No matter where you and your employees are based, complying with human resources (HR) regulations is pivotal. Failing to adhere can result in financial losses as well as reputational damage, impacting your business’s growth potential.
But what does HR compliance actually entail? In this article, we’ll explain what HR compliance is, explore some of the most common compliance issues, and provide a step-by-step roadmap for staying within the rules.
So, let’s jump straight in.
What is HR compliance?
HR compliance is about ensuring your organization’s HR practices and policies comply with all the relevant laws in your location. It is typically the responsibility of a designated HR officer or team, depending on your company’s size.
To stay HR compliant, your organization must regularly review and update its HR policies and practices to make sure they align with current regulatory requirements. This can be especially challenging for companies with a global workforce, as they’re expected to stay on top of legislation changes in multiple countries.
Why is HR compliance important?
As mentioned, failing to comply with local HR regulations is illegal. But it’s not just about satisfying local employment laws — it’s about creating a workplace where people can thrive.
Here are some of the reasons why you should prioritize HR compliance:
Financial consequences
If your company is not HR compliant, your employees can sue you for discrimination, harassment, wrongful termination, or any other legally mandated workplace violation. This can potentially lead to significant financial costs, with investment bank Goldman Sachs recently paying out $215 million to settle a gender discrimination lawsuit.
Employee well-being
Employees in a non-compliant workplace are more likely to experience stress, anxiety, and burnout. Unsurprisingly, this can lead to health issues, absenteeism, and high turnover rates.
By ensuring a safe and healthy workplace, businesses reduce the risk of accidents, injuries, and mental health issues and improve employee morale and job satisfaction.
Reputation management
A company with a history of HR violations is likely to develop a seriously tarnished reputation. This can dissuade potential customers or stakeholders, ward off potential investment, and make it difficult to attract and retain top talent.
Data security
Companies that collect and store employee data must protect it from unauthorized access, especially as data protection laws and regulations become stricter worldwide.
How serious are the consequences of non-compliance?
The penalties for non-compliance with HR laws and regulations vary by region, but they can have significant consequences for your business, including:
Fines and penalties
Ongoing audits
Reputational damage
Restrictions on (or loss of) business licenses or permits
Imprisonment
What laws do employers need to know?
While human resource compliance regulations are vast and complex, they can be categorized into different areas of focus, such as:
Anti-discrimination laws
Anti-discrimination regulations ensure that employees cannot be discriminated against based on their background, beliefs, or personal characteristics — at all stages of employment.
For example, the Canadian Human Rights Act and Employment Equity Act prohibit discrimination based on race, national or ethnic origin, sex, age, and disability. That means employers must ensure all employees and job applicants are given equal opportunities in areas such as training, promotion, and hiring.
Most countries have similar types of legislation in place, with failure to comply resulting in legal consequences and financial penalties.
Workplace safety laws
You’re responsible for making sure your employees are safe when working on your business premises or for your company. Workplace safety regulations protect all workers from physical or psychological harm and potential hazards.
In the UK, for instance, the Health and Safety at Work Act requires employers to provide a safe working environment. Employers must also assess risks and provide training and protective equipment to all employees as needed.
Workplace safety can look vastly different, depending on what industry you’re in. For a manufacturing plant, it might focus on machinery and equipment safety, whereas in a remote work setting, it might mainly refer to ergonomics and cybersecurity.
To ensure workplace safety, it’s important to understand the risks of your specific industry and take appropriate steps to mitigate them. This includes issuing proper training, providing protective equipment (where relevant), and implementing safety protocols that are regularly reviewed and updated.
Wage and hour laws
Wage and hour laws govern how employees are paid and the number of hours they can work. They stipulate the minimum amount every employee must be paid, whether that rate increases after a certain number of hours, and how often they must be paid.
It’s important to note that these requirements can vary not just from country to country but by region and, in some cases, even by city.
As a result, it’s crucial to be aware of and comply with local labor laws in the places you hire, as these laws often change. Violating work hours mandates or underpaying your employees can lead to serious consequences in fines and repayments and damage your company’s reputation.
Employee benefits
In most countries, employees are entitled — by law — to certain statutory benefits.
In France, for example, employers must provide their workers with:
At least 25 days of paid time off (PTO) per year
16 weeks of paid maternity leave (and paid parental leave for the other parent), and
Overtime pay or bonus time off for working more than 35 hours a week.
