HR Compliance Laws: How To Avoid Penalties

In 2023, Dollar General paid $1 million to settle an HR compliance lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC.) This alleged the retailer’s hiring processes violated the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). 

The lawsuit also claimed Dollar General required job applicants to disclose family medical histories and used medical criteria to unlawfully exclude individuals with disabilities from employment. Alongside the monetary settlement, Dollar General agreed to revise its hiring policies, discontinue invasive medical exams, and provide training on ADA and GINA compliance to its hiring staff.

The enormous financial burden, coupled with the loss of reputation to Dollar General’s brand, could all have been avoided if the company had adhered to HR compliance laws. This guide explores these responsibilities in further detail. 

What are HR compliance laws, and how do they impact you?

Employee benefits compliance in the context of HR means following all relevant federal, state, and local labor laws to the letter. The following federal laws will form the bulk of your HR compliance focus: 

• Fair Labor Standards Act (FLSA): Establishes minimum wage, overtime pay, and child labor standards, ensuring employees are fairly compensated for their work
• Occupational Safety and Health Act (OSHA): Requires employers to adhere to workplace safety regulations to reduce the risk of workplace injuries and illnesses
• Family and Medical Leave Act: Provides eligible employees up to 12 weeks of unpaid, job-protected leave for certain family and medical reasons
• Affordable Care Act (ACA): Mandates that employers provide affordable health insurance to employees and report coverage information, ensuring access to healthcare
• Title VII of the Civil Rights Act: Prohibits employment discrimination based on race, color, religion, sex, or national origin, promoting equal opportunities in the workplace
• Americans with Disabilities Act: Expects employers to provide reasonable accommodations to employees with disabilities, fostering an inclusive work environment
• Equal Pay Act (EPA): Mandates equal pay for equal work regardless of gender, aiming to eliminate wage disparities between men and women
• Age Discrimination in Employment Act: Protects employees aged 40 and older from discrimination, ensuring fair treatment across all age groups
• The Genetic Information Nondiscrimination Act of 2008 (GINA): Prohibits discrimination based on genetic information, safeguarding employees’ privacy and preventing bias in hiring and employment decisions

Employers must also zoom into compliance regulations at the state and local levels. This becomes more complicated if your business crosses state lines, has branches in several regions, or if you have a distributed workforce. 

An example of a state compliance law is the California Fair Employment and Housing Act, which prohibits discrimination, harassment, and retaliation in employment based on a wide range of protected characteristics, including race, gender, age, disability, and more. FEHA is stricter than federal laws and applies to employers with five or more employees, ensuring a broad scope of employee protections within the state.

Types of HR compliance

HR compliance is a broad term we can define more clearly using the following categories: 

Statutory

Statutory compliance refers to the laws established by legislative bodies, such as federal, state, or local governments. These are mandatory legal obligations you must follow to avoid legal penalties, fines, or other legal consequences. And bear in mind, they’re highly changeable, often incorporating new tweaks and modifications annually. 

Regulatory

Regulatory compliance is based on the rules and guidelines set forth by government agencies and regulatory bodies overseeing specific industries or activities. These regulations often interpret statutory laws and provide detailed instructions on how to implement them in practice.

Contractual

Contractual compliance refers to contract terms and conditions defining the relationship between an employer and its employees or other third parties such as freelancers. HR must ensure they receive everything promised to them in the contract. 

Common compliance pitfalls

HR leaders must be aware of the common compliance problems easily flagged in an audit: 

• Inadequate documentation: Failing to maintain accurate and thorough records can make it difficult to defend against legal claims.
• Misclassification of employees: Incorrectly classifying employees as exempt or non-exempt or as independent contractors can lead to significant legal and financial consequences. IRS Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding is a good reference. 
• Incorrect overtime calculations: Miscalculating overtime can result in costly back pay and penalties. Ensure you have a clear understanding of overtime rules and keep accurate records of hours worked by non-exempt employees. 
• Failure to provide accommodations: Not providing reasonable accommodations for employees with disabilities can lead to ADA violations and lawsuits. 
• Inconsistent enforcement of policies: Applying policies inconsistently can lead to claims of discrimination or favoritism.
• Overlooking state and local labor laws: Focusing solely on federal laws can result in non-compliance with stricter state or local regulations.
• Incomplete or outdated employee handbook: This causes misunderstandings and legal vulnerabilities.
• Discriminatory job listings: Posting job ads that contain discriminatory language can result in EEOC violations.
• Non-compliant interview questions: Asking illegal questions during interviews can lead to discrimination claims.
• Union interference: Failing to respect employees’ rights to unionize can result in unfair labor practice charges.
• Illegal criminal background checks: Conducting background checks in a manner that violates federal or state laws can lead to legal issues.
• Late new hire reports: Failing to report new hires on time can result in penalties.

