Small Business Owner’s HR Compliance Checklist

You’ve built your business on a passion and a dream, and to help it succeed, you’re wearing multiple hats – from CEO to HR manager and everything in between. And while that dedication is admirable, trying to do it all could be putting your business at risk.

Running a company means adhering to hundreds of workplace-related laws and regulations at the federal, state, and local level – and these requirements are often complex and challenging to understand. Without specific HR knowledge, regulatory expertise, and awareness into the latest compliance laws and rulings, you could unknowingly expose your business to significant legal and financial risks.

With the right HR expertise and resources in place, you can minimize risks and ensure compliance for your organization. From developing an initial compliance strategy to maintaining compliance long term, the experts at G&A Partners provide our clients with the HR compliance knowledge they need to protect their businesses.

HR compliance is the adherence by a business to applicable federal, state, and local employment laws and regulations, and HR risk management is the process of identifying potential employee-related risks and then minimizing these issues before they arise.

In other words, whether you employ five workers or 100, there are risks to your business associated with employee relations, regulatory compliance, and workplace safety. Nearly everything you do within the employee lifecycle has a federal, state, or local requirement that comes along with it.

Take, for example, this small sampling of common employee-related actions:

• Recruiting for an open position: There are at least six federal regulations you must consider.
• Deciding whether to pay your employees hourly, salary, minimum wage, or overtime: The Fair Labor Standards Act (FLSA) and state or local regulations play a significant role.
• Onboarding a new hire: The federal government requires employment eligibility verification within a specified period.
• Providing employee benefits: You may need to meet requirements in the Affordable Care Act (ACA).
• Issuing W-2s to your staff for the year: The IRS has deadlines you must meet.
• Offering a retirement plan: The Employment Retirement Income Security Act (ERISA) sets standards.
• Reacting to a workplace-related injury: The Occupational Safety and Health Administration (OSHA) has recordkeeping requirements.
• Handling a leave request from an employee who’s expecting a baby: The Family and Medical Leave Act (FMLA) as well as many states have requirements.
• Providing bonuses to your staff: The IRS dictates how that bonus is taxed.
• Paying a departing employee: The FLSA (and some states) governs when the final paycheck must be issued.

HR compliance management is overwhelming, complex, and at times, may feel burdensome, but the consequences of noncompliance can be substantial. Financial penalties in the form of fines and backpay, legal fees, and possible settlements can significantly strain a business’ budget. And time spent preparing for and responding to government investigations can impact operations. Multiple offenses – especially when viewed as willful disregard – can also lead to government oversight and steeper penalties.

The most severe consequence, however, is the damage noncompliance can do to your company’s reputation. Noncompliance can create an unsafe work environment, erode trust from employees, lower employee morale, make it difficult to recruit or retain talent, or even have a negative impact on customer relations.

As the department responsible for handling an organization’s people-related needs, human resources is uniquely equipped to help a business manage compliance with labor laws and mitigate employee-related risks. But managing and maintaining compliance is a significant lift on top of day-to-day HR administrative tasks, and it often requires a team.

To understand the scope of HR compliance, check out just some of the responsibilities below:

• Being aware of laws and regulations that impact your business. This includes the federal, state, and local levels for all locations where you operate or have employees.
• Creating policies and procedures to reflect those requirements.
• Providing education to employees about these laws and policies. In some cases, training is mandated by law.
• Enforcing company policies.
• Investigating HR-related claims and incidents.
• Taking disciplinary action, when necessary.
• Regularly auditing current policies and updating as needed.
• Notifying employees of certain rights or laws, as required by law, such as by displaying workplace posters.
• Reporting work-related incidents, such as fatalities or hospitalizations.
• Maintaining and updating the employee handbook, if the company has one.

To help HR professionals manage all aspects of HR compliance, many companies develop HR compliance checklists that detail actions to be completed during processes such as recruiting, hiring, or processing payroll. (More on that in a moment.)

Ultimately, companies must organize a companywide effort to be successful with HR compliance, meaning that team leaders, supervisors, and individual contributors – across the company – whose actions put the company at risk must be involved. Therefore, HR should cultivate a compliance culture, one in which employees understand the importance of abiding by company policies, are educated on what’s expected, and are aware of possible consequences.

Of course, HR compliance for small businesses comes with additional challenges since assembling a team or dedicating full-time resources to compliance is often unrealistic. More commonly, the business owner or another key employee takes on HR in addition to their normal duties. That leaves little time to learn about the latest labor laws and become an expert in compliance. Yet, small businesses are still expected to meet labor laws and regulations.

When the regulatory landscape is complex and constantly changing, how can small and mid-sized business owners ensure HR compliance?

There are steps you can take to protect your business:

Build compliance awareness.

Ensuring HR compliance begins with being aware of employment-related laws and regulations. As a business owner, it’s your responsibility to be aware of the laws you must abide by.

