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Why HR compliance is important and 5 best practices

HR leaders must ensure their companies are following applicable laws so their organizations can avoid fines and potential lawsuits. Learn more about why HR compliance is important.

Few aspects of HR are more high-stakes than compliance. Noncompliant companies may spend millions of dollars on fines and settlements, among other costs, so HR leaders must stay up to date about laws that potentially affect their organization.

HR leaders must ensure their companies are following the rules for situations like employee injury, parental leave and overtime pay, among others. Proper compliance also requires keeping the proper records and learning optimum data storage practices.

Here's more about why HR compliance is important, some of the most commonly applicable laws for organizations and some compliance best practices.

What is HR compliance?

HR compliance means that HR staff ensure that their organization's policies and actions are in line with local, state, federal, and international labor and employment regulations. To bring this about, HR staff publish policy documentation, such as employee handbooks, and enforce company policies across the organization.

HR compliance comprises four main categories:

  1. Statutory compliance. Statutory compliance involves employment-related government legislation, such as minimum wage laws.
  2. Regulatory compliance. Regulatory compliance can sometimes overlap with statutory compliance but requires that organizations follow the rules of a regulatory agency, such as the Centers for Disease Control and Prevention.
  3. Contractual compliance. Contractual compliance requires that organizations must adhere to the terms of a contract between the company and another organization. Complying with contracts is important to avoid lawsuits.
  4. Union law compliance. Companies must comply with the rules of any unions that its employees have joined, such as the American Federation of Labor and Congress of Industrial Organizations or Screen Actors Guild-American Federation of Television and Radio Artists.

Commonly applicable laws for HR compliance

Local and state laws can vary, but federal legislation applies to almost every company operating in the United States.

The federal workplace laws and organizations that HR departments deal with most frequently include the following:

  • Fair Labor Standards Act (FLSA). FLSA covers overtime pay and child labor laws, among other labor practices.
  • Family and Medical Leave Act (FMLA). FMLA applies to any employer with 50 or more workers and regulates time off for family or medical reasons.
  • Occupational Health and Safety Administration (OSHA). OSHA enforces the rights of an employee if they're injured on the job, as well as workplace safety practices.
  • Employee Benefits Security Administration (EBSA). EBSA regulates how employers administer retirement, healthcare and other benefits. The Affordable Care Act, Employee Retirement Income Security Act and Consolidated Omnibus Budget Reconciliation Act all fall under EBSA.
  • Equal Employment Opportunity Commission (EEOC). EEOC enforces employment discrimination laws, such as hiring or firing employees based on race, gender, religion, age or disability.

HR also needs to understand and comply with local and state laws.

The Mexican food chain Chipotle is one example of a company that experienced the costly consequences of not adhering to local laws, said Matthew Burr, HR consultant at Burr Consulting LLC, an HR consultancy located in Spencer, N.Y. Last year, an investigation by the New York City Department of Consumer and Worker Protection resulted in Chipotle reaching a settlement to pay 13,000 workers up to $20 million after DWCP determined the company had violated New York City's Fair Workweek Law and Paid Safe and Sick Leave Law.

4 HR compliance best practices

To avoid compliance problems, HR leaders should follow several best practices, including staying on top of new and existing laws and learning about data storage locations.

Pay attention to new and updated laws

HR leaders must proactively follow federal, state and local legislation -- both new laws and updates to existing ones -- and pay attention to laws outside the company's immediate jurisdiction as well. For example, if the company recruits in states with pay transparency laws, recruiters need to add the salary range to the job listing.

"The biggest challenge in compliance is awareness," said Kirsten Zeigler, HR consultant at KDZ HR Consulting LLC, an HR consultancy located in West Orange, N.J.

Keep careful records

HR staff must properly record data from payroll, applicant tracking, discipline, attendance, FMLA and paid sick leave, among other aspects of operations.

Record storage is also important, Burr said. Any agency could audit records at any time, and HR staff must be ready.

Staying compliant is easier if HR staff can easily access the correct records at all times.

Understand company data storage practices

HR staff must learn about the company's data storage policies, as well as proper practices for deleting data.

In the future, the U.S. is likely to follow a similar policy for personal data as Europe's GDPR, said Kara Yarnot, vice president of strategic consulting services at HireClix, a recruitment advertising agency located in Gloucester, Mass. GDPR includes the "right to be forgotten," in which a person has the right under certain circumstances to request that a company delete their data.

If U.S. law moves in that direction, HR staff needs to know where and how candidate and employee data is stored, including whether it's stored in multiple locations, Yarnot said.

For example, a job candidate may contact HR and ask staff to delete their information. Under GDPR, a company is currently required to obey this request.

Join an organization

Keeping up with laws can be complex, and joining an HR organization or getting updates from an existing organizational partner, like a law firm, can help.

HR leaders can receive compliance-related updates from their professional organizations, Zeigler said. In addition, if a company works with an outside law firm, the firm may send out newsletter updates, which can help HR stay on top of legal issues.

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