June 17, 2024

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HR Compliance for Small Businesses

HR Compliance for Small Businesses

  • HR compliance is the implementation of human resources policies and procedures that comply with laws and regulations.
  • Businesses must maintain HR compliance to avoid penalties, fees, or legal action.
  • HR compliance can involve a variety of HR functions, like employee recruitment and onboarding, payroll and benefits, training and development, and risk management and safety.
  • This article is for small business owners and HR professionals who want to learn how to keep their company compliant with HR regulations

A human resources manager or department is responsible for various tasks. They carry out administrative duties, administer payroll and employee benefits, assist with staff training and development, build company culture, manage risk and safety precautions, and, perhaps most critically, assist their business in being compliant with the law.

To maintain HR compliance, businesses must adhere to a number of labor and employment rules, but managing personnel in conformity with those laws can present numerous difficulties. Every company owner and HR manager needs to have a thorough awareness of HR compliance and how to uphold it.

What is HR compliance?

The process of developing and executing internal HR policies that adhere to labor and employment laws and regulations is known as HR compliance. HR compliance is not only required by law, but it can also assist you avoid lawsuits and personnel problems.

The management of HR compliance should be handled by a qualified professional, either inside or externally, regardless of the size or complexity of your firm.

“You need an expert, someone who stays on top of the changes and interpretations of the different laws,” Jilian Dimitt, HR director at Optima Office, told Business News Daily. “If your organization cannot afford a strong HR manager, director, or internal HR team, then utilize the service of a strong HR consultant that you can call upon when [needed].”

What HR compliance tasks should businesses know about?

Every HR compliance task should be known by whoever manages the human resources functions for your company. These duties fall within a wide range of sectors, including hiring and onboarding, payroll and benefits, employee relations, risk management, and safety. The number of HR compliance duties is practically infinite, but after speaking with Dimitt, we were able to focus on a few crucial chores that many companies overlook.

The top five HR compliance requirements for small enterprises, according to Dimitt, are as follows (but frequently aren’t):

1. Acquire the mandatory federal and state posters.

Businesses are required by federal and state law to purchase and display posters that list specific labor rules for the benefit of their entire employees. As the rules and regulations change, these should be regularly updated. Businesses can purchase “all-in-one” federal and state posters, according to Dimitt, to maintain compliance.

2. Correctly classify your workers.

Your team’s members might be categorized in a variety of ways. Are they salaried or hourly? Are you exempt or not? Employees or contractors? Misclassifying employees can get your company into a lot of difficulty, even if it’s accidental.

3. Update your employee handbook.

Although it may not be legally required, it is advised that you create an employee handbook. Employee handbooks can assist you in informing your personnel about company regulations and preventing legal issues. Also, an employee handbook is a living document that you should update as laws and policies change.

4. Give all new hires their required documents.

Although it may seem no-brainer, giving important paperwork to new hires as soon as they join the organization is a crucial component of HR compliance. While some documentation is just required by law, some papers can merely serve to settle disagreements sooner rather than later. When employees leave the company, the same policy is in place.

5. Follow “final paycheck” laws.

Many businesses are unaware that an employee who gives notice of resignation or is terminated must be paid on the last day of their employment. One simple approach to keep HR compliant is to pay employees on their last day of work.

What challenges do small businesses face in compliance?

It can be really difficult to just be aware of and comprehend all the current laws and regulations that are applicable to your organization. Because of this, it makes sense to appoint an experienced individual to manage your HR duties.

Managing human capital can be difficult in addition to developing policies and procedures that are compliant. Employee behavior, for instance, may cause small enterprises to run into HR compliance concerns, and external variables may also have an impact.

According to Margo Wolf O’Donnell, co-chair and partner at Benesch, firms have recently given special attention to allegations involving harassment, discrimination, and disabilities.

“How to handle claims of harassment and discrimination and, in particular, disability claims relating to COVID-19 and issues relating to claims of sexual harassment are the top compliance issues facing small business right now,” she said.

