How long has it been since you did an HR compliance checkup? If you can’t remember, or it’s been a while, it should be at the top of your to-do list.
Using a compliance checklist allows you to systematically audit your HR practice and have peace of mind that your company is compliant. At a minimum, this should be done annually, though it doesn’t hurt to do a checkup when the relevant laws change.
What you need to know before you start an HR compliance checkup
It is not uncommon for small businesses to operate without a dedicated HR director. If that is the case in your company, be sure to gather an understanding of compliance basics before diving into the checklist.
Familiarize yourself with these laws and procedures and you’ll be ready to begin:
- Any and all federal, state, and local regulations you are subject to, including:
- Family and Medical Leave Act (FMLA)
- Americans with Disabilities Act (ADA)
- Occupational Safety and Health Act (OSHA)
- Affordable Care Act (ACA)
- Fair Labor Standards Act (FLSA)
- The Equal Employee Opportunity Commission (EEOC)
- Any HR-related procedures your administrators, managers, and payroll processors follow (Note: this includes any outsourced HR services)
- Anticipated changes to relevant employment regulations at the local, state, or federal level
Now that you understand the laws you need to follow, you’re ready to begin your compliance checkup. We’ll step through each functional area of Human Resources and follow up with some points that don’t fall neatly into any of those areas.
Recruitment and Hiring
All compliance concerns begin with recruitment and hiring processes
- Templates should be utilized for job descriptions, interview scripts, and standardized candidate scorecards to ensure they are not discriminatory
- Refer to your state laws regarding questions about previous salaries or criminal records, as this can vary from state to state
- Never ask about any of the following: religion, sexual preference, marital status, or citizenship status (Note: It’s okay to ask an applicant if they can legally work in the US)
- Any questions about a candidates age, birthdate, or year of graduation could expose you to the risk of an age discrimination challenge
- Retain all candidate applications and interview evaluations. These records document your reasons for hiring or rejecting a candidate, which can protect you in the event of an EEOC investigation
- Verify that your company is providing equal compensation for equal work and ensure your pay practices are compliant
- Laws regarding running background checks can vary, so refer to your state’s department of labor
- If your company is lacking in diversity, it may be time to reevaluate your recruitment methods. Review the job boards and other places you advertise employment opportunities, and consider adding diversity job boards to the mix to reach candidates in underrepresented groups
Employee Onboarding and HR Management
Once a candidate has been recruited and hired it’s time for onboarding, which brings its own set of compliance requirements.
- Ensure all new employees are completing and signing their I-9 documentation and tax forms
- If you intend to do a credit check as part of background screen, be sure to obtain written consent from the employee first
- Onboarding involves collecting sensitive information, therefore all privacy laws and data security best practices must be followed to protect personnel files
- Check your employee handbook and workplaces posters to confirm that they are up to date
Payroll, Timekeeping, and Leave Management
These are the processes that are most salient to employees and have the largest impact on their day-to-day work. Aside from potentially running afoul of the US Department of Labor and the IRS, problems in these areas can contribute to employee frustration.
- Ensure overtime is being paid to all non-exempt employees
- FMLA, COVID leave, and PTO must be tracked separately and with precision
- Confirm that all employees are being paid at or above the legal minimum wage (Note: If your state and the federal minimum wage differ, you’re required to comply with the higher wage)
- Review shift scheduling practices and confirm that they comply with applicable state and local laws (fair workweek, predictive scheduling, stable scheduling, etc.)
- Ensure management has a solid understanding of compliance rules, and knows how to prevent illegal conduct and sexual harassment
- Confirm that policies regarding final paychecks and unused PTO are in compliance
Employee Classification
According to the IRS, about 30% of all employers misclassify their employees. Don’t allow the popularity to fool you, misclassification of employees is against the law and can result in significant legal consequences.
- Ensure all exempt employees meet the requirements of the duties test
- If your company utilizes independent contractors, ensure they meet IRS requirements for this classification
Recordkeeping
Remember, if in doubt, don’t throw it out! It is possible to comply with everything mentioned above and still have a compliance breach if recordkeeping isn’t attended to.
- Keep for 2 years: All timesheets, wage rate tables, piecework records, work schedules, and any record of additions or deductions from paychecks
- Keep for 3 years: All payroll records and union contracts
Retaliation
The EEOC has reported that retaliation is the most frequently alleged basis of discrimination in the workforce. Retaliation occurs when an employer punishes or terminates an employee for engaging in a legally protected activity, such as whistleblowing or filing a complaint. Due to the pervasiveness of this issue, it is important to closely scrutinize your policies and ensure that everyone understands them. Including instructions for managers in your employee handbook is a great strategy to prevent trouble in this area.
Growth Milestones
While some requirements apply to businesses of any size, there are additional regulations that begin to apply to businesses as they grow.
Many key provisions of the FLSA apply to all employers, regardless of size, such as the requirement to provide equal pay for equal work to male and female employees. The Department of Labor has provided a Quick Reference Guide that covers these rules, which you can read here.
Once a company reaches 15 employees they become subject to other laws, such as the Americans with Disabilities Act, that prohibit various types of discrimination. Under these laws, it is illegal to discriminate on the basis of race, religion, sex, national origin, disability, or genetic information.
Any employer with at least 20 employees is also subject to the Age Discrimination in Employment Act (ADEA), which prohibits discrimination against candidates 40+ years of age.
If a company has at least 50 employees who work a minimum of 20 workweeks in either the current or preceding calendar year, they are then required to comply with FMLA.
The Affordable Care Act (ACA) has two important provisions that also apply to companies with 50 or more employees, such as reporting rules for minimum essential coverage and the employer shared responsibility provision.
Yet another law that kicks in at 50 employees is the Affirmative Action Program (AAP). Under this law, employers are legally required to take action to recruit individuals from certain designated classes, such as women, minorities, the disabled, and veterans. Records should be kept of any AAP hiring programs to ensure compliance.
