Three Ways to Help Mitigate HR Compliance Risk

Some risks are great. Some are small. Some known; some unknown. From competitive risk, business operations, cyberattacks, supply chain disruptions, economic downturns and failure to meet regulatory requirements, operating a business is hard.

And, of all the various regulatory requirements you must contend with, HR compliance is often one of the most difficult to navigate. Whether you realize it or not, the minute you start hiring talent, you can be exposed to potential HR compliance risks to your business.
HR compliance can be particularly challenging for small and medium-size businesses (SMBs) due to several reasons, each with its own concerns:

• Complex regulations: HR compliance involves adhering to a web of federal, state and local requirements. If you have employees in more than one state, you’ll discover multi-state compliance is exponentially more difficult due to varying employment-related rules and requirements from state to state, including different payroll tax compliance, employee benefits, minimum wage and pay transparency, and payroll reporting requirements, to name just a few. Even within the same state, different localities can have different employment-related rules and requirements that organizations must comply with, such as paid sick and safe leave laws. 

  • Evolving changes: Not only can employment-related rules and requirements be complex, but they can also change, evolve, and require regular updates to HR policies, practices and processes. With lean teams and limited budgets, it’s nearly impossible for SMBs to stay informed about changes and new requirements and adjust their HR practices accordingly.

  • Potential exposure for noncompliance: A business may face potential fines, lawsuits or reputational harm for noncompliance, but SMBs may face higher relative risks due to their smaller scale. A large fine could have a devastating impact on a small business.
• Employee growth and turnover: HR compliance is particularly demanding when it comes to employee growth and turnover because there is an abundance of employment-related requirements associated with these areas, such as:

  • Anti-discrimination, background checks, pay transparency and equal pay laws;

  • New hire requirements, including all necessary forms (like Forms I-9 and W-4) must be correctly and timely filled out and filed correctly;
  • Explaining benefit options and ensuring compliance with health insurance laws (like the Affordable Care Act). In addition, during employee separation, benefits continuation or COBRA compliance is critical;
  • Determining whether a worker is an employee or independent contractor accurately not  only has direct impacts on compliance with employment-related requirements but can also have less foreseeable impacts such as compliance with tax laws (such as withholding);
  • Properly handling terminations involves compliance with various federal, state and local-specific rules, such as the timing for payment of final wages, payout of earned time off hours, proper documentation to be provided to the terminating employee and record keeping.
  • Compliance training, whether required or best practice (such as safety or anti-harassment training), along with proper record keeping for both new and existing staff is often a challenge.

Given the rate of change and the sheer number of multi-state rules and requirements to navigate, it’s not realistic for many, if not most, SMBs to maintain awareness of all the compliance requirements.

Perhaps it’s obvious that the first step in mitigating HR compliance risk is to maintain compliant employment practices. While this won’t prevent all employment practice liability (EPL) claims, it can dramatically reduce them and help defend any claims that might arise.

Building an organizational culture that prioritizes compliance is fundamental in preventing EPL claims. When employees perceive that rules are followed consistently, it fosters trust and stability. Encouraging  adherence to rules and regulations sets a positive example for the organization to remain compliant with federal, state, and local employment requirements.

However, keeping up with ever-changing employment rules and requirements is complex and time consuming, especially for SMBs with limited resources and multi-state employees. And penalties for non-compliance can be severe—they can include hefty fines, lawsuits and reputational harm. Mitigating these risks and potential penalties must be a priority.

Because compliance is essential for long-term success, it’s critical for SMBs to have a realistic assessment of their organization’s HR compliance. This makes it possible for SMBs to navigate these complexities, maintain trust, and operate efficiently. When in doubt, seek legal advice or consult with HR professionals to navigate complex compliance  concerns. There are many types of HR professionals that provide HR compliance support, and these include:

• Professional employer organizations (PEOs) are specialized HR service providers often used by SMBs. They help handle payroll processing, benefits administration, compliance, risk mitigation, and other HR functions.
• HR consultants offer tailored best practice and expertise on areas such as HR policiesnand HR compliance. They can help SMBs navigate HR complexities so they canimplement effective HR strategies.
• Labor and employment attorneys specialize in labor and employment law and can providenlegal guidance, draft policies, and represent SMBs in employment-related legal matters related to HR compliance.
• HR outsourcing firms often offer specialized outsourced HR services, including payroll processing, benefits administration, recruitment tools and compliance support. They can help handle tasks like assisting with policy review, training, and audits.
• Certified HR professionals (e.g., SHRM-CP or PHR) can provide expertise in HR compliance, employee relations, and HR processes.