This is vastly different from the US, where many states do not mandate any paid leave, and maternity leave is usually unpaid.
Privacy and data protection laws
Many countries have laws designed to protect employees' personal data and regulate how it’s collected, stored, and used.
For instance, the EU’s General Data Protection Regulation (GDPR) requires employers to get explicit consent from employees before collecting their data. And under the California Consumer Privacy Act (CCPA), employers must inform employees about what information they’re collecting and why they’re collecting it.
Harassment and workplace bullying laws
Your organization should be a safe and respectful place to work. Laws that address workplace harassment, including sexual harassment and bullying, help provide this.
For example, in the UK, the Protection from Harassment Act makes harassment, including workplace bullying, a criminal offense. If an employee is being bullied, they can report it, and the employer must take action to stop it. If the employer fails to act, the employee being bullied can take legal action.
Common HR compliance mistakes
Most companies continue to make the same HR compliance mistakes for two reasons. First, they don’t have a system in place for staying abreast of law changes. Second, they don’t have a way to reflect changes in their own business, such as growth or expansion into new markets.
Here are some of the most common HR compliance mistakes:
Discrimination in hiring
Discrimination in hiring often comes from one of three places:
Job postings that use biased language regarding a candidate’s race, sex, color, religion, ethnic or national origin, disability, age, or genetic information
Having different sets of interview questions for different candidates, especially those that ask about the characteristics above
Applying different criteria to candidates that can lead to unfair hiring decisions
To stay compliant, have a clear and transparent hiring process in place that doesn’t discriminate against candidates based on their personal attributes. This includes non-discriminatory job descriptions on job boards, static interview questions, and consistent selection criteria for each candidate.
Companies should also have a clear onboarding process in place where all new employees know their rights and responsibilities and are aware of the company’s policies and procedures. In many cases, employees must also complete mandatory training in areas such as DEI, unconscious bias, fraud, and other regulatory areas.
Employee misclassification
Misclassification occurs when a company incorrectly classifies an employee as an independent contractor. This can have serious legal and financial consequences for businesses, as employees are entitled to certain benefits and protections that independent contractors are not.
There are several reasons why companies might misclassify employees as independent contractors. One common reason is to save money on taxes and benefits, as independent contractors aren’t usually subject to payroll taxes or benefits such as health insurance and PTO.
However, misclassifying employees as independent contractors can end up being a costly mistake in the long run. For example, Nike has recently been accused of misclassifying temporary office workers as contractors to avoid paying benefits and overtime rates in the US. If found liable, the potential penalty is $530 million .
If you’re working with independent contractors, it’s crucial to regularly assess and reassess the nature of the relationship. Many government authorities are aggressively pursuing potential misclassification cases.
Unprotected documents
The personal information of employees, independent contractors, and candidates must always remain confidential. This includes the info found on job applications, resumes, and tax forms, and it applies to both digital and physical paperwork.
Always store these documents securely and limit access to authorized personnel only. Doing so helps protect against data breaches and keeps you compliant with privacy laws.
The importance of this cannot be overstated since, in just the first eight months of 2023, corporate and institutional data breaches affected over 360 million people . Additionally, by the end of the third quarter of 2023, one in four Americans had their health data exposed due to data breaches.
International wage laws
Non-compliance with wage laws is more common than you might think — especially for companies with workers across the globe.
In particular, many companies fall foul in areas such as:
Overtime pay
Minimum wage
Equal pay rates
Breaks and meal periods
PTO
Maternal leave pay
To avoid these issues, it’s advisable to partner with a global HR provider that has local, on-the-ground expertise in the countries you’re hiring in and that constantly monitors for changes and developments in local labor and tax laws.
Unfair performance management practices
You risk violating HR compliance requirements if you manage your employees’ performance in a way that favors certain individuals over others. That’s why you must have a fair and objective performance management system in place.
To ensure fairness and objectivity, companies should use a standardized approach to assess employee performance and provide feedback. This could be a survey or worksheets that help managers identify areas for improvement and promote employee development in a consistent manner.
