HR Compliance 101: Know the Rules

The IRS Office suspected a fishing boat owner wasn’t paying proper wages to his deckhand and sent an agent to investigate.
IRS Auditor: “I need a list of your employees and how much you pay them.”
Boat Owner: ” Well, there’s Sam, my deckhand, he’s been with me for several years. I pay him $1,000 a week plus free room and board.
Then there’s the crazy one… He works about 18 hours every day and does about 90% of the work around here.
He makes about $10 per week, pays his own room and board, and I buy him a case of beer every Saturday night so he can cope with life… He also gets to sleep with my wife occasionally.”
IRS Auditor: “That’s the guy I want to talk to – the crazy one.”
Boat Owner: “That would be me. What would you like to know”?

Ask many business owners about HR compliance and most will refer you to their outsourced HR service or their internal HR director/manager down the hall.  Although this is a common practice, owners and corporate chiefs should also know that ultimately this is actually their responsibility and pointing down the hall or hiring a third party wont serve as an excuse when violations happen or pay judgments, penalties or fees when assessed.  As business owners and leaders, we need to know and have a basic understanding of the rules.

Compliance regulations which employers should have a general understanding include the following laws and associated regulations.

  • FLSA The Fair Labor Standard Act of 1938 established a minimum wage, overtime rules, record keeping requirements and youth employment standards.
  • Title VII of the Civil Rights Act of 1964 is a federal law that prohibits employers from discriminating against employees on the basis of sex, race, color, national origin, and religion. It generally applies to employers with 15 or more employees, including federal, state, and local governments.
  • PPACA Patient Protection and Affordable Care Act ‘s employer shared responsibility provision of the Affordable Care Act penalizes employers who either do not offer coverage or do not offer coverage that meets minimum value and affordability standards. These penalties apply to firms with 50 or more full-time equivalent employees.
  • ERISA The Employee Retirement Income Security Act’s purpose is to protect the interests of employees (and their beneficiaries) who are enrolled in employee benefit plans, and to ensure that employees receive the pensions and group-sponsored welfare benefits that have been promised by their employers.
  • FMLA The Family Medical Leave Act of 1993 is a federal law that guarantees certain employees up to 12 workweeks of unpaid leave each year with no threat of job loss. It also requires that employers covered by the law maintain the health benefits for eligible workers just as if they were working.
  • COBRA The Consolidated Omnibus Budget Reconciliation Act generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end.

In addition to Federal compliance concerns, many states, counties and cities are test beds for new employer regulations where smaller governmental legislatures pass increased employee protections and minimums.  For example minimum wages in some California cities are currently set as high as $15/hour which is more than double the federal minimum wage of $7.25.  Some local governments even require additional wages over 8 hours in a given day or increased wages on Saturday and Sunday.  More than 40 cities and counties now have minimum wage rules that exceed the federal minimum requirement.

State and local jurisdictions have also started to pay attention to rules and regulations as a form of union substitution.  For example, there are new local  laws in some cities protecting an employees right to discuss their wages with their peers.  This is noteworthy as this same law is having the effect of preventing employers from asking job applicants about their wage history during the application or job interview process.   Some jurisdictions have even become involved in paid sick leave regulations and other benefits and now require employers to provide benefits beyond the paycheck.  These regulations often increase the burden to track and record employee data which was not required in years past.

And in addition to federal, state, county and city regulations, some employers impose a form of regulatory responsibility on themselves through internal policies.  If a company’s internal  policy is not applied fairly and equally applied across all employees, the employer opens themselves up to civil judgments from employees who were not treated the same as others in the same situation and as a result were financially effected.

Compliance is not a one and done project, it is an ongoing effort.  An employer’s ability to answer compliance questions today does not guarantee that the organization will be in compliance next month.  New and changing regulations can cause mistakes, but so can changes in HR management staff with tribal knowledge and who have been administering compliance from spreadsheets, manual processes and/or  unconnected data systems.   Data must be kept in a reliable system capable of providing forensic data for audits purposes and defending compliance issues when needed.

In this series of articles, HR Compliance 101, we will look at some of these laws in a little more detail.  We will discuss, what questions to ask and where to look for state and local regulation concerns.  We will also look at information systems and best practices that will help you establish a clear compliance audit trail, which should be the basis on which any HR system is built.  And finally, we will look at workflows and procedures to ensure that your company’s policies and procedures are applied consistently and fairly across your organization.


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