HR Compliance | Human Resource Management | HR Outsourcing

ADP Research Institute®


HR Compliance: Ever-Changing Employment Laws Present Challenges for Small and Midsized Companies

This insight is from: "Competition, Cost Control & Compliance: Strategies to Navigate a Changing HR World"

In today’s business climate change is everywhere — from technology advances to HR compliance demands — and companies like yours must adapt to survive. As you adapt to HR compliance changes, effective talent management remains a critical consideration for your competitive success. Our recent survey of HR managers in small (10-49 employees) and midsized (50-999) businesses examined levels of confidence related to compliance in key HR areas, revealing concerns about their ability to comply with highly complex, ever-changing HR laws and employment laws today and into the future.

Survey Reveals Deep Concerns about HR Compliance

Our survey results show that, while cost control remains an important focus, HR managers are paying increasing attention to talent management issues, such as recruitment, retention and productivity, which are critical to fight the competitive battles ahead. Findings also reveal that HR managers recognize the growing challenges of complying with HR and employment laws. Roughly half of responding businesses lacked confidence that they’ll be able to keep up with constantly changing HR rules and regulations. At the same time, half or more of the responding companies see the compliance landscape becoming even more challenging over the next one to three years. Fewer than 10 percent believe the overall compliance burden will decrease. This is particularly noteworthy for small companies, where 64 percent of HR managers believe they lack the time and resources needed to adequately confront growing HR compliance challenges.

HR Managers Take Steps to Minimize HR Compliance Risk, But Are They Enough?

It appears that HR managers’ concerns about HR compliance are not unfounded. A notable 52 percent of midsized companies report at least one recent incident of HR-related complaints, charges and lawsuits. It’s not surprising, therefore, that the vast majority of HR managers surveyed seek professional advice regarding HR compliance issues. But could they be doing more? Even though most companies are concerned enough about compliance to solicit professional guidance, well over half (63 percent) of small businesses have never conducted a voluntary HR audit.

Exploring the Range of HR Compliance Concerns and Associated Consequences

Our survey examined six HR compliance categories: payroll, benefits, risk & safety, hiring, employee relations, and termination. On the positive side, results indicate that HR managers are confident they can comply with payroll and benefits laws and regulations. However, HR managers are less confident with regard to compliance in noteworthy aspects of hiring, employee relations, and risk & safety — which could put them in jeopardy of FLSA and OSHA violations, as well as employee grievances.

A Business Imperative: Managing the HR Compliance Burden Moving Forward

Given valid concerns about the financial consequences of non-compliance, it’s important that companies take steps to address HR compliance issues sooner rather than later. With employee litigation — and compensatory awards — on the rise, companies face major potential legal liabilities if they fail to comply with human resource and employment laws, rules and regulations. How big is the risk? Statistics compiled by Jury Verdict Research show that employment lawsuits have risen 400 percent in the last 20 years, with the average compensatory reward in federal employment cases now exceeding $490,000. In these budget-conscious times, these statistics highlight the need to address any compliance issues, even if that means seeking guidance from third-party professionals or outsourcing the HR function entirely.

The Bottom Line: Take Steps to Increase HR Compliance and Stay Competitive

Our survey finds that both small and midsized businesses are recognizing the growing challenge of complying with complex, rapidly-evolving HR laws and employment laws, as well as the potential legal and financial consequences of noncompliance. Since shortcomings in key areas of compliance can put companies at a significant competitive disadvantage, it makes good business sense for companies of all sizes to use the many tools and services available to become — and stay — compliant.

*A complete list of sources and citations can be found in the full report.

About This Report: Report data and conclusions are based on a 2011 ADP Research Institute survey of HR managers in 319 small and midsized businesses nationwide that looked at current business issues and examined levels of confidence related to key areas of HR compliance. See full report for details on research methodology. The ADP Research Institute is a specialized group within ADP that provides insights to leaders in both the private and public sectors around issues in human capital management, employment trends, and workforce strategy.

Keywords: Compliance, HR Management

Business Types: Research for Small Organizations, Research for Midsized Organizations

Roles: Research for Human Resources Professionals

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