Best practices for HR’s role in compliance

Human resources professionals aren’t solely responsible for compliance in the workplace; it’s a universal responsibility that requires collaboration across all departments. However, HR plays a crucial role in ensuring compliance with laws and regulations by taking the following steps: 

• Stay updated on changes in federal, state, and local employment laws.
• Maintain accurate records by documenting employee information accurately and thoroughly to defend against legal claims.
• Provide regular training on anti-discrimination policies, harassment prevention, and other relevant compliance topics.
• Audit HR processes regularly to ensure compliance and identify areas for improvement.
• Create clear and compliant policies that are communicated effectively to all employees.
• Review job postings to ensure they don’t contain discriminatory language. 
• Check that your interview questions are relevant and legal.
• Comply with federal, state, and local laws when conducting background checks on employees.

When and why should HR seek legal advice?

HR must stay up to date on the latest laws and regulations to protect the organization from legal risks. While engaging in training refreshers and attending industry conferences may keep your knowledge current, there will be times when you need to call in professional legal counsel, including when: 

• Facing complex or unfamiliar compliance issues
• Making significant policy changes
• Handling sensitive employee relations issues
• Anticipating potential or pending lawsuits or charges

HR compliance checklist

Need a handy HR compliance checklist to refer to when reviewing your organization’s compliance? Here are some essential areas to cover:  

Hiring and onboarding process

• Do your job postings comply with federal and state laws? 
• Are your interview questions legal and relevant to the job? 
• Does your process provide reasonable accommodations for applicants with disabilities?
• Are background checks conducted legally and consistently for all candidates?
• Do you report all new hires to the appropriate agencies within the specified timeframe? 

Employee classification

• Have you correctly classified employees as exempt or non-exempt?
• Are independent contractors properly identified and distinguished from employees?
• Is employee pay compliant with minimum wage and overtime laws?

Discrimination and harassment prevention

• Do employees receive regular training on anti-discrimination policies?
• Is there a clear reporting procedure for discrimination or harassment incidents?
• Are managers trained on how to handle reports of discrimination or harassment appropriately?

Employee handbook

• Is your employee handbook up to date, accurate, and comprehensive?
• Does it clearly communicate company policies and procedures?
• Are employees provided with a copy of the handbook upon hire and when updates are made? 

Recordkeeping

• Are all necessary employment records maintained accurately and securely?
• Is information kept confidential as required by law?

Benefits administration

• Do you comply with federal regulations for administering benefits such as FMLA, COBRA, and HIPAA?
• Do your benefits offerings meet legal requirements for non-discrimination? 

Tools for HR compliance

The following types of tools may offer built-in compliance features, including reporting functionality that ensures you automatically fulfill your requirements: 

• Payroll: Automate processes like tax calculations, wage garnishments, and timekeeping to stay compliant with regulations.
• HRIS: Use an HRIS to store employee information and generate reports when needed.
• Performance management: Set performance goals and track employee progress in a centralized system to mitigate claims of discrimination or unfair treatment.
• Background check services: Conduct background checks while staying compliant with state and federal laws.
• Compliance monitoring software: This type of software helps you track compliance requirements and provides alerts for upcoming deadlines or changes in regulations.

Stay compliant with Benepass

Benepass is a versatile employee benefits platform that provides employees with a range of customizable benefits they actually want to use and watertight compliance for the employers offering them. Our features include: 

• Compliant pre-tax benefits administration: Full support for plan documentation and summary plan descriptions, ensuring your pre-tax benefits remain compliant with all regulations
• Nondiscrimination testing and form 5500 filing: Automated nondiscrimination testing and seamless filing of Form 5500 ensuring your benefits meet all regulatory standards
• Employee education resources: Pre-designed templates to help you easily communicate essential benefit rules and updates to your employees
• Dedicated employee support team: A specialized team to assist your HR department, ensuring employees receive the guidance they need
• Automated reporting and integrations: Seamless integration with payroll and HRIS systems for automated reporting of imputed income and taxable benefits

Ready to tighten up benefits compliance, providing peace of mind for your benefits admin team and your employees? Request a free Benepass demo today.