HR compliance: Laws and regulations employers need to know

HR compliance is easy to overlook but absolutely essential to get right. For new or small business owners, it can feel like constantly sidestepping legal landmines. Even experienced HR professionals can find themselves overwhelmed by ever-evolving human resources compliance laws.

In this article, we guide you through the complexities of HR compliance and help you avoid common pitfalls that many businesses face. You'll find information about the key human resources laws and regulations that may affect your business, and a list of HR compliance best practices to help you stay compliant and avoid costly penalties.

What is HR compliance?

HR compliance is the process of ensuring a company’s employment practices follow all applicable local, state, federal, and, where relevant, international employment laws and regulations. These rules govern various aspects of employment, including hiring practices, employee classification, compensation, workplace safety, and discrimination policies. Human resources compliance involves aligning internal policies and documentation with external legal requirements to safeguard a company from fines, lawsuits, and reputational damage.

Compliance isn’t just a one-off task; it’s an ongoing process. Labor laws constantly evolve, and businesses need to update their HR policies regularly to reflect those changes. This can be particularly challenging for growing businesses that operate in multiple regions with varying legal requirements.

Penalties for noncompliance are on the rise. For example, if a company violates the Fair Labor Standards Act (FLSA) wage and hour provisions, they must pay back wages, liquidated damages that often double the total owed, and civil penalties. For willful violations, fines can reach up to $2,451 per violation in 2024, with penalties rising annually. Companies that don’t meet Occupational Safety and Health Administration (OSHA) standards face fines that are also increasing steadily, with penalties as high as $16,131 per violation in 2024. 

Types of HR compliance

HR legal compliance encompasses several areas, each with specific requirements that businesses must meet to avoid penalties and protect both their employees and operations. Below are some of the key types of HR compliance:

• Statutory compliance: This involves adhering to laws enacted by local, state, and federal governments. Statutory compliance in HR covers fundamental employment laws, like the FLSA, which mandates minimum wage, overtime pay, and child labor protections.
• Regulatory compliance: Regulatory compliance refers to abiding by the rules set by government agencies, such as the OSHA or the Equal Employment Opportunity Commission (EEOC). These regulations promote workplace safety and protect employees from discrimination based on race, gender, or disability.
• Contractual compliance: This involves employers complying with the terms outlined in contracts, whether they're individual employment agreements or collective bargaining agreements with unions. This type of compliance ensures that both parties (employers and employees) uphold their contractual rights and responsibilities.
• Union law compliance: For businesses with unionized workforces, this includes respecting the terms of collective bargaining agreements, which might involve pay rates, working conditions, or grievance procedures. The National Labor Relations Act (NLRA) sets clear guidelines for how employers must engage with unions and guarantees employees the right to organize or join unions.
• Global compliance: Companies operating internationally must comply with labor laws in each country they operate in. Global compliance requires understanding and navigating complex regulations, such as Europe’s General Data Protection Regulation (GDPR) for employee data privacy or Australia's Fair Work Act. 

The importance of HR compliance

Here are four key reasons why employment law compliance is a non-negotiable for all businesses:

• Legal protection: Compliance with employment laws provides a legal safeguard for your business. Adhering to laws like the FLSA, ADA, and EEOC regulations protects your business from lawsuits related to wage disputes, discrimination claims, and wrongful termination.
• Risk mitigation: Noncompliance can expose your business to a range of risks, from financial penalties to reputational damage. For example, OSHA violations can result in hefty fines, and noncompliance with anti-discrimination laws can lead to costly lawsuits, which can also put your business in a negative spotlight, damaging its reputation in the eyes of both customers and potential talent. Additionally, for startups seeking funding, these issues can scare off investors, creating further challenges in attracting the capital needed for growth.
• Operational efficiency: Complying with employment laws can streamline your business operations through well-organized and consistent employment practices, such as payroll, benefits administration, and workplace safety protocols. For growing companies, strong compliance policies enhance processes like onboarding and job classifications, improving overall workforce and HR management and fostering operational efficiency that can help your businesses scale smoothly.
• Employee satisfaction: A compliant workplace creates a fairer and safer environment, directly boosting employee satisfaction. When you treat employees fairly and protect their rights, they'll likely feel more engaged and become more productive. This positive workplace culture can lower turnover and attract top talent, vital for driving growth and staying competitive.

