What is HR Compliance? Definition, Examples & Best Practices
Running a business comes with no shortage of perks: the freedom to be your own boss, invest in an idea, steer its trajectory and – with a little luck – create wealth. But even if everything else is going your way, there’s one challenge that’s always there. We’re talking, of course, about HR compliance.
We get asked about HR compliance a lot. Business owners want to make sure they’re compliant but don’t always know where to start. So, we wrote this (very awesome) guide to help you navigate the murky waters of HR compliance. Use our guide to learn the critical things you need to know: what is HR compliance, why it’s important to your business and HR compliance best practices.
What is HR Compliance?
HR compliance is the process of ensuring that your company’s practices, policies and procedures conform to federal, state, and local laws. Being compliant requires learning which laws apply to your organization and understanding what they require you to do. That’s easier said than done.
Some employment laws are simple, they take the form of “do this” or “don’t do that.” The requirements may be easy, like minimum wage, or complex, like the Family and Medical Leave Act. Compliance laws can be pretty straightforward. (Pro tip: don’t pay less than the minimum wage!) But not all compliance laws are as clear on the details, which is what makes HR compliance an art to be mastered.
Staying compliant requires knowledge, skill, and cooperation. You need to know where to go to ask the right questions and create policies and procedures that minimize business risk. (Not to mention, you need to be able to decipher HR legal-speak!) You have to ensure that everyone – from the executive team to newly-minted managers – know what they can and cannot do.
Why HR Compliance is Crucial to Your Business
Believe it or not, compliance isn’t just an HR problem. HR compliance is the support beams holding your business infrastructure together. No matter your company size or industry, all businesses need to conform to certain laws. Staying compliant protects your business’ assets and growth. But with the regulations constantly evolving, you need to be able to adapt.
81% of organizations reported that legal and compliance concerns were a challenge for their business over the last year.
The cost of non-compliance can affect all areas of your business. Between penalties, federal and regional regulation, reputation repair, and updating technology after a data breach – you can’t afford to be out of compliance.
Here are just a few common costs associated with being out of compliance:
- Penalty fees
- PR costs associated with repairing brand image after a scandal
- Repairing brand reputation or the cost of rebranding
- Lawsuit settlement fees
- Fees to recover funds after a financial crime, scam or a data breach
Regulatory compliance helps you protect your business’s resources and reputation. In the long run, it’s worth it to invest in HR compliance.
Why is failing compliance so expensive?
Compliance failure can include hefty legal fees, compliance audit costs, and loss of revenue due to client mistrust. To defend yourself against the dark arts of compliance regulations, you’ll need to understand why companies fall out of compliance. Here’s just a few common penalties.
Common HR penalties that can cost you:
- Health Insurance Portability and Accountability Act (HIPAA): Violating HIPAA includes fines up to $50,000. If it is discovered that the violation occurred due to a lack of training, the employer is penalized. When healthcare professionals violate HIPAA, it is usually their employer that receives the penalty.
- Affordable Care Act (ACA): A penalty of $2,750 (for 2022) per full-time employee (minus the first 30) will be incurred if the employer fails to offer minimum essential coverage to 95 percent of its full-time employees and their dependents, and any full-time employee obtains coverage on the exchange.
- Wrong Information on I-9s or W-2s: For 1-9 paperwork violations in 2022, the penalties range from $252 to $2,507 for the first offense for substantive violations or uncorrected technical errors. Failure to verify Social Security numbers or federal employer identification numbers (FEIN)on tax documents adds up. At the end of the year, missing or incorrect numbers on W-2s could result in a penalty by the IRS of up to $270 for each return.
- Occupation Health and Safety Administration (OSHA): Fines can add up to $14,502 per violation, as long as they’re not willful or repeated. Repeat offenders can be fined up to $145,027 per violation.
Examples of Common HR Compliance Issues
Even with the ever-changing compliance requirements, there are a number of regulations you’re bound to run into. Benefits, hiring and termination are just part of the employee circle of life (cue the music.) We’ve listed the compliance issues you’re bound to run into in the jungle of business.
Benefits Compliance
Most companies provide employee benefits: dental insurance, retirement plans and health insurance just to name a few. But few companies truly understand the requirements for each. For example, your company health coverage may need to adhere to the Affordable Care Act (ACA) and retirement plans are bound to the The Employee Retirement Income Security Act of 1974 (ERISA.)
Business owners should be aware of their responsibilities when it comes to offering employee benefits. Lean on your HR team to pay attention to compliance rules and help you determine the best way forward.
Non-discriminatory Hiring Practices
Every company needs employees but the hiring process can be tricky. For one, you need to be mindful about how you narrow down your candidate list and be sure that you don’t turn down candidates based on illegal factors. When going through your compliance checklist, be sure that you don’t do anything that could violate Equal Opportunity Commission laws. (Meaning that you can’t deny candidates based on disabilities, color, ancestry, and gender.)
Updating your Employee Handbook
Your employee handbook isn’t just the most fun piece of literature your employees anxiously wait to read every year. (Ok that might have been over-exaggerated.) But even if no one reads the employee handbook — and only about 40% of employees ever do — updating your employee handbook is important. It protects employers against discrimination or unfair treatment claims. Having written documentation on your values and policies only benefits your business.
Your handbook is a living document that should adapt to constantly changing regulations and the changing needs of the company. It needs to be updated annually. And to really conquer compliance, you should require every employee to provide a written acknowledgment of having received the handbook.
HR Compliance Best Practices
When outlining your compliance playbook, there are a few best practices you need to know. That is, if you want to proactively tackle any compliance issues. Don’t wait for an audit and let your compliance plan be a Hail Mary pass. Follow these top tips and get ahead of the game:
Review Your Rules Regularly
Compliance work is never really done. Not only do new legal requirements appear on the regular, but compliance rules need to be enforced consistently. Regularly checking your company practices allows you to identify risks and diagnose compliance issues before they turn into problems.
On the surface, it might seem like HR compliance is only about protocol and blindly following the rules. But dig a little deeper and you’ll see that your HR compliance function shapes employee experiences and the workplace as a whole. For example, team diversity and inclusion training opens up your workplace’s culture to be more inclusive and engaging.
Create a Culture of Accountability
Company compliance starts with effective communication. (Human resources should be on your front lines promoting company compliance!) Let HR regularly communicate with your employees and train them on the critical compliance issues — like keeping company data secure, verifying employee information for W-2s and sending out updated employee handbooks.
HR plays a crucial role in creating a culture of accountability, but all of your employees need to work together to reach compliance goals and solve problems.
Use a HR Compliance Checklist
Keeping up with compliance deadlines can be like trying to hit a moving target. Between tax deadlines (W-2s are due to the IRS in January,) 1094-C and 1095-C forms (due to the IRS in March) and more compliance documents — staying on top of compliance deadlines can be difficult. Many companies use a checklist to stay on top of the issues they need to keep in mind.
Using a HR compliance checklist helps you stay organized and ensures that you won’t miss any important steps in the compliance process. Don’t lose sleep wondering if your policies and procedures are compliant. Use our complete 2022 checklist to make sure nothing falls through the cracks — so you can get back to driving your business’ success.