“In many cases, business owners don’t know what to ask or research, so the first step is to become aware,” says G&A Partners’ Compliance Manager Kelley Zanfardino. “It’s also important to understand that a lack of awareness won’t excuse you or your business if you’re found in violation of a labor law. The government can still fine or penalize your business.”

Understand the impact of labor laws.

The second step in HR compliance, Zanfardino says, is to understand the impact of each law on your business.

“A certain requirement may not apply to your business because of factors such as the size of your workforce, your industry, or location, so you need to understand the impact before you act,” Zanfardino says.

You will also need to understand the relationship between federal, state, and local labor laws. Generally, federal laws supersede state laws. However, an exception exists with labor laws.

“Labor laws are enacted to protect the rights, health, and financial remuneration of workers,” writes Andrew Latham in the Chron article, “Do State Labor Laws Supersede Federal Labor Laws?” “Therefore, when federal and state laws conflict, the U.S. Department of Labor instructs employers and employees to follow the law that provides the highest standard of protection to employees and the strictest standard for employees.”

Stay informed through experts.

Several resources from experts exist that can help you build your awareness of regulatory compliance, such as:

• E-newsletters and webinars hosted by major employment law firms
• Society for Human Resource Management (SHRM) publishes resources for its members on all things related to HR, including compliance
• State and federal agencies are available to answer questions and often provide helpful resources on their websites

Hire an HR outsourcing provider.

Many HR outsourcing providers, such as a professional employer organization (PEO), have a team of HR experts available to guide you on regulatory compliance. For example, they can help identify whether you’re meeting Fair Labor Standards Act (FLSA) requirements and alert you to new or changing labor laws. With a PEO, you’ll also gain access to a full-service HR solution that will manage your back-office human resources tasks – such as payroll processing, benefits administration, and HR management – for about the cost of one full-time employee.

Hire an employment law attorney.

An employment law attorney will provide insight on labor laws, keep you abreast of recent changes to workplace regulations, provide guidance on policies and procedures, and advise you on how to handle employee disputes to minimize legal risks and protect your business. They can also represent your business in court, if necessary.

Engage an HR consultant.

If you have a human resources team that is managing your daily HR tasks but doesn’t have time to stay on top of the ever-changing compliance landscape, you can work with an HR consultant to focus specifically on regulatory compliance. They can update you on laws and regulations you need to be aware of and offer guidance on how to become (and remain) compliant.

Enlisting a third party to help with HR compliance can give you peace of mind knowing that you have knowledgeable experts informing you of new or changing labor laws and how those laws impact your business. However, it’s important to note that your business is ultimately responsible for regulatory compliance. A PEO or employment law attorney can provide guidance, identify errors, and offer solutions to employee issues. But you must determine what actions the company will take.

With so many federal, state, and local labor laws to remember, it’s easy to understand how an HR professional could overlook a requirement or miss a step. To minimize this risk, small and mid-sized businesses can utilize an HR compliance checklist, which lists actions HR professionals should complete as they perform certain tasks.

It’s important to note that an HR compliance checklist will vary for each business based on factors such as location, size, and industry. For example, a healthcare organization will have more mandatory trainings to complete than a marketing firm, and minimum wage requirements will vary based on an employee’s location.

You can develop a checklist for your business by researching relevant laws and regulations at the federal, state, and local levels. If you’ve enlisted the help of a third party, such as a PEO or employment law attorney, their experts can help you cultivate a checklist or provide resources to gather requirements.

With G&A, for example, businesses gain access to an easy-to-use reference tool that builds a chart of all relevant state laws based on the topic and location you choose.

We’ve also developed this HR compliance checklist PDF that you can download and use as a template for your own company checklist. Work with your compliance expert to add industry, state, and local laws for your organization. 

The importance of creating a comprehensive HR compliance strategy for small and mid-sized businesses cannot be overstated. A well-defined strategy ensures that you can navigate the complex regulatory landscape and mitigate potential legal risks.

But getting started can seem daunting if you don’t have an HR compliance management framework in place. Here are several tips to consider as you develop a strategy:

1. Be proactive. It may be tempting to take a wait-and-see approach to compliance, but that can be costly – both in potential fines and to your company culture. Instead, proactively address possible compliance issues to safeguard your operations and protect your company reputation.
   
   
2. Stay on top of regulations. Subscribe to updates from government agencies and labor law experts, be aware of issues on the ballot, and keep informed of the latest labor laws and regulations.
   
   
3. Document and audit your policies and procedures. Whether posted on an internal website or in an employee handbook, documented policies clearly outline employee expectations and define how situations should be handled, and they may be mandated by some laws.
   
   What you include in those policies should be carefully considered. Use clear language to avoid misunderstandings and avoid requirements or procedures you don’t intend to enforce. Then audit your policies annually, including your HR compliance checklist, if you’re using one. Determine whether the policies are effective, if they abide by and fulfill the latest regulatory requirements, or if they are still needed.
   
   To further protect your business, consider having an HR compliance expert or your employment law attorney review the policies.
   