10 common HR compliance issues

Businesses of all sizes often face several key human resources compliance issues. Below are some common issues, along with actionable steps to resolve them:

1. Employee misclassification

Employee misclassification happens when businesses label staff as independent contractors or full-time employees instead of non-exempt employees, either unknowingly or to avoid paying benefits, overtime, and taxes. This can happen when companies exert control over a worker’s tasks, set their schedules, or require them to use company tools, while still classifying them as contractors. Such control over work arrangements typically indicates an employee relationship, not that of an independent contractor.

Solution: Review job roles using IRS guidelines and use Rippling’s misclassification quiz to check if your team meets the correct classification standards. Schedule quarterly audits to ensure classifications reflect changing responsibilities and legal standards.

2. Wage and hour violations

Wage and hour violations occur when businesses fail to comply with minimum wage laws, overtime pay, or other compensation requirements, such as paid breaks or proper payment for travel time. This often happens when employers track working hours inaccurately or miscalculate overtime, leading to underpayment.

Solution: Implement automated time-tracking systems that integrate with payroll to ensure accurate wage calculations. Set alerts for overtime thresholds and conduct monthly payroll audits to ensure your business remains compliant with wage and hour laws.

3. Inconsistent application of policies

Inconsistent enforcement of company policies, such as attendance, leave, or discipline, creates legal risks and opens the door for claims of favoritism or discrimination. This issue may arise unintentionally due to managers interpreting or applying policies differently across teams, or simply lacking clarity in the policies themselves.

Solution: Standardize policies with clear documentation in an employee handbook. Train managers to apply rules consistently across your company and use an HR system to log policy enforcement, making discrepancies easier to identify and address.

4. Non-compliance with anti-discrimination laws

Non-compliance with anti-discrimination laws, such as the Civil Rights Act or the Americans with Disabilities Act (ADA), can expose businesses to legal claims and reputational harm. This often happens when companies lack clear policies or fail to provide proper training on preventing discrimination in areas like hiring, promotions, or workplace accommodations. In some cases, businesses may have policies in place but enforce them inconsistently, leaving gaps that lead to unintentional bias or unequal treatment.

Solution: Conduct regular anti-discrimination training for all employees and management, ensuring they understand their responsibilities under the law. Establish clear, actionable diversity and inclusion policies and provide accessible reporting mechanisms for discrimination concerns. Perform annual audits of your company’s hiring, promotion, and compensation practices to identify and address any disparities.

5. Inaccurate payroll processing

Inaccurate payroll processing occurs when companies make mistakes in wage and overtime calculations and in areas such as tax withholding, benefit deductions, or the application of bonuses and commissions. These errors frequently stem from using manual processes, outdated payroll software, or a lack of integration with time-tracking systems.

Solution: Implement automated payroll software that integrates with time-tracking and benefits management systems. Set up regular internal payroll audits to identify and correct any inconsistencies, and ensure that payroll staff receive ongoing training to stay up to date with tax regulations and payroll policies.

6. Health and safety violations

Health and safety violations occur when companies don’t follow OSHA standards or other safety regulations. These violations can result from inconsistent safety protocols, inadequate or outdated training programs, failure to provide proper personal protective equipment (PPE), or neglecting regular inspections of hazardous work environments.

Solution: Schedule regular safety audits and inspections and provide ongoing safety training tailored to specific job functions. Equip all employees with PPE when necessary and create a simple reporting system for safety concerns, so management can quickly address issues before they escalate.

7. Insufficient employee documentation

Insufficient employee documentation happens when businesses don't maintain legally required records such as I-9 forms, W-4s, employment contracts, or performance reviews properly. This issue often occurs when companies rely on paper-based systems, leading to missing forms, outdated contracts, or incomplete files during audits or government inspections.

Solution: Move to a centralized digital documentation system to securely store and track employee records. Use automation to send reminders for expiring or missing forms, such as I-9 updates or benefits enrollment. Task your HR department with quarterly audits of employee files to ensure compliance with legal requirements and set a standard operating procedure for new hire paperwork and ongoing documentation updates.

