent.

What are the goals of HR compliance?

As mentioned above, the purpose of HR compliance is to ensure a business and its employees are adhering to local, state, and federal labor laws and regulations. However, there are several goals of HR compliance that facilitate adherence.

Those HR compliance goals will vary based on your business’ unique needs, but they may include:

• Understanding employment laws and how they impact your business
• Identifying and mitigating potential employee-related risks
• Building employee awareness of compliance and relevant policies
• Ensuring employees are following policies and procedures related to HR compliance
• Facilitating timely, fair, and consistent investigations following complaints or personnel issues
• Staying up to date on the latest labor law developments

A comprehensive compliance strategy that includes specific goals will help your business navigate the complex regulatory landscape while also mitigating potential legal risks.

Without an HR compliance strategy in place, however, your small or mid-sized business may be making decisions without a clear picture of what requirements must be met.

For example, determining the wages for a new position includes factors that are regulated by labor laws, including:

• Determining exempt or nonexempt status for the position (Fair Labor Standards Act)
• Ensuring nonexempt hourly wages meet or exceed the highest minimum wage requirements at the federal, state, or local level (FLSA)
• Ensuring the wage is competitive with similar positions within the company (Equal Pay Act)

And once you’re ready to advertise for that position, labor laws at the state or local level may require you to disclose the pay range in the job posting or avoid asking for a job candidate’s salary history during the selection process.

Why is HR compliance important?

HR compliance at its most basic form is ensuring a business meets regulatory compliance requirements. However, the importance of HR compliance extends beyond adhering to labor laws. HR compliance is important because it provides protection for both you as the employer and for your employees.

Protection for Employers

When your business meets labor laws and regulations, you are protecting your organization from potential:

• Lawsuits for compliance violations, such as wrongful termination, discrimination, or workplace accidents.
• Penalties from government agencies. In some cases, a penalty may require the business to pay a monetary fine and additional requirements – such as implementing additional training for the staff – at the company’s expense.
• Reputation damage. Regular or serious compliance violations can negatively impact your company’s reputation, leading to difficulty retaining and attracting customers and talent.

Protection for Employees

When evaluating why HR compliance is important, it’s necessary to consider the protection provided for your employees. Labor laws and regulations exist, in part, to protect workers’ rights in the workplace.

The Fair Labor Standards Act, for example, ensures nonexempt workers who qualify are paid a minimum wage and overtime when they work more than 40 hours in a workweek (and these requirements can vary at the state level). The Americans with Disabilities Act provides protection for workers with a disability or who are perceived to have a disability.

These are just two examples – far many more protections exist under federal, state, and local employment laws. When your business commits to meeting these standards, your company is demonstrating a commitment to ethical business practices, and you are fostering a safe, productive, and positive work environment for your employees.

How to Implement HR Compliance Policies

As part of your HR compliance best practices, it’s best to dedicate the time and attention necessary to effectively implement your HR policies – from communicating and educating employees to gaining buy-in from managers and enforcing policies.

Proper implementation of your HR compliance policies will help your employees clearly understand all policies, why they exist, what expectations the business has, and what consequences may occur in cases of noncompliance.

Here’s an overview of steps to consider as you implement your HR policies:

• Research and Gain Insights
  Determine the policy’s purpose and goals, research related labor laws, regulations, and industry standards, and involve company stakeholders to gain insights, feedback, and perspectives.

• Create Your Policy
  Create the policy, ensuring that the language is clear and concise. Who does the policy apply to? What is the procedure related to this policy? Who is responsible within this policy? How will it be enforced and what are the consequences of noncompliance? Avoid being too rigid or specific – allow for some flexibility in unique situations. Provide examples when possible.

• Review the Policy
  Consider asking for feedback from other members of your HR team, an HR consultant or your HR outsourcing provider, or your employment law attorney. Revise the policy as needed.

• Distribute the Policy
  Once it’s approved by management, distribute the policy to employees. To increase exposure to your employees, utilize different channels – intranet, email, posted flyers, video boards, or in person through team or department meetings. Consider requiring employees to electronically acknowledge that they have received and read the policy.

• Gain Buy-in from Managers
  Ensure managers have a clear understanding of why this policy is necessary and encourage them to discuss the employees’ responsibilities with team members.

• Train Staff
  Depending on the policy, you may need to offer training or additional resources to further educate your staff. Training may include in-person meetings, e-learning courses, electronic or printed guides, and tip sheets for quick reference.

• Address Instances of Noncompliance Promptly and Consistently
  Even with proper training, your employees are likely to have missteps that lead to or result in noncompliance. How you address these instances is important. Ensure the consequence is consistent, fair, and appropriate. A first-time offender may need additional training or resources, while a repeat offender may require a more serious consequence.

• Monitor the Policy and its Effectiveness
  Seek feedback from managers or employees on how their teams are handling the policy and whether there are obstacles preventing them from complying.

• Review and Revise the Policy Annually
  Check federal, state, and local labor laws and regulations to ensure the policy addresses the latest requirements.

How to Measure HR Compliance

Ensuring your compliance efforts are working effectively requires measuring HR compliance and, if necessary, refining your approach. Helpful tools such as integrated HR technology with robust reporting can provide valuable insights, and compliance-related metrics can reveal areas that need improvement.

HR Compliance Audits

An effective measurement tool – and a staple HR compliance best practice – is an HR compliance audit. This tool helps you to assess whether your organization is complying with labor laws and regulations and adhering to internal policies and procedures. Audits can be conducted internally or through a third party, such as an HR consultant or legal counsel.

HR audits can be conducted periodically – such as annually or every other year – or during mergers, significant structural changes within the organization, or when employment laws are substantially changing. If your organization is facing employee complaints or audits by a regulatory body, it may be a good idea to conduct your own audit as well.

HR Metrics

Metrics can paint a picture of how effective your HR compliance strategy and help you identify areas for improvement.

For example, if completion rates for compliance-related training are low, employees may have less awareness of important policies, which can result in lower overall compliance. Uncovering why those rates are low – such as through an employee survey – can help determine how to improve completion rates.

Here are some metrics to help assess HR compliance:

• Pay data to assess pay equity
• Employee demographics
• Employee turnover rates
• Hours of compliance-related training provided to employees
• Percentage of employees completing compliance-related training
• Number of diversity initiatives
• Number of compliance-related lawsuits
• Average time to resolve employee complaints/investigations
• Number of workplace safety accidents
• Data from compliance-related fines or penalties