How to stay HR compliant

Although managing HR compliance might be expensive and time-consuming, it is unquestionably worth the effort. Businesses that violate the law run the risk of facing severe fines, fees, and legal action. Follow these six actions to keep your company in compliance with HR regulations.

1. Hire the right HR people.

For small businesses, managing human resources requires the right personnel. Since every company is different, HR support should be adapted to fit. Depending on your budget, budget needs, and business size, you have a number of possibilities. You may, for instance, engage an internal HR manager or HR department, or you could contract with a professional employer organization (PEO) or HR consultancy to handle your HR needs.

Hiring an HR generalist is advised if you wish to maintain your HR operations in-house but are unable to afford a full HR team.

If your company is small, consider hiring an HR generalist with five to eight years of experience who is strong and who, most crucially, “knows what they don’t know” and who will research or consult experts if they encounter an issue they can’t handle alone.

2. Create clear policies and procedures.

For their staff to follow, every organization should establish a clear set of rules and guidelines. These should be drafted in compliance with federal, state, and local regulations and take into account the unique requirements of your company. Be clear about what is expected and what won’t be tolerated when drafting your policies. Additionally, it’s crucial to provide staff with a clear process for reporting policy infractions.

Make sure that all safety regulations, attendance requirements, and benefits are clearly defined and comply with all applicable federal, state, and municipal directives and decrees. As well as be sure there are clear reporting mechanisms in place for employees to file complaints under anti-harassment and anti-discrimination policies.

Creating an employee handbook and keeping it up to date with your policies and procedures is a smart idea once more. As laws and regulations change, don’t forget to update your company’s policies.

3. Train your employees on HR compliance.

It is not sufficient to just develop a sound set of compliance policies and procedures. You must encourage open communication with your staff and educate them on your policies if you want to be sure your team is following the rules.

Employee training can be provided by your own HR team or a third party, and it can be done in person or online. Your team and the subject will determine the kind of training you provide. For instance, O’Donnell advises having anti-harassment and anti-discrimination training conducted by a third party.

Having a third party, like an employment lawyer or consultant, lead a live anti-discrimination and anti-harassment [training session] can help prevent future claims and show your company’s commitment to keeping your workplace free from unfair treatment.

4. Thoroughly investigate employee complaints.

It’s important to pay attention to your staff if you want to keep your business compliant. It’s crucial that you look into any complaint an employee makes. O’Donnell contends that organizations are required to look into all written, verbal, and anonymous complaints of harassment, discrimination, and safety-related issues (via blogs, tweets, or hotlines).

The best way to guarantee compliance in this situation is to establish a regular process for looking into complaints.

Interview any other people who may have information once the complainant has been questioned. The accused should typically be interviewed at the conclusion of the investigation.

Multiple people (such as a manager and an HR expert) should be present throughout your interviews in order to prevent disagreements about the topics covered. Encourage the complaint to follow up with management if any other issues develop after the investigation is finished.

Check up with the complainant after a predetermined amount of time—15, 30 and 60 days—unless the complainant seeks more and makes these requests in good faith.

5. Enforce disciplinary actions fairly across the board.

Take the proper corrective action as indicated in your employee handbook whenever an investigation is finished and you’ve established that an employee has broken one of your policies.

These measures might include separating the complainant and the accused at work (e.g., by relocating their offices or staggering their hours), punishing the accused, or firing the accused. If dismissing the defendant is thought to be the best course of action, assess any claims, if any, that the defendant may have against the business and take into account obtaining a release in exchange for money.

HR compliance is based on treating all employees fairly and equally. Due to their status or preference, no employee should receive preferential treatment or be “let off the hook”. This is crucial to ensure your business doesn’t face litigation.

6. Always keep proper documentation.

When you are performing an investigation, keep comprehensive documentation of the situation. This could come in handy later, especially in the unfortunate circumstance that the case goes to litigation. Proper HR compliance documentation will also be helpful if your company is hit with an HR audit.

Maintain HR compliance by hiring a strong HR team, creating and communicating clear HR policies, training employees, investigating all complaints, fairly disciplining noncompliant employees, and retaining documentation.