HR compliance: The ultimate guide for 2025

HR compliance is a complex but necessary duty to keep your business legal and your employees safe.

HR compliance isn’t just about following the law—it’s a crucial facet of your business strategy for growth and stability. Noncompliance can lead to severe consequences, including hefty fines, litigation, and a loss of trust. This guide will help you navigate HR compliance and build a solid foundation for your company.

What is HR compliance?

A business achieves HR compliance when it follows labor laws and regulations at the federal, state, and local level. A dedicated HR team or knowledgeable HR employee is crucial for managing adherence to these rules to avoid legal risks, fines, and damage to your company’s reputation.

Over time, the complexity of HR compliance has increased, making it even more important to have a strong workplace safety strategy in place. 

Biggest HR compliance issues

HR leaders must navigate various compliance challenges so their companies adhere to federal, state, and local labor laws. Here are some of the most common HR compliance issues companies face:

Employee misclassification

Misclassifying employees as independent contractors can lead to legal and financial repercussions. Misclassified employees may be deprived of benefits and protections they’re entitled to, and the company could face fines and back taxes. Ensure workers are correctly classified based on their job duties and relationship with the company.

Discriminatory hiring practices

Discriminatory job listings and interview questions can violate anti-discrimination laws such as the Civil Rights Act and the Americans with Disabilities Act. Job listings should be free of biased language, and interview questions should focus solely on an applicant’s qualifications and experience, avoiding any inquiries related to protected classes.

Inaccurate payroll and tax payments

Errors in payroll processing, such as incorrect wage calculations or improper tax withholdings, can result in noncompliance with the Fair Labor Standards Act (FLSA) and state wage laws. Companies must accurately classify exempt and nonexempt employees and comply with federal and state wage requirements.

Unsecured documents and processes

Failing to protect employees’ personal and health information can lead to breaches of confidentiality and legal penalties. Employers must implement stringent measures to secure physical and digital records and ensure only authorized personnel have access. HR management software can streamline the secure storage and handling of sensitive data.

Improper onboarding or orientation

Incomplete or inadequate onboarding processes can result in noncompliance with employment eligibility verification and training requirements. U.S. employers must ensure new hires complete Form I-9 and provide appropriate documentation. Comprehensive onboarding programs should also include training on company policies and legal requirements.

Illegal background checks

Companies that conduct background checks without adhering to federal and state regulations expose themselves to legal risks. Employers must obtain proper consent, provide necessary disclosures, and avoid using background information in a discriminatory manner. Compliance with the Fair Credit Reporting Act (FCRA) and state laws is crucial.

Why is HR compliance important?

As your business grows, so do the risks and complexities. Navigating regulations like OSHA standards, remote worker laws, and international tax compliance can be challenging. A detailed HR compliance policy helps you avoid costly legal penalties and supports a fair and safe workplace. Here’s why HR compliance is essential:

• Mitigates legal risks: A robust HR policy protects your business from fines and lawsuits by adhering to employment laws.
• Promotes safety: An HR-compliant business promotes workplace safety by following all applicable safety regulations.
• Supports fair practices: HR policies foster a healthy workplace when they comply with anti-discrimination and labor laws.
• Enhances risk management: HR has a duty to manage risks related to workers’ compensation and other liabilities.
• Avoids financial penalties: A carefully managed policy prevents costly penalties that burden your business.
• Maintains a business’s reputation: Compliance in HR helps your company build a reputation for treating employees fairly and following the law

HR compliance best practices

HR compliance requires a proactive approach to align with internal policies and external labor laws. Here are three best practices to help you stay compliant:

Conduct a compliance audit

Regular audits identify and address gaps in HR policies and procedures. Review all HR processes, documentation, and employee records to verify compliance with applicable laws. This proactive step helps detect and rectify issues before they escalate.

Stay current with new regulations

Federal, state, and local labor regulations frequently change. HR leaders must stay informed about these changes through trusted resources such as government websites, industry publications, and legal advisories. Regularly attend HR seminars, webinars, and training sessions to keep your knowledge current and promptly adjust policies.

Practice policy documentation

Proper documentation of all HR policies and practices is crucial for compliance. Ensure that all employees have access to these documents and new hires receive comprehensive orientation on their rights and responsibilities. HR compliance services can keep your documentation thorough and up-to-date, reducing the risk of misunderstandings.

6 HR compliance laws employers should know

Employers must be familiar with various laws and regulations to ensure HR compliance. Here are six fundamental HR laws and regulations in the United States:

1. Fair Labor Standards Act (FLSA)

FLSA governs minimum wage, overtime pay, and the classification of exempt and nonexempt employees. Employers must ensure accurate payroll and working hour records to comply with FLSA requirements.

2. Family and Medical Leave Act (FMLA)

The FMLA guarantees eligible employees up to 12 weeks of unpaid leave for specific family and medical reasons while maintaining job protection. Employers should understand the FMLA’s eligibility criteria and leave policies.

3. Occupational Safety and Health Act (OSHA)

This law outlines workplace safety and health standards. Employers must provide a safe work environment, comply with OSHA regulations, and report workplace injuries and illnesses.

4. Title VII of the Civil Rights Act

This landmark legislation prohibits employment discrimination based on race, color, religion, sex, or national origin. Employers must implement nondiscriminatory hiring practices and maintain a workplace free from harassment and discrimination.

5. Affordable Care Act (ACA)

The ACA requires employers to provide health insurance to employees and report coverage details to the IRS. Employers must fulfill coverage requirements and reporting procedures under the ACA.

6. Americans with Disabilities Act (ADA)

The ADA prohibits discrimination against individuals with disabilities and requires employers to provide reasonable accommodations. Employers’ policies and workplace practices must comply with ADA standards.

HR compliance checklist

Consider the following essential aspects when creating an HR compliance policy:

• Onboarding: A comprehensive onboarding process involves the completion of all necessary documentation, orientation on company policies, and training on compliance requirements.
• Employee Handbook: Develop a detailed employee handbook outlining company policies, procedures, employee rights, and responsibilities. Make it easily accessible to all employees.
• Benefits: Clearly define and communicate employees’ total compensation. Benefits may include health insurance, retirement plans, and leave policies. Ensure compliance with applicable laws, such as the Affordable Care Act (ACA).
• Compensation: Establish fair and compliant compensation practices, including accurate classification of employees, adherence to minimum wage laws, and proper overtime pay calculations.
• HIPAA and OSHA Regulations: Implement policies to comply with the Health Insurance Portability and Accountability Act (HIPAA) for protecting health information and the Occupational Safety and Health Administration (OSHA) standards for workplace safety.
• Contracts: Draft and maintain compliant employment contracts, including terms for fixed-term, permanent, and contractor agreements. Regularly review and update all contracts to comply with changing laws.

Ensure compliance across 180+ countries 

Your HR compliance checklist may seem long, but you don’t have to tackle it alone. Oyster handles HR compliance, legalities, and localized benefits in 180+ countries to help you operate smoothly.

Get comprehensive HR compliance throughout the employment lifecycle with Oyster’s intelligent, automated service. Our global employment platform streamlines HR tasks and provides locally and globally compliant payroll and total rewards. Explore how Oyster can help your business stay compliant worldwide.

About Oyster‍

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.