You can easily create an employee handbook with this free template from TriNet.

There are also many things you can do to help reduce the risk of HR non-compliance without external help, including:

• Policies: Develop and enforce non-discrimination, earned time off, and leave of absence policies, as well as many others, which align with federal, state and local laws, as well as compensation policies to help ensure fairness and compliance with wage laws.
• Employee handbook: Create a comprehensive employee handbook that outlines policies and procedures to be applied consistently across the organization. By clearly documenting policies, employees understand their rights, responsibilities and expectations while detailing legal requirements (e.g., wage and hour laws, anti-retaliation rules). Consistency in applying these policies reduces misunderstandings and potential violations. When disputes arise, a well-documented handbook provides a reference point. It helps resolve conflicts and minimizes the risk of legal action.
• Compliance training: Even if it is not mandated in a particular jurisdiction, require employees to complete regular compliance training— not just at hire—so they understand legal requirements and company policies. Training helps prevent unintentional violations as employees become aware of policies, reducing the risk of non-compliance and potential legal issues. By understanding compliance and anti-discrimination principles, employees are empowered so they can recognize and address issues proactively. It also fosters
• Documentation: Document all HR processes in an easily accessible and searchable format (consider using tools like a shared folder).
• Regular audits: Conduct internal audits to help identify and address potential HR compliance issues concerns proactively.
• Newsletters and workshops: Stay informed by participating in expert-led webinars and subscribing to newsletters from HR organizations like the Society for Human Resource Management (SHRM).

Employment-related claims are a potential hazard for any company. These are claims brought by employees, former employees or potential employees that allege discrimination, harassment, retaliation, wrongful termination and other employment-related issues. More than one in four private companies

reported experiencing an employment practices liability (EPL) loss in the last three years.

Regardless of the validity of the claims, they are still costly.

Even if you do everything right and are fully compliant, you can still be party to an EPL claim, as not all complaints are actually a violation or will result in a fine. For example, in 2023, the Equal Employment Opportunity Commission investigated more than 81,000 claims related to workplace rights violations, but only 10% resulted in forma in formal charges being brought against employers.

In a 2021 University of Massachusetts Amherst study of 683,419 discrimination cases filed with the U.S. Equal Employment Opportunity Commission from 2012 to 2016—the most recent data available, found workers received monetary awards in only 12% of the cases.

Even if unfounded and results in no claims, such complaints take time and energy away from your company’s core functions. Defending a claim requires understanding the legal nuances and building an effective case.

Proactive measures such as building a work environment of trust, inclusion and equity can help prevent unfounded claims and maintain a positive workplace environment. But when they do occur, handling employment-related claims can be challenging. Here are several strategies and services that may help:

• Educate employees: Inform employees on proper procedures for filing a grievance. This can include encouraging informal discussions with HR to explore resolutions before a formal claim is made.
• HR specialists: Employee relations specialists trained to handle workplace complaints can identify discrepancies and assess the legitimacy of claims. Some HR specialists provide active support of claims and pre-negotiated fees and caps with external counsel to help identify likely unfounded claims, facilitate claims process and help control costs.
• Review documentation: Review employee records and double-check investigative notes for inconsistencies in the employee’s complaint. Seek a second opinion from an HR colleague or manager.

TriNet offers several resources that help companies mitigate HR compliance risks and employment-related claims. Our HR team offers a wide range of education and access to best practices to limit your potential exposure to an EPL claim. This includes guidance that draws from our extensive experience, as well as robust self-service resources that include access to an online reference library. What this means for your company:

• Gain peace of mind and count on our compliance experts for specialized guidance on employment-related rules and requirements to help you prevent risk.
• Comply with confidence by letting us help you with compliance support including required filings related to payroll and benefits.
• Keeping up with ever-changing employment rules and requirements is complex and time-consuming. Rely on our experts to help assist you.
• Avoid claims through guidance regarding best practices for performance, discipline and terminations.
• Access to a legal hotline for your employment law questions. In the event of a claim, TriNet not only helps limit your exposure with access to EPLI coverage, but it also has an internal team of claims experts to help manage the process for you. 

TriNet’s claims team will:

• Coordinate insurance coverage and outside counsel appointed by TriNet’s EPLI carrier, when necessary
• Manage case progress and resolution, including discovery and settlement assistance
• Review invoices and direct payments to be made to the appropriate designee
• Be available to answer any questions you have throughout the claims process

Learn more about how TriNet can help mitigate risks at www.trinet.com/hr-services/risk-mitigation