Common HR Mistakes That Could Lead to an Audit
An audit can be a daunting experience for any business owner. Government agencies expect your policies, records, and employee practices to align with current laws and regulations. When they don’t, the consequences can include penalties, fines, or even legal disputes.
Many human resources (HR) compliance issues aren’t the result of intentional neglect. More often, they happen because businesses are stretched thin and lack the time or resources to keep up with constantly changing requirements.
Staying prepared starts with understanding where mistakes most commonly occur and implementing the right processes to prevent them. In this blog, we’ll highlight the most frequent HR missteps and share practical ways to avoid unwanted attention from government regulators.
Outdated Employee Policies
One of the most frequent errors companies make is failing to maintain an up-to-date employee handbook. Too often, businesses create a handbook once and never revisit it. However, laws and regulations around workplace safety, discrimination, wage and hour rules, and leave policies are constantly evolving. This can lead to inconsistent practices, employee confusion, and increased vulnerability during an audit.
To stay compliant, businesses should review and update their employee handbook at least annually, or whenever there are significant changes in employment law. Partnering with an HR expert or legal advisor can help ensure your policies reflect current requirements and industry best practices.
Lack of Documentation
Poor documentation is one of the most common and costly HR mistakes. When businesses fail to keep accurate records of employee performance, disciplinary actions, and terminations, they leave themselves vulnerable to legal challenges. Without a clear paper trail of performance conversations, warnings, and progressive discipline, it becomes difficult to defend against claims of wrongful termination or discrimination.
From an auditor’s perspective, missing or incomplete documentation signals that policies may not be applied consistently across the organization. This inconsistency can quickly raise red flags and lead to deeper scrutiny.
To mitigate risk, businesses should implement a standardized process for documenting employee interactions and ensure that managers are trained to follow it. Consistent, detailed records not only protect the company but also promote fairness and transparency in the workplace.
Employee Misclassification
Misclassifying employees is a frequent and costly error that can lead to serious compliance issues. Determining whether a worker should be classified as an employee or an independent contractor, or whether they qualify for exempt or non-exempt status, requires careful consideration of federal and state guidelines.
Even when mistakes are unintentional, they can result in back pay, wage disputes, tax liabilities, and penalties. These issues often arise when businesses rely on outdated job descriptions or make assumptions without reviewing current labor laws.
To avoid these risks, companies should regularly evaluate job roles and responsibilities to ensure proper classification. Working with HR professionals or legal advisors can help confirm that classifications are accurate and compliant with the latest regulations.
Poor Recordkeeping Practices
Maintaining accurate and secure records is a critical part of HR compliance, yet it remains a common challenge for many businesses. From I-9 forms and payroll records to sensitive employee information, companies are required to follow strict guidelines regarding how long records must be retained and how securely they should be stored.
Losing or mishandling these documents can create serious audit risks. It can also expose the business to identity theft concerns or violations of laws such as the Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), and the Health Insurance Portability and Accountability Act (HIPAA).
To stay compliant, businesses should implement a reliable recordkeeping system, ensure secure storage of sensitive information, and regularly review retention policies to align with current legal requirements.
Falling Behind on Employment Laws
One of the most significant risks businesses face is failing to stay current with evolving employment laws. Regulations around minimum wage, overtime, paid leave, and workplace protections are constantly changing at both the federal and state levels.
What was compliant last year may no longer meet today’s standards. Without a system in place to monitor and respond to these updates, businesses can quickly fall behind and face penalties, fines, or legal action.
To remain compliant, companies should regularly review legislative updates, subscribe to trusted HR or legal resources, and consider working with professionals who specialize in employment law. Staying informed is essential to protecting your business and your employees.
GMS Helps You Stay Compliant
The good news is that these HR mistakes are preventable. HR compliance does not have to be overwhelming, but it does require a proactive approach. By regularly auditing your HR processes, keeping policies current, and maintaining accurate records, you can significantly reduce your risk of an audit.
Partnering with an experienced HR provider like Group Management Services (GMS) makes this process even easier. Our HR professionals conduct thorough HR audits to identify gaps, update your practices, and ensure you are following the latest regulations. We also provide the technology and support you need to manage employee records, streamline compliance tasks, and protect your business from unnecessary risk.
Compliance should not be something you only think about after a problem arises. With GMS by your side, you can stay ahead of changing requirements, minimize the chance of costly audits, and focus your time where it matters most: —growing your business. Contact us today to get started!