How to Maintain HR Compliance

What is HR compliance?

HR compliance is the process of creating and enforcing internal HR policies that follow labor laws, employment laws and other regulations. HR compliance is a legal requirement that can help you prevent employment disputes and litigation.

Regardless of how big or small your organization is, HR compliance can be a massive undertaking. Many companies have full-time human resources employees or outsource HR to experienced professionals.  

“You need an expert, someone who stays on top of the changes and interpretations of the different laws,” advised Jilian Dimitt, vice president of human resources at Optima Office. “If your organization cannot afford a strong HR manager, director or internal HR team, then utilize the service of a strong HR consultant that you can call upon when [needed].”

What HR compliance tasks should businesses know about?

Whoever handles your business’s human resources functions should know about vital HR compliance tasks. These tasks cover a multitude of categories, including the following: 

• Employee recruitment
• Employee termination
• Hiring 
• Onboarding
• Payroll processing 
• Benefits administration
• Employee relations
• Risk and safety

There are too many potential HR compliance tasks to list. However, Dimitt pointed out five critical HR compliance tasks many businesses forget:  

1. Acquire the mandatory federal and state posters.

Federal and state laws require businesses to acquire and hang posters listing specific labor laws for their entire staff to see. These posters should be updated frequently, because laws and regulations change. 

Dimitt said businesses can purchase federal and state “all-in-one” posters to maintain compliance. “Up-to-date posters are one of the first things I check for when asked to do an HR audit for a client,” Dimitt noted.

2. Correctly classify your workers.

Members of your team can be classified in various ways, including the following:

• Are they hourly or salaried? 
• Are they exempt or nonexempt? 
• Are they contractors or employees? 

No matter how unintentional, misclassifying workers can cause trouble for your business.

3. Update your employee handbook.

Although you might not be legally required to create an employee handbook, it’s recommended. Employee handbooks can help you communicate policies to staff and mitigate legal disputes. An employee handbook is a living document you should update as laws and policies change.

“I met with a client recently who was so proud of their 50-page handbook — but it was 10 years old, and they were continuing to follow outdated and now-illegal policies, all because they just did not know that the laws had changed,” Dimitt said.

4. Give all new hires their required documents.

Handing out vital information might seem like a no-brainer, but an essential part of HR compliance is providing new employees with key documents as soon as the employees start. Some paperwork is legally necessary, while other documents can help avoid disputes down the road. This same policy applies when employees depart the company.

5. Follow “final paycheck” laws.

According to Dimitt, many employers don’t realize that an employee who gives their resignation notice or is terminated must be paid on their last day. Paying employees on their last day is a straightforward way to maintain HR compliance.

What challenges do small businesses face in compliance?

Knowing and understanding all current laws and regulations that apply to your business can be challenging. Hiring or consulting an experienced HR professional can help your business mitigate many compliance challenges.

In addition to creating compliant policies and procedures, managing human capital can be challenging. For example, employee behavior can present small businesses with various HR compliance issues, and external factors can also impact compliance. 

Margo Wolf O’Donnell, co-chair and partner of the Labor and Employment Practice Group at Benesch, said workplace harassment, discrimination and disability claims have been top of mind for companies lately.

“How to handle claims of harassment and discrimination and, in particular, disability claims relating to COVID-19 and issues relating to claims of sexual harassment are the top compliance issues facing small business right now,” Wolf O’Donnell noted.

How can small businesses stay HR compliant?

Although maintaining HR compliance can take time and money, it’s worth the effort. Noncompliant businesses risk significant penalties, fees and litigation. To help your business stay HR compliant, follow these six steps:

1. Hire the right HR people to stay HR compliant.

Having the right people in place to manage human resources is essential for small businesses. Every business is unique and should have tailored HR support. 

You have several options, depending on your business’s size, HR needs and budget. For example, you can hire an internal HR manager or an in-house HR department. Alternatively, you could outsource your HR functions to one of the best professional employer organizations (PEOs) or an HR consultant.

If you want to keep your HR functions in-house but can’t afford an entire HR team, consider hiring an HR generalist, Dimitt suggested.

