Maintaining HR compliance is a never-ending process as regulations, and best practices change constantly. In addition, each company must attend to new local, state, and national laws as they come. Without HR expertise on hand, businesses risk tripping into the many pitfalls of non-compliance fines and penalties. But internal HR teams are expensive. So how should you protect your employees and your business?
Avoiding common HR compliance issues keeps your employees and your business safe. However, not every organization enjoys the same levels of strategic compliance knowledge among their team. That leads to significant vulnerabilities that are bound to be exposed eventually. Now, some compliance issues are relatively common, and those are an excellent place for your business to start.
When you take a further look into your policies and practices, you may encounter some HR compliance problems that have been lurking away from your attention. In this blog, we’ll give you a head start by identifying five common HR compliance issues numerous businesses face.
1. Inconsistent documentation
Every HR professional has said, “Document everything,” so many times that it’s practically tattooed on their vocal cords. Accurate and thorough documentation is essential. Each second spent ensuring you have accurate, comprehensive documentation on anything from employee data, performance evaluations, disciplinary actions, and more is well worth it. As SHRM notes, “Good documentation creates credibility for the employer by showing that employees are treated in a fair and consistent manner.”
Of course, it also protects your business from lawsuits. Excellent documentation should be easily understandable by a third party. When a situation escalates into a legal dispute, you want documentation that tells your story clearly. For example, you may have a harder time proving an employee was fired for performance reasons when their manager just left them satisfactory ratings with few other comments. Be thorough and honest, and encourage everyone to do the same. Vague feedback helps no one.
Instead, document specific examples of employee behavior, explain precisely what they need to improve on, and provide detailed plans with clear goals to mark progress. Effective documentation is an HR compliance must, and it’s also in the best interest of your people too.
2. Misclassifying workers
Countless businesses trip themselves up by improperly classifying workers as employees or independent contractors. That’s an understandable mistake because a hard and fast definition of a contractor can be somewhat elusive. Still, the distinction is a critical piece of HR compliance. It determines a number of different factors, such as whether or not you need to withhold state and federal taxes from an employee’s paycheck.
If you don’t have an HR compliance expert, you can look to the IRS for guidance. The IRS uses three factors to determine whether a worker should get a W-2 or 1099. First, they look at behavioral factors, such as whether your business controls when, how, and where a worker does their job. The more control you have, the more likely you have an employee on your hand. Then, they consider financial factors such as how a worker is paid and how often. Finally, look at the type of relationship you have with the worker. Do they get benefits? Do they have a contract for a set amount of time? Is their work essential to your business?
Of course, there are plenty of other factors to consider when determining how to classify your workers. If you aren’t sure what to do, get in touch with HR compliance experts like ADDA for additional insight.
3. Failure to pay overtime
Overtime often proves more complicated as an HR compliance issue than one would expect. The rules may vary in large or small ways depending on your location, and it can be even more complex with a geographically disbursed remote team. However, federally, you may be able to consider an employee exempt from overtime if they’re paid a salary above a certain amount and they perform an executive, administrative, or other professional function.
Though, it’s important to note that you may also owe overtime compensation to highly compensated employees. A February 2023 Supreme Court decision stated as much when a worker who made around $200,000 annually was denied overtime. One key determining factor was that the worker was paid daily, as opposed to weekly, under the FLSA exemption. With decisions like that, along with ever-changing regulations, your HR compliance team has their work cut out for them.
4. Violation of leave laws
Even though paid sick leave isn’t mandated federally, fourteen states have passed paid sick leave laws. Therefore, it’s essential to understand what your jurisdiction requires regarding sick leave, so your employees have the opportunities they’re entitled to. Another leave law that often requires some HR compliance expertise is FMLA.
The Family and Medical Leave Act, which turned 30 this year, requires employers with 50 or more employees to provide up to 12 weeks of unpaid leave for qualifying family and medical life events. During this time, the employer must protect the employee’s job. FMLA is particularly difficult to navigate without HR compliance experts, as it often interacts with other regulations such as workers’ compensation and the ADA.
5. Privacy and Data Security
Data security and privacy have become prominent concerns for HR compliance experts. HR teams handle highly sensitive employee data in their systems, and leaks can be catastrophic for a business, not to mention dangerous for employees. Every business needs secure HR technology and people equipped to manage those systems.
Additionally, a new data and privacy challenge has emerged this year that may take time to understand fully. AI tools, ChatGPT in particular, exploded on the scene in 2023, and companies have been remarkably eager to use them. That makes sense; the potential for a tool like ChatGPT feels nearly limitless.
However, large companies like Verizon and Amazon opted to limit or ban employee usage of ChatGPT until they could understand the data and privacy risks inherent in this technology. As with any new technology, it’s natural to feel excited about the possibilities, but taking a step back and assessing is also essential. There may be HR compliance issues stemming from AI that range from data security all the way to discrimination.
ADDA can be your HR compliance captain!
HR compliance keeps employees safe and businesses afloat. However, not every company can afford an in-house expert to guide them. That’s where ADDA comes in. Our HR compliance experts ensure your policies and practices are up to code, so you can comfortably focus on growing your business. Contact us here to learn how we can keep your company compliant.