It’s also a good idea to keep detailed and accurate records throughout the performance management process. This includes noting disciplinary actions, performance issues, and accommodation requests. By doing so, you create a clear and organized record of all actions and decisions, which is incredibly helpful in the event of issues or legal disputes popping up.
Mismanagement of employee leave
Businesses must comply with local laws regarding employee leave requirements, such as sick leave, parental leave, and PTO.
Employees should be made aware of the amount of leave they have when onboarding and have a system in place to track time off. Having a clear procedure for leave management can also ensure each employee is taking time off to help avoid burnout.
Unlawful termination
Businesses need to have a clear policy in place for employee termination to avoid wrongful termination lawsuits. While this is usually at the discretion of the company’s own internal policies, these policies must comply with the law.
In many US states, for instance, it’s illegal to terminate someone’s employment because they are pregnant or because they have military service obligations.
Note, too, that these laws differ vastly across countries. Most US states are “at will”, meaning employees can be dismissed without notice (provided the reason for termination is not illegal). However, in the European Union (EU), employers must provide a reasonable cause for the termination.
How to comply with HR regulations
Unfortunately, HR compliance isn’t a “set it and forget it” process. You need to regularly monitor legislation to stay compliant, especially if you’re operating in more than one country.
Here’s a nine-point checklist to help you stay on top of your responsibilities.
1. Regularly check on changing laws and regulations by:
Subscribing to email alerts from governmental agencies and industry groups
Reviewing government websites regularly
Following industry publications and blogs
Attending industry events to learn about new and updated laws
Assigning responsibility for monitoring changes to a specific team
2. Develop and implement HR policies and procedures by:
Using language that’s clear and straightforward so all employees can understand
Maintaining consistency in policy drafting to promote fairness and equity
Identifying and prioritizing areas for policy development
Involving key stakeholders, such as managers and legal counsel, to develop policies
3. Effectively train managers and employees on HR policies by:
Tailoring the training for each group of employees you train
Using a variety of training methods (such as reading, workshops, case studies, and simulations)
Making the training interactive through role-playing exercises, group discussions, and quizzes
Providing participants with a chance to practice what they’ve learned.
4. Maintain accurate and complete records by:
Using a secure, centralized recordkeeping system
Developing a clear record disposal policy, such as shredding or electronic destruction
Setting up access controls to restrict who can view, edit, or delete records
Creating standardized templates and formats for various types of records
5. Conduct regular audits of HR policies by:
Assigning responsibility for the audit to a third-party expert, like Remote
Using objective criteria to assess legal compliance with HR policies
Reviewing documentation on HR policies and procedures, such as employee handbooks and training materials
Identifying areas where compliance may be lacking and drafting a roadmap of necessary updates
Keeping a detailed document of the audit itself
6. Ensure all employees are properly classified by:
Reviewing the relevant country’s classification criteria
Using forms like IRS form SS-8 (or your country’s equivalent) to determine if you should be paying tax for your workers
7. Develop and implement workplace safety policies and procedures by:
Ensuring any necessary safety equipment is provided and properly maintained
Developing a comprehensive emergency response plan that covers various types of emergencies
Placing clear and visible safety signs in areas where specific hazards are present (if applicable)
Creating a system for reporting incidents, near misses, and accidents and conducting thorough investigations to identify root causes and prevent future occurrences
Implementing regular workplace safety inspections (if applicable) to identify and address safety concerns
8. Conduct regular performance evaluations by:
Determining a regular schedule for performance reviews based on each worker’s time zone and availability
Gathering all necessary information beforehand, such as performance data for the month, goals, and any previous evaluations
Defining the purpose and objectives of the performance evaluation, such as providing feedback or setting goals for the future
Asking employees to complete a self-assessment or provide input on their performance before the meeting
Focusing on specific examples so that feedback is clear and actionable
9. Respond promptly and appropriately to employee complaints by:
Developing and implementing a clear complaints policy
Documenting all complaints, including the nature of the complaint, the date it was reported, and the actions you took to investigate and resolve the complaint
Maintaining confidentiality throughout the complaint process
Making sure you follow up with the employee who reported the complaint to ensure they feel their complaint was taken seriously and appropriately addressed
HR compliance examples
As mentioned, the laws and regulations impacting HR compliance vary by location. Here are some examples of how different areas of HR are governed in different countries.
