What Every HR Leader Must Know About Compliance
Published by HRCap, Inc. on November 7, 2024
Compliance poses significant challenges for companies across industries, with 87% of organizations reporting negative impacts due to low compliance maturity or reactive compliance practices. Furthermore, 63% of companies view compliance issues as a barrier to growth. A recent Deloitte survey also highlighted that regulatory compliance ranked among the top three challenges during the implementation of remote and hybrid work models.
Compliance involves adhering to all applicable local, state, and federal laws and executive orders. For employers, this includes timely wage payments, accurate tax reporting, benefits provision, adherence to labor regulations, and fair hiring practices. Specifically for HR, companies must follow laws governing wages and hours, workplace safety, health, employee benefits, and anti-discrimination, such as the Fair Labor Standards Act (1938), the Equal Pay Act (1963), the Occupational Safety and Health Act, the Family and Medical Leave Act, and Title VII of the Civil Rights Act (1964), among others.
Importance of Compliance
Compliance is not just about following rules; it’s essential to a company's legal and ethical standing. Non-compliance can result in significant legal consequences, including fines, penalties, or even lawsuits, and in severe cases, both civil and criminal repercussions. The impact extends beyond legal liability, damaging the company’s reputation and eroding trust with employees and customers. For instance, in 2019, Walmart faced a $65 million lawsuit settlement in California due to overtime violations, affecting over 100,000 cashiers. Walmart’s failure to provide mandated breaks and overtime pay demonstrated how non-compliance can lead to substantial legal and financial repercussions. Prioritizing compliance, therefore, is critical to safeguarding the company’s reputation, legal standing, and economic health.
4 Common HR Compliance Challenges & Solutions
In navigating compliance, companies often encounter specific challenges that impact their efficiency and ability to operate seamlessly. The following are the most common compliance issues along with potential strategies to address them effectively.
1. Determining Relevant Laws and Compliance Standards
Identifying the relevant laws and regulations is the initial step in the compliance process. With an array of federal and state laws governing employer obligations in the U.S., companies often struggle to determine which standards to follow and which programs to leverage. A common issue for companies was “determining which government relief programs to leverage” during COVID-19, as federal stimulus and tax credits were introduced to support employees.
Solution: To manage this challenge, companies should identify potential compliance risks and seek expert advice. Start by creating a checklist of known duties and obligations and consult with an HR expert or compliance firm to gain insights into best practices tailored to your business. Regularly monitor the process to ensure ongoing compliance and address any gaps.
2. Ensuring Effective Implementation of Compliance Requirements
Ensuring compliance often involves multiple stakeholders, and establishing a comprehensive strategy is crucial. The tech giant Meta, for example, faced a $1.3 billion fine for failing to implement adequate data protection measures when transferring EU user data to the U.S.
Solution: Mapping workflows and responsibilities can simplify complex processes and improve compliance efficiency. Begin by identifying current processes and locating any bottlenecks or areas of lag. Define regular tasks and assign responsibilities to the relevant departments or individuals. Document procedures for data protection and other sensitive processes, and share these with stakeholders. Consider automating routine tasks to enhance consistency and minimize human error.
3. Reporting to Relevant Authorities and Organizations
Staying informed about diverse reporting requirements is another challenge. Employee turnover and workforce reductions can lead to a loss of institutional knowledge, increasing the risk of non-compliance with reporting obligations. For example, Equifax failed to report a data breach involving 148 million consumers for two months, resulting in a $425 million settlement and the resignation of its CEO. Certain states require companies to report breaches to the state attorney general or specific agencies, in addition to notifying affected individuals.
Solution: Address knowledge gaps by conducting internal assessments to identify areas needing improvement. Educate employees about compliance responsibilities and provide resources or training to bridge these gaps. Regularly monitor and review knowledge-sharing practices within the organization to ensure continuity in compliance expertise.
4. Adapting HR Practices to Legislative Changes
In today’s fast-paced regulatory landscape, laws evolve rapidly at the federal, state, and local levels, and companies operating across multiple jurisdictions must stay informed of these changes. In fact, 70% of companies report difficulties in keeping up with legislative changes. Additionally, labor laws can vary significantly by country. For example, unlike in the U.S., where employers may terminate employees without notice, Korean law requires a 30-day advance notice for layoffs or equivalent compensation.
Solution: Like the solution for identifying relevant laws, companies may benefit from hiring an expert or using software to monitor legislative changes. Regularly reviewing updates to ensure compliance across jurisdictions is essential in a globalized economy.
Conclusion
While operational, sales, and financial functions drive growth, compliance safeguards a company’s reputation and strengthens stakeholder relationships. Common compliance challenges include identifying applicable laws, implementing effective procedures, accurately reporting to authorities, and staying current with legal changes. By seeking expertise, establishing clear processes, and conducting regular reviews, companies can proactively manage these challenges and maintain compliance.
Ensuring compliance during the interview process is essential for legal compliance and fostering a fair, equitable hiring environment. At HRCap, we understand the complexities of maintaining compliance and provide comprehensive compliance training to our client groups. By equipping organizations with the knowledge of best hiring practices, we help ensure that organizations are adhering to the best practices aligned with the highest standards of fairness and inclusivity.
Sources: HRCap, ADP, Guardian Life Insurance Company of America, Wall Street Journal, Department of Labor, Industry Outlook, Knowledge at Wharton, FTC, Electronic Privacy Information Center
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