“If you are small, perhaps hire a strong HR generalist who has five to eight years of overall experience but, most importantly, one who ‘knows what they don’t know’ and who will research or reach out to experts if they find themselves in a situation they can’t handle on their own,” Dimitt advised.

Even if you have an internal HR manager, it can still be helpful to confer with an experienced HR consultant as needed.

2. Create clear policies and procedures to stay HR compliant.

Every organization should establish a clear set of policies and procedures for employees to follow. They should follow federal, state and local guidelines and accommodate your business’s specific needs. 

When you’re writing your policies, be explicit about what is expected and what will not be tolerated. It’s also crucial to list clear steps for employees to report policy violations.

“Make sure that all safety policies, attendance requirements and benefits are clearly stated and in compliance with federal, state and local guidance and orders,” Wolf O’Donnell advised. “Make sure anti-harassment and anti-discrimination policies have understandable procedures in place for employees to report their complaints.”

An employee handbook is vital to establishing and communicating clear policies and procedures. Don’t forget to update your company guidelines as laws and regulations change.

3. Train your employees on HR compliance.

Creating compliance policies and procedures is not enough. To ensure your team is compliant, you must facilitate open communication with your employees and train them on your policies.

Effective employee training can be conducted online or in person and can be facilitated by your internal HR team or an external party. The type of training you offer will depend on your team and the topic. For example, Wolf O’Donnell suggested having an external party conduct anti-harassment and anti-discrimination training.

“Having a third party, such as an employment attorney or consultant, conduct a live anti-discrimination and anti-harassment [training session] can help prevent future claims and demonstrates the commitment of your company to keeping your workplace free of unfair treatment,” Wolf O’Donnell explained.

4. Thoroughly investigate employee complaints to stay HR compliant.

Part of maintaining a compliant organization is listening to your employees. When an employee makes a complaint, it’s essential to investigate it. According to Wolf O’Donnell, businesses should investigate all complaints relating to safety issues, harassment and discrimination — whether written or oral — even if they’re anonymous (via blogs, tweets or hotlines).

The best way to ensure compliance is to create a standard procedure for investigating complaints.

“I find that an investigation works best if it starts with an interview of the complainant,” Wolf O’Donnell said. “After the complainant is interviewed, proceed next with interviews of any other individuals who might have knowledge. Investigations should usually end with an interview of the accused.”

In your investigation, multiple individuals (e.g., a manager and an HR professional) should be present at your interviews to avoid any disputes on what is discussed. When the investigation is complete, encourage the complainant to follow up with management if any other issues arise.

“Touch base with the complainant on a set time frame — 15, 30 and 60 days after the complaint is probably sufficient unless the complainant demands more and these requests are made in good faith,” Wolf O’Donnell said.

5. Enforce disciplinary actions fairly across the board to stay HR compliant.

Once an investigation is complete and you’ve determined an employee has violated a policy, take the appropriate remedial action outlined in your employee handbook and disciplinary action policy.

“Such actions could include separating the complainant and the accused in the workplace (staggering their hours, moving their offices), disciplining the accused, or terminating the accused,” Wolf O’Donnell said. “If terminating the accused is deemed the appropriate response, think about what claims, if any, the accused might have against the company, and consider getting a release in return for a payment.”

Fair and equal treatment of all employees is essential to HR compliance. No employee should get special treatment or be let off the hook due to their position or favoritism. This is critical to ensuring your company doesn’t face litigation.

6. Always keep proper documentation to stay HR compliant.

When you’re performing an investigation, keep comprehensive documentation of the situation. This could come in handy later, especially in the unfortunate circumstance that the case goes to litigation. Proper HR compliance documentation will also be helpful if your company is hit with an HR audit.

Staying HR compliant for the foreseeable future

Although HR compliance can quickly get time-consuming, you don’t have to go it alone. In fact, the companies with the best HR track records typically work with a PEO or one of the best HR outsourcing services. Alternatively, if your business is new, you can start small and hire an in-house HR person. When you approach human resources with others on your side, compliance becomes much more likely.

Max Freedman contributed to this article. Source interviews were conducted for a previous version of this article.