What is HR governance and compliance?

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“HR compliance is defined as the process of aligning workplace policies with a city’s, state’s, country’s, and the world’s labor laws, in sync with industry-specific regulations. In addition to policy setup, enforcing practices to follow these policies daily is also part of HR compliance.”

Fig 1. What HR compliance entails

HR compliance is defined as the process of aligning workplace policies with a city’s, state’s, country’s, and the world’s labor laws in sync with industry-specific regulations. In addition to policy setup, enforcing practices to follow these policies daily is also part of HR compliance.

Compliance is among the critical functions of any HR department. You are tasked with making sure that hiring practices, workplace rules, treatment of employees, and a variety of other factors all comply with the relevant laws. Companies also outline their own HR compliance policies to be followed internally.

But managing this HR compliance landscape could prove to be a challenge. A 2019 survey of 1,300+ respondents found that employers anticipate a significant impact from regulatory laws. Variances at state and local levels add to this complexity, making it hard to manage paid sick leave (69%), the legalization of marijuana (54%), and background checks (52%).

In response, companies must take proactive measures to maintain HR compliance. There are several layers of rules and standards to follow, requiring a multifaceted compliance strategy from HR. And these rules are continually evolving.

For instance, just recently, the U.S. government released the Families First Coronavirus Response Act, which makes it mandatory for employers to offer paid sick leave or extended family and medical leave until December 31, 2020, for reasons associated with COVID-19. The rollout of GDPR two years ago was another law that introduced a tectonic shift in HR compliance.

Typically, an HR compliance officer (working with a dedicated HR compliance team) takes charge of handling these regulations, ensuring that an organization is up to date and compliant at all times. From retiring outdated practices to implementing forward-looking action plans, the HR compliance officer is at the center of a smooth-functioning organization.

HR compliance often works alongside a company’s legal team so that the laws and standards are interpreted correctly. It can also reach out to the learning and development (L&D) department to train employees on compliant practices, for instance, in workplace safety in a manufacturing unit.

Learn More: How to Prepare Your HR Department for New Legislation (CCPA & SHIELD)

HR Compliance Checklist: 10 Key Items

The lexicon of HR compliance is fluid. New laws replace old ones, a landmark judgment may set a legal precedent, and topical events could call for a pivot in compliance practices. But these changeable factors apart, there are 10 key terms to take note of when adhering to compliance mandates.

1. Statutory compliance

Statutory compliance entails compliance with legislations set by a local, state, or federal government. All employers are legally mandated to follow statutory compliance, without which they are liable to face criminal charges.

The minimum working age, minimum wage per hour, anti-discrimination laws, and the like all fall under statutory compliance. But it could vary from country to country, which is why country-specific HR compliance is crucial (see checklist item no. 9).

2. Regulatory compliance

Regulatory compliance could sometimes overlap with a statutory compliance norm, but the difference is that a specific regulatory body sets it. For example, the Health and Safety Executive in the U.K. and the Occupational Safety and Health Administration in the U.S. lay down specific mandates for a safe work environment and prevention of accidents or health hazards. Once again, failure to maintain regulatory compliance could result in criminal charges.

3. Contractual compliance

Contractual compliance involves adherence to the contractual agreement formed when you employ a worker. From payroll employees to the hourly workforce, from interns to a white-collar freelance consultant, every employment model is governed by a contract.

The agreement could include clauses for a notice period, a severance package, employee stock options, a tenure-based bonus, and lots more. If an employer doesn’t abide by a contract, it could be open to a civil lawsuit.

4. Union law compliance

The National Labor Relations Act mentions provisions for employee unions. Unions are groups of workers engaged in a similar industry – often in a specific region – working together to protect employee rights. (Fun fact: The Screen Actors Guild was formed as an American labor union representing 100,000+ performers and technicians!)

By adhering to union law, companies can ensure that their employees are satisfied, and there is no feeling of discontentment among the workforce.

