Every HR activity your business undertakes, whether it’s hiring, payroll, or another workplace practice, carries some amount of compliance risk.
Even something as seemingly straightforward as hiring employees in a different state can expose your business to a number of compliance challenges. And if you don’t have much time or HR expertise to manage them, the risk is only amplified.
That’s where a PEO can provide immense value, helping you meet critical legal obligations and avoid the consequences of noncompliance, such as lawsuits, fines, and potential reputational damage.
5 HR Compliance Landmines That Could Impact Your Business
Labor law compliance is a must for any organization, but it can be difficult for smaller organizations less likely to have a sizable HR or risk management function. Some of the most critical HR compliance hazards SMBs face today include:
1. Variations in state laws impacting remote hiring
Hiring employees in multiple states is more than a matter of withholding the correct state income tax from their pay. It also requires compliance with individual state laws governing everything from sick leave requirements to overtime and meal breaks. And these laws are constantly changing. In 2024 alone, states updated or enacted new laws covering minimum wage, pay transparency, and paid leave, to name a few.
2. Poor HR recordkeeping
Keeping track of new hire forms and other employee paperwork may not seem all that important, but failing to obtain, store, and retain certain documents could cause you to run afoul of federal recordkeeping requirements.
Additionally, it’s critical to properly store records in compliance with data privacy laws, which vary by state. Examples of documents that should be kept secure include:
- Employee background check results
- Payroll records
- Performance reviews and promotion records
- Employee benefits information
3. Inconsistent or absent policies
No matter the size of your workforce, lacking formal HR policies can result in seemingly minor decision-making errors that escalate into significant problems over time. It can also result in inconsistent answers to employee questions, fueling confusion and a sense of unfairness.
To maintain clarity and keep employees informed, establish clear HR policies, create an employee handbook, and keep both updated as legal requirements and internal procedures change.
4. Outdated hiring and termination practices
Hiring and termination practices that are inconsistent or don’t follow legal requirements can invite discrimination and wrongful termination claims. The following are just a few examples of the laws employers must consider when onboarding and offboarding employees:
- State salary history bans: Restricts the questions employers can ask candidates about their compensation history
- State marijuana laws: Affects new hire background check and drug testing practices
- The Fair Labor Standards Act (FLSA): Sets specific requirements for classifying new hires as either employees or contractors and determines their eligibility for overtime pay
- The Consolidated Omnibus Budget Reconciliation Act (COBRA): Defines when and how employers must notify employees of their eligibility for health insurance coverage after termination
5. Employee discrimination and harassment claims
Unfair employment practices such as bias, retaliation, and harassment can quickly lead to lawsuits and EEOC claims, and they aren’t limited to the physical workplace. A recent case found that an employer can be held liable for employee harassment outside of work or on social media. Therefore, developing transparent policies, reporting procedures, and workforce training are all essential.
How a PEO Can Help
Outsourcing HR compliance to a PEO eases the burden of tracking regulations, saving time and preventing costly errors. Here’s what Aspen HR can offer small and medium-sized businesses seeking a better way to manage HR compliance:
- HR and legal expertise: Our experts understand complex labor laws and have the tools to help you stay up to speed with legislative changes. We’re also the only PEO to offer the services of our in-house employment attorney at no additional cost to clients.
- Comprehensive HR audits: Leveraging our knowledge of common HR compliance pitfalls, we can analyze your existing HR policies and practices, identify potential risk areas, and assist you in making improvements to minimize those risks.
- HR documentation: We can help you organize your HR documents and personnel files to meet data privacy and HR recordkeeping requirements.
- Employee training: We offer employee training programs focused on harassment and discrimination prevention, including training to help managers understand their responsibilities in upholding HR compliance.
Safeguard Your Business and Workforce
Navigating HR compliance can feel like crossing a field of landmines, but businesses of any size can make it to the other side successfully. Whether you’re addressing a compliance issue or just being proactive, working with a PEO like Aspen HR can help prevent further compliance headaches. To get started, contact us anytime.
Are HR compliance landmines hidden somewhere in your business? Discover potential compliance concerns with our HR Risk Review Questionnaire.