   
4. Require employee acknowledgement of policies. Today’s HR technology makes it easy to disseminate new policies or employee handbooks and then capture employee acknowledgements electronically. (In some cases, labor laws may require you to take this step.) When you partner with a PEO like G&A, you’ll have access to technology that will streamline processes and improve compliance.
   
   
5. Build compliance into your onboarding. A new hire’s onboarding phase is an excellent time to introduce the importance of compliance and provide training on policies and procedures.
   
   
6. Provide compliance-related training and resources for employees. Your business’ ability to be compliant is only as good as your employees’ diligence to follow policies. Training lays the foundation for awareness and understanding, not only of specific labor laws but also to emphasize the role employees play in compliance. Provide takeaways after training sessions that employees can refer to on the job and consider requiring additional training annually or every two years.
   
   
7. Communicate consistently and often. A successful HR compliance strategy requires that employees are well informed – that they are aware of and understand company policies, and they understand why compliance matters. Communicating frequently with employees about policies – whether through reminder emails or refresher trainings – can keep compliance top of mind.
   
   
8. Utilize an HR compliance checklist. When HR professionals have an HR compliance checklist they can follow during their processes – such as when writing a job description or processing payroll – it can help ensure they don’t miss a required step.
   
   
9. Fairly and consistently enforce your policies. If employees notice you aren’t enforcing company policies, they’ll be less likely to follow them. And if you don’t enforce your policies consistently for all employees, it can create a perception of favoritism or discrimination. That can spell trouble if an employee files a claim against your company, as inconsistent policy enforcement can weaken your defense.

You’ve increased awareness and understanding of labor laws and regulations, have a compliance expert such as a PEO or employment law attorney providing updates, and developed an HR compliance strategy. Will that ensure your company will be compliant for years to come?

The reality is that compliance is an ongoing effort. To maintain HR compliance for small businesses and mid-sized businesses, it must be ingrained in your company culture and become part of your processes.

Consider these tips to help your business maintain HR compliance:

Invest in HR technology.

HR technology and human capital management (HCM) systems can aid in compliance efforts for small and mid-sized businesses by:

• Minimizing payroll compliance errors
• Protecting sensitive employee data
• Generating required reports
• Automating tasks to reduce errors
• Providing e-learning courses for compliance training
• Tracking completion of compliance training

Integrated HR technology systems are a smart investment for small and mid-sized businesses, but they can also be expensive. When you engage a PEO, like G&A Partners, you gain access to state-of-the-art, integrated HR technology that not only improves compliance but increases productivity, includes self-service features, and streamlines processes from hire to retire. That’s in addition to a team of HR experts who’ll advise you on regulatory compliance.

Gain executive buy-in.

Enlist leadership who will strongly support your company’s compliance efforts. Their support will send a strong message to other employees that compliance is a priority.

Give employees space to learn.

Employees will make mistakes as they are learning new policies and procedures. Give them the space to make these mistakes and learn from them.

Evaluate consequences for repeat offenders.

A first- or second-time offender may need a refresher or more extensive training. However, an employee who repeatedly breaks a policy may need a more serious consequence. No matter, be sure to document each offense and the actions that are taken.

Reward employees for completing required trainings.

Offer incentives or prizes for employees who finish training before their deadline, such as entry in a raffle for a gift card.

Ensure employees have time for compliance education.

Your employees may feel pressured to prioritize their daily work over mandated compliance courses or to complete required trainings after their shift. Ensure managers are emphasizing the importance of compliance training and providing adequate time to finish it within their employees’ regular schedules.

Evaluate your compliance efforts.

With e-learning courses in a learning management system (LMS), you can evaluate results from quizzes or knowledge checks. Look for patterns. If certain courses have lower passing rates, evaluate whether the course is effective or if you need to provide additional education to your employees.

Also take time to evaluate common violations within the workplace. If you’re seeing the same violation amongst a wide number of employees, investigate and then address the root cause. To resolve the issue, you may need to find a more engaging e-learning course or follow up with department leaders on why policy enforcement is important.

Provide employees a method to report concerns.

Maintaining compliance is also about building a compliance culture that empowers employees to speak up when they have concerns or when they see something that’s not right.

Develop an effective method for employees to report issues, concerns, or violations with these tips in mind:

• Ensure employees know the reporting method is available. Hang flyers in the breakroom, add a slide to e-courses on how to report issues, or include information in your employee handbook.
• Provide multiple ways for employees to report concerns, such as through their manager, a designated compliance officer, or their HR team.
• Ensure leaders are encouraging employees to report wrongdoing, so workers don’t feel intimidated or fear retaliation. It’s best practice to have a company policy regarding retaliation.
• Allow employees to choose whether to report anonymously and ensure a method is provided for them to do so.
• Emphasize that reporting violations is part of each employee’s duty to ensure compliance across the company.
• Ensure you have a policy in place that defines how investigations will be managed after a compliance violation is reported.

About G&A Partners

Gain peace of mind and more time to focus on your business when you engage G&A Partners to help you maintain HR compliance, manage day-to-day HR tasks, and provide your employees the care they deserve.