Minimum wage: the US and France
In the US, the federal Fair Labor Standards Act (FLSA) outlines minimum wage, overtime pay, and recordkeeping requirements for businesses. It also provides guidelines for the classifications of employees as exempt or non-exempt from overtime pay. Note that, in many instances, state law supersedes this act. For example, many states implement a higher minimum wage than the federal minimum, which is currently set at $7.25 per hour.
In France, meanwhile, the minimum wage (salaire minimum de croissance, or SMIC) is set by the government and reviewed annually. It increased by 2% in 2023, bringing it to around €1,360 per month.
Failing to meet France’s SMIC can cost your company €1,500 in penalties (per employee). And in 2021, a former Amazon employee sued the company in California for not providing mandatory 30-minute lunch breaks.
Equal employment opportunity: the US and Australia
In the US, anti-discrimination laws are enforced through the Civil Rights Center, the Office of Federal Contract Compliance Programs, and the Equal Employment Opportunity Commission (EEOC).
Similarly, in Australia, there are several statutes protecting workers from discrimination in the workplace, such as:
The Disability Discrimination Act
The Racial Discrimination Act, and
The Sex Discrimination Act.
In the US, Tesla was ordered to pay a former employee $3.2 million for severe racial harassment under these laws. However, it’s important to remember that, in both countries, discrimination can occur at any stage of the employment cycle — even as early as the recruiting process.
Employee data protection: European Union
The GDPR is an EU legislation that helps protect the personal data of EU citizens. It applies to all organizations that process the personal data of EU-based employees, regardless of where the company is headquartered or physically based.
Failure to comply with GDPR can result in significant fines and reputational damage for businesses. In 2023, for instance, the tech giant Meta was fined a whopping $1.3 billion for violating the act.
HR compliance trends
As with all areas of HR and employment, various societal and technological shifts are having a significant impact. As a business, it’s important to be aware of these developments and manage them accordingly.
Here are three of the most sizable HR compliance trends right now:
Artificial intelligence (AI) and machine learning
AI and machine learning are revolutionizing key areas of HR, such as talent acquisition and performance management.
As a result, there will inevitably be new laws and regulations introduced in different locations, especially as reliance on its use grows. In particular, there are data security concerns related to many AI applications, and this is a contentious topic in many industry circles.
The rise of remote work
While the trend towards remote work has grown steadily over the last decade, the COVID-19 pandemic has undeniably accelerated the shift.
This has created a wide number of implications for HR compliance regarding relocation and mobility, taxation, benefits, IP protection, and data security.
Data privacy
Data privacy regulations that outline the rules for the commercialization of data — such as GDPR — have gained prominence worldwide.
As a result, organizations must enhance their data protection measures and adopt stricter compliance practices. While non-compliance might have been met with a slap on the wrist in the past, it’s now imperative for HR departments to remain vigilant and proactive in safeguarding sensitive employee information.
Global compliance made easy: How Remote supports TheyDo’s global teams
Operating across 25+ countries, TheyDo relies on Remote to navigate the complexities of international employment laws.
Remote ensures compliance with local labor regulations, simplifying onboarding, payroll , and benefits management. This partnership gives TheyDo peace of mind, knowing every hire is legally compliant and risk-free.
With Remote’s expertise, TheyDo has scaled efficiently, reduced compliance challenges, and focused on its mission of fostering collaboration and innovation while confidently managing a diverse, distributed workforce.
“Our customers are fortune 500 brands that have a global presence, so the biggest impact for us is to be able to serve them around the globe. We don’t need to have an entity to serve our customers where they are: Remote gives me a lot of peace of mind that wherever we want to hire someone, it works, and we’re doing exactly everything by the book.” Jochem van der Veer, CEO & Co-Founder
Want to check out Remote in action? Book a demo to see how Remote can transform your business operations.
Ensuring HR compliance with Remote
As you can see, maintaining HR compliance is one of the most complex and challenging tasks your company faces — especially if you’re hiring across borders.
Remote can save you the time, resources, and headaches of understanding international labor laws and keeping up with any changes. This ensures that you’re fully compliant wherever you choose to hire, giving you peace of mind.
Our local, on-the-ground teams of specialists are experts in HR compliance. They can help ensure that you’re covered in every area, including onboarding, leave, benefits, taxes, relocation, and contractor management.