5. HR technology compliance

The growing use of HR technology makes it critical to pay special attention to this checklist item. Your HR technology platforms must be compliant with a host of regulations, including employee data rights such as the GDPR. The Health Insurance Portability and Accountability Act (HIPAA) also requires the protection of certain types of health information – which could influence your medical benefits administration platform.

Typically, HR technology compliance is included in the service-level agreements (SLAs) between a company and its HR tech vendor.

6. Internal compliance

Internal compliance is the outlining and enforcement of internal policies, which often reflect statutory and regulatory laws.

For instance, French labor law calls for a 35-hour workweek. So, companies with an office in France, could formulate internal policies for a four-day workweek, or mandate a two-hour lunch break every day. Internal compliance helps to make sure that broader regulatory guidelines are followed in practice and not just in theory.

7. Training compliance

Some industries (or regions) require employees to be mandatorily trained in specific areas.

For example, in California, any company with five or more employees would have to provide two hours of classroom/interactive anti-harassment training to every employee in a supervisory role, and at least one hour to all non-supervisory employees. Professions like nursing, social care, manufacturing equipment handling, etc. come with their own set of training laws.

Companies usually leverage employee training tracking software to ensure that they meet the required compliance regulations.

8. International labor law

International labor law is a body of rules covering a myriad of regulations around the rights and duties of employees, employers, and governments – it’s headed by the International Labour Organization (ILO), coordinating with other agencies.

The standards set by international labor law often inspire regional regulations. Specifically, there are Conventions (legally binding) and Recommendations (non-binding guidelines). Fundamental conventions cover an individual’s right to work, the rights of a child, the elimination of all forms of discrimination against women, and the like. Importantly, these international laws apply if your country is a member-state of the ILO.

9. Country-specific HR compliance

A country could form its own HR compliance regulations. For instance, France recently implemented the Right to Disconnect law, which applies to any company with 50+ workers. Retirement age and the minimum age to start work also vary from country to country.

Global companies must take these details into account when formulating policy guidelines. Country-specific guidelines will help to avoid non-compliance risks and substantial penalties.

10. Workplace compliance

Workplace compliance refers to an internal body of rules governing employee behavior in the workplace. Often, this relates to statutory and regulatory norms, making sure that they are proactively followed. Mandatory work hours, the mandatory volume of work, mandatory breaks, policies around working from home, the appropriate dress codes, non-discriminatory behavior, and the like, fall under workplace compliance.

This checklist addresses both HR compliance as well as employee well-being and helps to build a sustainable work environment.

Learn More: Facing the Complexities of Compliance Within the Highly Regulated Cannabis Industry

5 Best Practices for Enforcing HR Compliance

Here are five best practices that can help keep the organization compliant.

Fig 2. 5 HR compliance best practices

1. Your HR data governance plan should ideally span six years

HR data will be subject to internal and external audits at regular intervals. And any anomaly will be flagged as non-compliant. That’s why it is critical to have a robust data governance plan under which you record all relevant data sets and track how it is used. Time limitations for storing data could vary – typically, experts recommend storing data for up to six years, which means that your data governance plan has to be built accordingly.

Year-on-year data will also help to track key trends, mapping if you are getting closer to compliance with time-bound benchmarks such as 100% wage equity.

2. Establish a regional HR compliance function in different cities

As we already mentioned, every country has a slightly different set of HR compliance laws. In some cases, there are state and city-specific laws as well. For example, there is a Massachusetts Fair Employment Practices Act, which applies to any company with six employees or more in the region; we already spoke about California’s anti-harassment training laws.

To keep up, you need a regional compliance function in every location, working closely with that region’s local government and your organization’s central legal arm.

3. Consider the very nuanced definition of “discrimination”

While every employee should be treated equitably and with respect, employment laws could set down specific rules based on gender. For instance, Saudi Arabia has plenty of women-only workplaces where men are not allowed to participate (as per cultural, and not legally binding norms). These nuances must be taken into account when formulating workplace compliance guidelines and hiring strategies.