8. Harassment and hostile work environment claims

Harassment or hostile work environment claims arise when businesses don't address complaints of inappropriate behavior, such as bullying, sexual harassment, or verbal abuse. This issue often occurs when companies lack clear reporting systems, don't take complaints seriously, or fail to follow through with investigations, allowing toxic behavior to persist.

Solution: Establish a zero-tolerance harassment policy that outlines unacceptable behavior clearly. Provide mandatory harassment prevention training for all employees, including management. Create an anonymous, easy-to-access reporting system where employees can submit complaints confidentially and assign dedicated HR staff to investigate claims, document findings, and follow up with necessary actions.

9. Non-compliance with data privacy laws

Non-compliance with data privacy laws, such as the California Consumer Privacy Act (CCPA), occurs when businesses don’t safeguard personal data. Although CCPA is a consumer privacy law, it also applies to employee data, requiring businesses to protect employees' personal information. Issues like mishandling data, poor encryption, and insufficient access controls can expose sensitive employee information. 

Solution: Encrypt all employee data and restrict access to authorized personnel. Conduct comprehensive annual security audits to find vulnerabilities in data handling. Provide regular data privacy training to ensure employees understand their responsibilities under CCPA and work closely with legal experts to stay informed of updates and adjust data management practices accordingly.

10. Compliance with global laws

Compliance issues with global labor laws arise when businesses operate in multiple countries and don't adhere to local regulations, like wages, benefits, working hours, or termination requirements. This often happens because of differences in legal frameworks across countries and a lack of coordination in handling country-specific HR compliance.

Solution: Use HR software designed to track and manage legal requirements for each country where your business operates. Regularly consult with local HR professionals to stay informed about regional labor laws and updates and develop region-specific employee handbooks that detail the local legal requirements for hiring, pay, and termination.

Key HR compliance laws and regulations

Below is an overview of the most important regulatory bodies and laws that business owners and HR professionals need to be familiar with to ensure fair and lawful workplace practices:

• Fair Labor Standards Act (FLSA): Minimum wage, overtime pay, and recordkeeping for non-exempt employees in the private and government sectors 
• Occupational Safety and Health Act (OSHA): Safe working conditions and necessary safety equipment for employees
• Family and Medical Leave Act (FMLA): Unpaid, job-protected leave for specific family and medical reasons
• Title VII of the Civil Rights Act of 1964: Protections against employment discrimination based on race, color, religion, sex, or national origin
• Americans with Disabilities Act (ADA): Protections against workplace discrimination against individuals with disabilities and requires employers to provide reasonable accommodations
• Age Discrimination in Employment Act (ADEA): Protections against age-based discrimination in hiring, promotions, and other employment practices
• Equal Pay Act (EPA): Equal pay for men and women performing substantially equal work under similar working conditions
• National Labor Relations Act (NLRA): Employees' rights to organize, form unions, and engage in collective bargaining
• Immigration Reform and Control Act (IRCA): Verification of employees' legal right to work in the US
• Genetic Information Nondiscrimination Act (GINA): Protections against the use of genetic information in making employment decisions such as hiring, firing, or promotions
• Health Insurance Portability and Accountability Act (HIPAA): Privacy and security of employees’ health information and how employers handle it
• Consolidated Omnibus Budget Reconciliation Act (COBRA): Continued health insurance coverage for employees after job loss or reduction in work hours
• Affordable Care Act (ACA): Health insurance requirements for employers with 50 or more full-time employees

If your business operates across multiple countries, it's important to remember that compliance extends far beyond US regulations. Global compliance means adhering to varying labor laws, tax regulations, and employee rights that differ by country.

Global HR compliance challenges

International businesses can face multiple challenges when hiring across borders. Failing to manage these challenges can cause operational delays and lead to costly legal disputes. Here are some of the key global compliance challenges:

Establishing contracts that comply with local laws

Employment contracts must meet the requirements of each country’s labor laws, which can differ significantly in terms of notice periods, working hours, and termination terms. For example, French law requires up to three months' termination notice for executive employees, while Japanese law mandates at least 30 days' notice.

Solution: Develop country-specific contracts with the help of local HR professionals or an Employer of Record (EOR), which can ensure compliance with regional labor standards.

