HR compliance fines & how a PEO helps avoid them

In every business in every industry, human resources is a complex, multifaceted area that presents numerous challenges. HR must comply to a wide set of constantly changing legal and regulatory obligations, starting from the day an employee is hired to their final workday and beyond. Navigating this complex web of regulations is key to mitigating risk, avoiding costly penalties and creating a positive, compliant work environment.

A professional employer organization (PEO) is a trusted partner for businesses looking to remain compliant. PEOs specialize in understanding the intricate details of HR compliance and helping businesses establish practices to enable compliance. Businesses that enter a PEO partnership receive skilled guidance, strategic assistance, and ongoing support from the PEO — making compliance eminently more manageable. On top of that, a PEO acts as a co-employer, sharing certain responsibilities with the business.

What is HR compliance?

HR compliance is the ongoing process of adhering to your business’ applicable labor laws and regulations at the federal, state and local levels. This includes laws concerning employment, wages, benefits, workplace safety and more. Larger businesses that operate in varied geographic regions must naturally comply with more regulations. The goal of HR compliance is to protect both the employer and employees by fostering a compliant work environment, and help avoid potential business and operational disruptions.

Types of HR compliance

There are several key parts of HR compliance, each with its own set of challenges and requirements.

Statutory compliance

Statutory compliance refers to meeting federal, state and local laws directly that directly impact employment. Examples of this include minimum wage laws, workers’ compensation, unemployment insurance, overtime regulations, the Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA) and more. Staying on top of the nuances and frequent updates to these laws across different jurisdictions is crucial for businesses to avoid compliance issues.

Regulatory compliance

Beyond statutory compliance, businesses regularly face specific regulatory requirements enforced by government agencies. Examples of this include the IRS setting regulations for tax withholding and reporting, OSHA enforcing workplace safety standards, and the Department of Labor (DOL) issuing rules on wage and hour requirements. Meeting these and other regulations is vital for businesses to keep from becoming non-compliant.

Top HR compliance issues

While there are myriad potential pitfalls for businesses regarding HR compliance, certain common compliance issues affect businesses more than others. Not meeting compliance requirements for these common compliance issues can result in substantial risks, both financial and operational.

• Leaves of absence
• Wage and hour
• Americans with Disabilities Act (ADA)
• Benefits (ACA, COBRA, ERISA, etc.)
• Employment Authorization/Verification (Form I-9 and E-Verify)
• Workplace safety & Workers Compensation Administration
• Pay transparency
• Performance management/terminations and added support through Legal Defense Benefits and Employment Practices Liability Insurance
• Harassment prevention, compliance & leadership training
• Workplace policies handbook

Leaves of absence

Managing employee leaves of absence is a compliance challenge due to the interplay of federal, state and even local laws. Employers must accurately interpret and apply regulations such as the Family and Medical Leave Act (FMLA), which grants eligible employees unpaid, job-protected leave for specific family and medical reasons. Beyond FMLA, certain states have their own paid sick-leave laws and laws for things parental leave, military leave, medical leave and caregiving leave. Ensuring proper eligibility determination, notice requirements, designation of leave, tracking of leave time, and reinstatement obligations are all critical to avoid non-compliance and potential legal claims.

Wage and hour

Wage and hour compliance is a foundational area of HR. This involves strict adherence to federal laws like the Fair Labor Standards Act (FLSA), as well as varying state and local minimum wage laws, overtime regulations, and rules regarding meal periods and breaks. Common compliance issues include misclassifying employees as exempt (salaried without overtime eligibility) when they should be non-exempt, failing to pay for all hours worked, not accurately calculating overtime or incorrect deductions from paychecks. To ensure compliance, clients engage with their PEO provider and work together so an employer can ultimately make the best determination of how to classify their employees. 

Americans with Disabilities Act (ADA) – Disability accommodations

Compliance with disability accommodation laws, most notably the Americans with Disabilities Act (ADA), requires employers to provide accommodation(s) to qualified individuals with disabilities. As part of this process, employers engage with an employee to understand their limitations and explore effective accommodations. Challenges can arise in defining what exactly a disability might be, finding reasonable accommodations that do not pose undue hardship, and ensuring non-discriminatory business and hiring practices.

Benefits (ACA, COBRA, ERISA, etc.)