4. Update your HR compliance manual every year (at least)

Given the vast terrain of facts and information that comes under HR compliance, you need a regularly updated playbook. An annual update is a good idea, consolidating all laws and regulatory changes that have rolled out during that time. This update should also remove any local laws that have been rescinded, as may happen with laws introduced during the coronavirus pandemic.

Share a summary of the compliance manual, simplifying any legalese, with the entire workforce. This will enable a culture of transparency, rationalizing workplace policies.

5. Robust HR compliance begins with compliant hiring

Hiring compliance is an entire area of discussion, defining who and how you should recruit. From anti-discrimination laws and legal working age to background checks and rules around immigration, there is massive ground to cover. Interestingly, different U.S. states could have different working-age requirements, and if they vary from the federal guidelines, then the most stringent law will apply.

By making your recruitment process fully compliant, you can ensure that you start on the right foot and avoid any penalty during future audits.

4 Key Issues Around HR Compliance and How to Overcome Them

HR compliance is an evolving entity. To stay compliant, organizations must anticipate any issues and tackle them proactively. While this depends on the nature of your business and where you’re situated, there are a few commonalities every organization may face. For instance:

1. Laws often evolve faster than one can keep up

This is a major challenge for large companies with a distributed workforce. A retailer with stores spread across multiple states or a manufacturer with plants in different countries must keep up with ever-evolving regional HR regulations.

To overcome this issue, we recommend a partnership with an HR compliance service provider while having a designated HR compliance officer in-house. There are several companies out there that you could consider like Bambee, which couples a dedicated manager with a comprehensive audit, and HR360, a repository of resources and compliance professionals.

2. HR tech vendors may not be outspoken about compliance

This is an emerging issue as companies widely adopt HR technology for a range of activities. In some cases, a platform might not explicitly state how and why it collects your data, or if it has a compliance plan in place.

To address this, companies should make compliance the top criteria for vendor selection and ask as many questions as possible from the data compliance perspective before purchasing HR technology. Fortunately, most leading vendors graft compliance into their offerings, continually updating the software in accordance with the law. For example, Workday has an entire section of product information related to security, privacy, and compliance. The company opts for third-party audits and certifications, assuring its customers of compliance at all times. Also ask about how soon vendors will update their compliance policies with changing regulations.

3. Interpretation of laws could vary

When it comes to enforcing HR compliance guidelines, the law and the situation could be interpreted differently by different parties. For example, a harassment claim might need accurate records or witness statements to be verified – in fact, this applies to any breach of workplace compliance norms.

To address this, you can adopt a chatbot to collect records of workplace experiences, making it easier for employees to report issues on time, and for you to verify them. Spot is one such solution for this, deploying an AI-based chatbot for compliance scenarios like harassment, discrimination, misconduct, whistleblowing, and policy violations.

4. Persistent issues could make HR compliance difficult

This is among the most challenging issues HR faces. If we look at laws around gender discrimination, wage equity, and equal opportunities, much of the discrepancy arises from persistent negative behavior. In other words, companies have been non-compliant for a long time (e.g., women have been historically underpaid) and now find it challenging to bridge the gap.

Addressing this takes time, but companies strengthen their efforts by keeping a close vigil and regularly collecting data to spot any gaps. Internal audits are a good idea, like Google publishing an annual diversity report.

Learn More: How to Choose the Best HR Compliance Software Solution for Your Business?

A Final Takeaway: Respecting Individual Rights Is Key for HR Compliance

At the center of HR compliance lie human rights.

The right to work, the right to equal pay, the right to safe working conditions, and the right to requisite benefits are among the fundamental factors you should aim for when outlining your compliance playbook. On the surface, it might seem like HR compliance is only about protocol and blind rules following – but digging deeper, it is clear that your HR compliance function shapes employee experiences and the workplace as a whole.

By leveraging compliance as an employee-centric tool, you can build a positive work environment where every employee feels safe, comfortable, and respected, and is eager to contribute to your company.

Do you have a dedicated HR compliance function at your company? Tell us more about it on LinkedIn, Twitter, or Facebook.