Skip to Content

Common HR Compliance Pitfalls And How To Avoid Them

Common HR Compliance Pitfalls And How To Avoid Them

Ensuring strict adherence to HR laws and regulations is a non-negotiable for small business owners; however, many employers find this process daunting. HR compliance is a complex and ever-evolving process that varies from state and city levels. Additionally, the rise of remote work expands many businesses' geographical reach, resulting in more intricate multi-state compliance needs. Moreover, since laws and regulations are subject to change, you, as a business owner, must remain continuously vigilant to stay compliant.

Navigating these intricacies is often an overwhelming and frustrating feat. It can be particularly challenging for small businesses and startups that often rely on limited staff and delegate HR to individuals who are unfamiliar with its complexities. Nevertheless, failing to adhere to the laws and regulations can lead to substantial financial and reputational repercussions. While there is no one-size-fits-all approach to avoiding non-compliance penalties, there are a few common areas businesses tend to struggle with.

What Is HR Compliance? 

HR compliance aligns your company's policies and procedures with a network of federal laws, such as the Fair Labor Standards Act (FLSA) and the Americans with Disabilities Act (ADA), combined with state and local labor laws. These laws outline the obligations and responsibilities you must uphold as an employer. HR compliance encompasses various aspects, including hiring, worker classification, data privacy, and security.

Failure to adhere to or purposefully neglecting HR compliance can lead to severe consequences for your business. Substantial financial penalties, not to mention time and resources spent on legal fees, will be lost. Beyond financial implications, the reputational impact on your business can be detrimental and lead to an extensive loss in revenue.

In other words, following HR regulations isn’t just a legal obligation but a safeguard for you, your business, and your employees. It ensures proper measures are in place to avoid legal troubles, financial setbacks, and reputational harm.

Common HR Compliance Pitfalls

Although HR compliance varies based on location, company size, and industry, there are a few more universal areas companies tend to struggle with, including:

Hiring practices

The laws enforced by the Equal Employment Opportunity Commission prohibit discrimination across all facets of employment. As an employer, ensuring your hiring staff is well-informed about crafting inclusive job postings and understanding the permissible and impermissible questions during the hiring process is crucial. Severe penalties, including lawsuits and fines, can be levied against businesses that discriminate based on factors such as race, color, religion, sex (including gender identity, sexual orientation, and pregnancy), national origin, age, disability, or genetic information. Adhering to these regulations is not only the law but essential to foster a fair and diverse workplace.

Pay inequity

Performing regular salary audits is necessary to guarantee pay equity for employees. Many states, including Ohio, California, Washington, Nevada, and Colorado, to name a few, have implemented legislation to prevent discriminatory pay practices. However, as businesses expand and internal changes occur, such as transfers and promotions, gender pay disparities can inadvertently emerge. Conducting systematic and consistent salary reviews helps identify and rectify gaps, ensuring a fair, equitable, and compliant compensation structure within your organization.

Health coverage

The Affordable Care Act's Employer Shared Responsibility Provision mandates that businesses with 50 or more full-time employees provide affordable health insurance options to employees. This includes ensuring coverage for dependents up to age 26. Failure to meet this requirement can lead to penalties if employees receive premium tax credits through the Health Insurance Marketplace.

Policies and procedures

Another significant but easily avoidable challenge stems from outdated or nonexistent employee guidelines. While employees share the responsibility of adhering to laws and regulations, the liability falls on you, as a business leader, to provide comprehensive policies and procedures.

Unclear guidelines can lead to misunderstandings and misinterpretations, potentially resulting in actions that breach HR regulations. Therefore, ensuring up-to-date and transparent employee guidelines reinforces adherence and minimizes the risk of legal and regulatory infringements.

Training and orientation

Additionally, implement a comprehensive onboarding process and offer continuous training for your employees. This is crucial to guarantee your team understands your company's policies and procedures. Inadequate training can expose your business to vulnerabilities and potential lawsuits in the future.

Employee misclassification

Accurate employee classification is essential due to its direct influence on taxation. Distinct categories such as independent contractors, salaried workers, and hourly employees are subject to varying tax regulations. Incorrectly categorizing full-time or hourly employees as contractors deprives workers of their rightful compensation and protections. Even unintentional misclassification holds serious consequences, including substantial fines.

Inaccurate payroll and tax payments

Ensuring accurate and timely payment for your staff is an absolute necessity. Failing to do so exposes your business to wage claims that can have detrimental effects, impacting your financial stability and reputation. Additionally, to avoid audits and fines, it’s essential to file payroll taxes accurately.

Workers’ compensation

Workers' compensation is an “exclusive remedy,” meaning that an employee injured on the job cannot sue their employer immediately following an incident. In the event of an on-the-job accident, it’s imperative that managers and staff report the incident and subsequently submit the necessary claims immediately to avoid potential lawsuits.

Additionally, maintaining current knowledge about accident trends within your industry is paramount. By staying informed, you can proactively support your staff through safety programs and training initiatives, reducing the likelihood of injuries.


In numerous states across the United States, the concept of "at-will employment" reigns supreme. This legal principle grants employers the authority to terminate employees at their discretion, without needing a specific reason, as long as the termination does not violate any laws or regulations.

However, it doesn’t mean that employees don’t have rights. There are still requirements you are responsible for as an employer. For example, many states, such as Alabama, Alaska, Arizona, California, and Delaware, recognize good faith and fair dealing, meaning you can’t fire an employee to avoid paying retirement benefits or a hefty commission. Additionally, this safeguards employees from being fired from a place of malice. Obeying local laws protects your business from wrongful termination lawsuits and helps create a trusting and respectful work environment.

Data privacy and security

As an employer, your employees trust you with their sensitive information. With the shift towards electronic storage of this information, implementing data security has become integral to safeguarding your employees' data. By ensuring a strong security system, you fulfill your responsibility to protect sensitive information and mitigate the risks associated with unauthorized access and data breaches. In the unfortunate event of a breach, having a detailed action plan allows for a swift and organized response, helps minimize the potential damage, and swiftly rectifies the situation.

Maintaining compliance is an ongoing and dynamic process that requires time, effort, and continuous refinement of internal policies and procedures. Regulatory landscapes rapidly evolve, and you need to adapt in order to ensure your business remains in line with legal requirements. Maintaining a robust system of regular internal reviews, policy updates, and staying up-to-date with any changes in laws and regulations are essential to protecting your business effectively.

How GMS Can Help

You’re an expert in your field but probably not an expert in human resources. Ignoring the need for effective HR management is a recipe for disaster. Deficiencies in any HR function, such as payroll, workplace safety, or performance management, could result in:

  • Non-compliance fines
  • Miscommunication between departments
  • Slow productivity growth

Professional employer organizations (PEOs) such as GMS can perform human resource audits to review your current HR policies, procedures, documentation, and systems. By conducting an HR audit, we can help your business reduce costs and improve its HR functions in a fraction of the time. In addition, HR audits can help assess compliance with ever-changing rules and regulations to minimize legal and regulatory liability. Contact us today, and let us help take care of the administrative tasks so you can focus on the areas of your business you enjoy most!

Return to Blog