5 Toughest HR Compliance Issues Every HR Leader Should Know

We know that HR responsibilities fall way beyond throwing job-anniversary parties. From hiring to payroll, HR leaders handle a variety of compliance issues related to employees. So we’ve given you a birds eye view of some of the toughest HR compliance rules that, like Ross and Rachel, are just complicated.

1. Identifying the compliance requirements that apply to your business

Being compliant requires learning which laws apply to your organization and understanding what they require you to do. That’s easier said than done. While there’s no shortage of compliance rules that apply to all employers – employment taxes, wage garnishments, termination pay, and unemployment insurance, just to name a few — there are plenty of small, nitty gritty details that determine whether some rules apply to your business.

Some HR compliance rules, like great modern art, are open to interpretation. Laws like the Family and Medical Leave Act and whether or not you are legally required to pay an intern are somewhat subjective and require some serious compliance expertise to master. (Did you know that your employees need to meet 3 qualifications before they’re eligible for FMLA leave?)

The little complexities and ever-changing nature of compliance makes it difficult for even the best human resources professionals to know what rules actually apply to their business. One of the ways to sort through the madness is to pay attention to your business size. For example, some compliance laws only apply to businesses of 50+ employees.

We’ve laid out the laundry list of compliance requirements for your business, whether it has 1 employee or over 100. Check out or checklist to help you determine what compliance laws apply to your business.

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2. Employee benefits regulations

Most companies offer their employees a laundry list of benefits – PTO, health insurance, tuition reimbursement, disability insurance and retirement savings – just to name a few. It can be confusing for compliance newbies to determine what benefits are good perks, and what ones are federally required.

Employee benefits fall into two categories: those required by law (social security and medicare) and those an employer chooses to offer voluntarily (vacation time.) Businesses are bound by federal law to offer certain employee benefits — and it takes some research to know which benefits a company has to provide its full-time workers. Federal mandatory employee benefits include:

Social Security and Medicare
Unemployment insurance
Workers’ compensation insurance
Family and Medical Leave Act (FMLA) protections

But what makes employee benefits compliance truly complex are the mix of federal and state laws that employers must adhere to. The following are just a few examples of the most complex mandatory benefit requirements.

Unemployment Insurance

Take unemployment insurance for example. Employers are required to contribute to unemployment insurance through payroll taxes at both the state and the federal level, to assist workers who lose their jobs. While this is a federally required benefit, since unemployment insurance is administered by individual states, the cost of this insurance and amount required for each employer varies from state to state.

Disability Insurance

While disability insurance is not a mandatory federal benefit, it is one of the legally required benefits for employers in California, Hawaii, Rhode Island, New Jersey and New York.

Health Insurance

Under the Affordable Care Act, applicable large employers (ALEs) risk a potential assessment if they do not offer adequate and affordable coverage to their full-time employees and their dependents and at least one full-time employee receives a premium tax credit. (ALEs are companies with an average of 50 or more full-time employees, including full-time equivalents, during the prior calendar year.) The coverage should also meet minimum essential coverage requirements and minimum value.

3. Complying with wage laws

If everyone needs payroll, why is it so complicated? Payroll may appear simple, but it’s really a complex administrative function. For one, even a small error can ruin the whole process, and leave you with some pretty mad employees. (Don’t mess with payroll, people.)

Here’s just a few reasons why payroll is complicated:

Ever-changing payroll laws. It’s hard to hit a target that’s always moving. Your payroll team needs to be aware of any changes that are happening at the federal and state level. While making changes to payroll policies, it’s best to get the new policies validated by experienced officials or external payroll firms.
Taxes. Between income tax, Social Security taxes, unemployment taxes and more – there’s just too many tax rules to stay on top of. Many companies are moving towards payroll management systems to automate their payroll calculations. Did we mention that you also need to have a list of voluntary deductions for each employee and reimbursements need to be accounted for?
Employee attendance calculations. Managing employee time off and attendance is another line item that goes into calculating payroll, and that can be hard to calculate manually. To streamline your operations, you can implement HR software with payroll, attendance, and time off features.

Here’s an HR pro tip: have you tried outsourcing your HR or using a PEO? Rely on the companies you partner with for employment-related compliance services to help with payroll. There are plenty of benefits to using a PEO and outsourcing your payroll function. If you’re thinking about outsourcing HR, get started with us and we’ll work with you to help manage HR.

4. Anti-discriminatory hiring processes

The recruiting landscape has officially shifted to the digital space. The shift to remote work in the past few years has created an influx in remote hiring and virtual interviews. But some challenges never change. HR leaders still need to be experts on recruiting compliance and help lead company execs to avoid being bested by changing regulations.

It’s easy to fall into a verbal tripwire, especially in a Zoom meeting. Seemingly innocent questions — are you married? What church do you go to? — are seen as discriminatory and can land you in hot water with federal law. As with the job announcement itself, it is best to have interviewers steer clear of any questions or discussions that touch on the areas of race, religion, sexual orientation or any of the other topics covered by anti-discrimination law.

For HR professionals, the real challenge is making sure that everyone – from the executive team to newly-minted managers – know what they can and cannot do. Our advice? Try using compliance-approved interview scripts and distribute them to any interviewers that aren’t as HR savvy as you.

5. Correctly classifying workers

It’s no secret that classifying workers can be confusing and time-consuming. Federal and state laws do not define the terms full-time, part-time, or temporary employees, so it’s up to the employer to define these terms. For example, A full-time employee generally is defined as one who works a “normal work week,” which is generally 40 hours a week. But some companies define the work week as 37.5 hours or even 35 hours depending on the work day and meal schedule. HR leaders should be sure that full-time and part-time classifications are defined as part of a company-wide employment classification policy so that they are consistent throughout the organization.

The main reason why correctly classifying workers is so tough is because members of the same team can be classified in many different ways. You could have several different classifications on your workforce including:

Full-time employees
Part-time employees
Temporary and seasonal employees
Independent contractors
Statutory employees and non-employees
Interns
Volunteers

Clearly, classifying employees isn’t something you can generalize. Solidifying the definitions of employment classifications is critical because it defines your employees’ eligibility for benefits, overtime pay and their tax status.

Here are just a few examples of complex classifications:

1099 Vs. W2 Employees

A 1099 worker is an independent contractor, which means they’re technically not an employee. 1099 contractors may work part-time or full-time hours, which can make it easy to confuse them with your other W2 full-time employees. But it’s an important distinction to make because, as a result of the short-term nature of their employment, 1099 contracted employees generally do not receive any benefits and have to pay their own income taxes.

HR leaders need to be sure that they don’t misclassify 1099 contractors vs. W2 employees. Besides DOL litigation costs, there are potential federal civil penalties of $2,074 per violation (generally one penalty per misclassified employee), state penalties (which will vary), and in some cases the potential for jail time.

Exempt Vs. Non Exempt

Although full-time, part-time and temporary employee classification are up to the employer to define, exempt and nonexempt classifications are governed by FLSA law, which includes minimum wage and rules for overtime pay. Whether an employee is exempt or non-exempt determines whether they are eligible for overtime pay.

Nonexempt employees are typically hourly (with some exceptions.) Exempt employees are typically executives, managers, professionals, administrative staff, and/or outside sales whose job descriptions meet criteria for non-exempt status as defined by the U.S Department of Labor.It’s a tough compliance issue that can trip up even the best of HR leaders. But it’s important to get right because the penalties of misclassifying employees can be big. Wal-Mart misclassified 4,500 employees back in 2011, which ended up costing them $4.8 million in back wages. Ouch.

5 Toughest HR Compliance Issues Every HR Leader Should Know