Managing employee leaves of absence is a compliance challenge due to the Employee benefits are critical to any business — and a key focus for most HR teams. They live, though, in a complex landscape that demands rigorous compliance efforts. Some of the most notable benefits laws are the Affordable Care Act (ACA), COBRA and ERISA (Employee Retirement Income Security Act). The ACA mandates certain requirements for applicable employers regarding health insurance plans and reporting. COBRA requires the continuation of group health coverage for specific qualifying events. ERISA sets standards for most private industry retirement and health plans. Employers must ensure accurate documentation, timely notices, proper administration of eligibility and enrollment, and accurate tax reporting to stay compliant with meet intricate benefits requirements.

Employment Authorization/Verification (Form I-9 and E-Verify)

New employees must complete this form, verifying that they are legally allowed to work in the U.S. the first day of employment. You must complete the employer section of the I-9 form within three days of the employee’s start of work at your company. Failing to complete the I-9 form, or employing someone who is not permitted to work in the U.S. may result in fines.

Workplace safety & Workers Compensation Administration

Workplace safety compliance is primarily governed by the Occupational Safety and Health Act (OSHA). This requires employers to provide a workplace free from recognized hazards that can cause death or serious physical harm to employees. This involves establishing and maintaining safety programs, conducting hazard assessments, providing appropriate personal protective equipment (PPE), offering safety training, and accurately reporting workplace injuries and illnesses. Risk and safety associates may work with clients to either have on-site or virtual assessments, recommend PPE, support clients in how they can build/maintain safety programs and show clients how to accurately report workplace injuries and illnesses. “Regular” and compliant safety trainings may be available to clients to assign to their employees using learning management systems.

Pay transparency

Pay transparency compliance requires employers to disclose salary ranges in job postings or to provide pay scale information to applicants and employees upon request. These laws aim to address pay equity and help reduce wage disparities. Compliance challenges for pay transparency include understanding varying requirements across locations, ensuring internal pay equity and managing employee expectations. Staying up to date with these evolving regulations is critical to avoid potential violations and maintain fair compensation practices.

Performance management/Terminations and added support through Legal Defense Benefits (LDB) and Employment Practices Liability Insurance (EPLI)

Compliance in performance management and terminations involves ensuring that processes are fair, consistent, non-discriminatory, and adhere to federal and state employment laws. Businesses must establish clear performance expectations, conduct regular performance reviews, document any issues and implement disciplinary actions when necessary. In the case of a termination, employers must provide valid, non-discriminatory reasons, follow all company policies and comply with laws and requirements over final paychecks and the continuation of benefits. When not handled correctly, performance management issues and terminations can lead to legal disputes. A PEO representative may provide HR best practices on employment actions, terminations and performance management that an employer may choose to follow. Additionally, a PEO may provide Employment Practices Liability Insurance as part of its services to help protect against workplace claims should they arise.

Harassment prevention, compliance & leadership training

Acceptable workplace behavior has evolved over the years. What was tolerated in the past is not acceptable in today’s workplaces. There has been a renewed awareness around the serious and unacceptable nature of these actions that may have previously been overlooked. Preventing harassment training is available to provide a common understanding of acceptable and unacceptable workplace behaviors.

Workplace policies handbook

Ensuring an organization's handbook is compliant is of the utmost importance. Evolving employment laws and constant change in federal, state and local legislation can lead to compliance risk. Maintaining current and up-to-date policies can help to reduce legal exposure.

What are the penalties for non-compliance?

Not meeting HR compliance obligations can put businesses at numerous risks, extending far beyond monetary fines. A business’s financial health, legal standing, operational efficiency and overall reputation can all be affected by non-compliance. Some consequences of non-compliance include:

• Monetary penalties and fines: Government agencies at have the authority to impose substantial fines for various HR violations, ranging greatly in amount depending on the severity and nature of the infraction.
• Lawsuits and litigation: Employee lawsuits, including class-action suits, including discrimination, wrongful termination, wage and hour violations, or unsafe working conditions, are costly and time-consuming, regardless of the outcome.
• Government audits and investigations: Audits and/or investigations by various regulatory bodies like the Department of Labor, IRS or OSHA can be time-consuming, disruptive to business operations and costly.
• Damaged reputation: A business’s brand can be severely damaged by HR non-compliance issues, making it difficult to attract and retain talent and win back customer or client trust.
• Personal liability: In certain instances, individual executives or HR leaders can be held personally liable for non-compliance issues.

Clearly, there are severe consequences to not meeting critical HR compliance requirements — this serves to underscore the importance of having an experienced, credentialed HR expert to offer guidance so that you can make the best decisions for your business. Partnering with a PEO can help navigate the complexities of HR laws and regulations, helping to keep your business free from costly penalties, financial or otherwise

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ADP Editorial Team The ADP editorial team is comprised of human resource professionals with extensive experience solving complex HR challenges for businesses of all sizes.