An area of a business that is often overlooked is the Human Resources (HR) function.  Because it is generally not a revenue generating department or function, many business owners do not consider it essential.  Many companies divert the Human Resources responsibilities over to the Accounting department or to an Administrative Assistant.  Additionally, entrepreneurs of smaller businesses may not even consider the Human Resources function necessary, often times thinking that many of the labor laws do not apply to them.  Unfortunately ignorance is not bliss when it comes to dealing with the US Department of Labor or a plaintiff's Labor Attorney looking to file claims on behalf of disgruntled employees.

There are numerous labor laws, Federal, State, and Local, that apply to a great number of employers, even those with as few as one (1) employee.  As you increase the number of employees, you then may find the business falls under different labor laws.  As an example:

    •  businesses with 1 - 14 employees need to comply with the Equal Pay Act of 1963, Fair
       Labor Standards Act of 1938, and the Fair Credit Reporting Act of 1969, just to name

       a few.
    •  businesses with 11 - 14 employees add OSHA Record keeping.
    •  businesses with 15 - 19 employees add Title VII of the Civil Rights Act of 1964, ADA
       (Americans with Disabilities Act), and GINA (Genetic Information Nondiscrimination 

    •  the list needing attention grows as additional employees are added.
    •  Federal Contractors have additional specific laws as well.

Here are some very frightening facts for you:

    •  In 2016, there were 99,503 charges filed with the EEOC.  This number is slightly more
       than the previous year.
    •  The highest number of complaints came from Retaliation (as applied to all statutes)
       42,018 claims or 45.9%.
    •  For Title VII there were 33,082 claims.

    •  Title VII only claims totaled 33,082 or 36.2%

       For numerous case information visit  --

So why all of the violations?  A couple possible answers may be that the high risk associated with non-compliance is overlooked; Employment decisions are often made "in the heat of the moment"; or Employers may be scrambling to get staff on board or don't think of employment law compliance issues when terminating employees.

So what is/may be the solution?  One possible solution is for the business to conduct a compliance audit to focus on how well the business is complying with current federal, state and local employment laws and regulations.  This is one component of a strategy to avoid or lessen the risk of legal and/or regulatory liability that may arise from the business's Human Resources policies and procedures.  The administration of the Human Resources policies and procedures which involve compliance implications include:  disciplinary matters, employee's eligibility to work, interviewing and hiring, job descriptions, payroll management, and termination.  This list is not all inclusive but just a sampling of concern areas.

A couple reasons to do a compliance audit are:

    •  The monetary cost could be exorbitant if issues are ignored or not addressed.
    •  It facilitates legal compliance for the benefit of the company, even if considering
       retirement or sale of the business for liability purposes.
    •  Liability has a two-fold effect:  It may not only remain with the company but can

       follow the owner because he "should have known the rules."
    •  It helps the business avoid costs as well as time away from the business to address
       any issues.

So what might a compliance audit touch on?

Payroll Compliance:

            •  Make sure that time-sheets compare with actual hours worked.
            •  Make sure that time clock rounding is done properly if time clocks are used.
            •  Check to make sure overtime pay calculations are done accurately.
            •  Ensure that classification of employees is done correctly to avoid liability for
               overtime costs, understanding that Wage and Hour violations can go back
               several years.

Record documentation and retention:

            •  Check for issues such as missing or incomplete information on Form I-9's.
            •  Check for incomplete information in personnel files.
            •  Check to ensure health information is kept in a separate file.
            •  Check for inadequate discipline documentation.
            •  Ensure that personnel evaluation information is not inadequate or inaccurate.
            •  Make sure you have accurate and complete data to support any employment

Employee Handbook or Manual:

            •  Make sure it has been updated to reflect the current (and ever changing)
               employment laws.
            •  Determine that employees have been provided a copy of the handbook.  The
               handbook is a communication tool to inform employees of company rules as
               well as provide information on federal, state,  and local employment laws.
            •  Determine that the handbook is reviewed on a regular basis, as well as
               communicated and reviewed with all employees and managers.  Having an
               accurate, updated, and communicated handbook may help avoid possible claims
               and litigation from non-compliance to many of the labor laws.

Policies and Procedures:

            •  Check to ensure that policies and procedures are written, up-to-date,
               communicated, and are followed as stated and not administered on an ad-hoc
            •  Make sure your policies and procedures include disciplinary, performance, and
               termination guidelines.
            •  Make sure all managers are trained on your policies and procedures and use
               them consistently to avoid claims such as wrongful termination.

Position Descriptions:

            •  Ensure they are updated as responsibilities change and as business grows or
               changes in a significant way.
            •  Determine that position descriptions verify specific job responsibilities for
               proper exempt / non-exempt classification purposes (Wage and Hour claims.)
            •  Determine that position descriptions include the essential functions of each
               position to help with decisions about ADA (Americans with Disabilities Act.)
            •  Clarify that position descriptions help outline the details of a position.  This will
               be especially helpful when preparing procedural manual information.

Businesses should consider a compliance audit whenever they have experienced significant growth, have added a significant amount of staff, when there are changes in Senior Management, if it is contemplating the sale of the business, if there is an upcoming merger or acquisition, and when there have been changes in labor Laws or other regulations.


First, determine the scope of the compliance audit.  Once the scope is determined, an audit questionnaire is developed, data is collected, the findings are detailed in writing, and feedback about the results of the audit is provided to the business owner or top management.  A written report with recommendations, prioritized depending on risk level, should be presented during this meeting with management.

Reports should be reviewed with the business owner or senior management and decisions on how to handle each issue should be discussed.  A course of action should be set in place to address the recommendations.  If changes are to be made which affect the employees, they should be communicated along with reasons for the changes.  Good practice is to let employees know that the company takes people issues seriously and will always correct any problem issues and concerns.

Business owners perform audits on the financial records on a regular basis.  Human Resources compliance should be taken just as seriously.  Take the initiative to prevent litigation or legal challenges in the HR area.  Don't let your business become a victim to one of the many statistics mentioned above.