Managing payroll and benefits across different countries

Variations in payroll regulations, tax rates, and mandatory employee benefits make it difficult to standardize global payroll processes. For instance, federal income tax rates in the US range from 10% to 37%, while in Australia, they vary from 19% to 45%.

Solution: Use global HR software to automate payroll and partner with an EOR to handle payroll, tax, and benefits compliance in different regions.

Securing the right work permits and visas

Different countries have unique visa and work permit requirements for foreign workers, and failure to secure these can lead to legal issues or employee deportation. For example, the United Kingdom requires companies to sponsor work visas and meet specific salary thresholds to hire non-residents.

Solution: Collaborate with immigration specialists and start the visa application process early to ensure employees have proper documentation.

Staying up to date with changing regulations

Labor laws frequently change, and keeping pace with updates across multiple countries can be overwhelming for businesses. For instance, Germany introduced new parental leave benefits, while the UAE added flexible work arrangements to its updated labor laws.

Solution: Regularly monitor local regulations and use human resources platforms that offer automatic legal updates to stay compliant with new regional labor laws.

4 HR compliance best practices

Below are some best practices to help ensure HR compliance:

1. Leverage HR compliance technology

Technology plays a significant role in automating and managing HR compliance. Human resources platforms can track employee data, automate payroll, flag potential misclassifications, and monitor benefits to comply with federal and state regulations. Cloud-based systems can also offer audit trails and document management for proper record-keeping. 

2. Conduct regular HR audits

Routine audits help keep HR policies, processes, and documentation stay up to date with current regulations. Audits can cover employee classifications, payroll accuracy, benefits administration, and adherence to health and safety laws. By identifying and addressing issues early, you can mitigate compliance risks before they escalate into legal problems.

3. Provide continuous staff training

HR compliance isn’t solely the responsibility of the HR department; it involves everyone in your company. Offering continuous training for employees and managers on relevant labor laws, anti-discrimination policies, and workplace safety protocols ensures the integration of human resources compliance into your company culture. 

4. Establish clear documentation and policies

Maintaining detailed, accessible, and up-to-date documentation is key to remaining compliant. This includes everything from employee handbooks and onboarding materials to job descriptions and compliance policies. Make all employee documents easily accessible and update them regularly to reflect changes in labor laws.

Automate HR compliance with Rippling

Rippling offers a comprehensive HCM (Human Capital Management) platform built on a single source of truth that automates HR compliance at every level. By automatically flagging potential compliance risks, like minimum wage discrepancies and labor law violations based on employee locations, Rippling helps you stay compliant without the burden of manual oversight.

Rippling ASO automates time-consuming tasks like payroll tax filings and minimum wage compliance, while also providing access to HR experts. This allows you to offload administrative responsibilities and focus on growth.

Rippling PEO takes compliance a step further by managing ACA and COBRA administration. With real-time alerts powered by Mineral, the platform keeps your HR department up-to-date on labor law changes and provides actionable steps to resolve compliance issues before they escalate.

Rippling also provides compliance-required training alongside tailored learning programs that meet your company's unique needs. This proactive approach ensures the proper education of your HR professionals, while aligning your business with evolving regulations.

HR compliance FAQs

What’s the role of HR in compliance?

The role of HR in compliance is to ensure that the company adheres to labor laws and regulations, such as wage laws, workplace safety rules, and regulations that the FMLA sets. It's HR professionals' responsibility to develop and enforce policies that align with these legal requirements, protecting both the business and employees from potential legal risks.

What's an example of HR compliance?

An example of HR compliance is when a company provides eligible employees with up to 12 weeks of unpaid, job-protected leave under the Family and Medical Leave Act (FMLA) for family or medical reasons, while maintaining accurate HR records.

What's an HR compliance checklist?

An HR compliance checklist is a tool that HR leaders use to systematically review and ensure that all workplace practices meet legal requirements. It covers key areas such as employee classification, workplace safety, wage laws, benefits administration, and adherence to regulations like FMLA and anti-discrimination laws.

How do you maintain HR compliance?

You can maintain compliance by conducting regular audits to identify and fix potential issues, staying informed about changes in labor laws, using HR software to automate compliance tracking, and providing ongoing training to HR professionals and management on handling workplace issues and adhering to regulations.

This blog is based on information available to Rippling as of October 25, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.