By: Kim Moshlak on August 31st, 2015

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Establishing an HR Compliance Audit Checklist For Your Business

Risk Management

HR compliance is an enormous topic and there is much to be considered when discussing it. There are employment law compliance responsibilities around benefits, 401k plans, federal contracting, record retention, state, and federal regulations…the list is endless.

While the risk of not being in compliance can cost an organization hundreds of thousands of dollars, in some ways, I personally think this is one of the simplest disciplines of Human Resources. As an HR consultant who conducts many Human Resource audits for our clients, my advice to you is to get a process in place and stick with it. Once you have identified and corrected any gaps that exist, it's important that you maintain compliance throughout the year and the following audit checklist can help you do just that.

Establishing Your HR Compliance Audit Checklist

First, of course, you need a roadmap or a human resources audit checklist to keep you on track. To help you get started, let’s break it out by compliance area. It is important to note this is not a comprehensive list of all responsibilities, rather a listing of areas to get you started thinking about core HR compliance areas for consideration.

Employee Benefits Compliance

Benefits brokers (third-party vendors that help you purchase and manage your benefits programs) usually provide you with a compliance checklist to review. For the most part, the brokers take care of most of the Affordable Care Act requirements for you, that said, it is the organization’s responsibility to ensure you aren't missing any requirements. 401k and other retirement plans have annual requirements for compliance which could include:

  • filing a Form 5500 with the IRS
  • an annual plan audit
  • testing the contributions of highly-compensated employees against those who are not considered highly-compensated in terms of the plan
  • distribution of a Summary Plan Description document
  • and regular meetings of the investment committees to ensure compliance and plan management.
Again, a broker can help you ensure you are meeting all of these requirements.
Federal and State Employment Law Compliance

There are many regulations with which an organization must comply. Many of them fall under either the Department of Labor for payment of wages and other labor issues such as the Family Medical Leave Act, or the Internal Revenue Service codes. Regardless of the source, both organizations provide fact sheets to guide you through the requirements.

One of the most commonly misunderstood and mishandled federal regulations is The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA). This program allows employees who separate from an organization to continue benefits coverage for a defined period of time (usually 18 months) through the employer’s benefits plan. We recommend that you consider having a third-party vendor manage this program, as the compliance requirements can be daunting, and failure to comply can be costly. If you choose to manage your COBRA program internally, be sure to validate what and when notices need to be sent.

There are three main types of notices that must be prepared and submitted to employees as they experience changes in the status of their employment; these include:

  1. qualifying events (new hire, separation)
  2. election of coverage, and
  3. denial of benefits notices.

With various state-specific laws, such as payment of wages, maternity leave, sick leave, and others it is recommended that when employees come to you with a concern, you are providing a solution that is in compliance with that particular states' regulations.

Record-Keeping Compliance Programs

Record retention requirements are located on the agency website for each of the major regulating bodies. The three largest (and those that cover the most compliance requirements) are the IRS, DOL, and OSHA. All of these governing bodies have record-keeping requirements which can be found on their websites.

Government Contracting Compliance 

Government contractors have additional HR compliance requirements, depending on the size of the business and the number of awards being issued to the organization. Here is a listing of some of these requirements:

  1. Government contractors are subject to the EEO’s Affirmative Action requirements, which include completing an Affirmative Action plan to attract diverse candidates to an organization. Positions are tracked to determine the qualified pool of candidates for comparison against the selected individuals.
  2. The VETS-100 report must be filed annually for any government contracting organization that has contracts of $100,000.
  3. An EEO-1 report must be filed annually for organizations with 100 or more employees. For government contractors with 50 employees and $50,000 in government contracts, an EEO-1 must be filed.
  4. Government contracting compliance also includes The Drug-Free Workplace Act, which requires employers to provide employees with a policy statement about illegal drug use/possession and to make employees aware of the dangers of drug abuse. It requires employees to notify an employer within five calendar days if he or she has been convicted of a criminal drug violation.
  5. The Service Contract Act, which manages prevailing wage requirements for contractors includes a Health and Welfare (H&W) requirement that must be paid to all non-exempt service employees.

There’s a lot to consider when thinking about compliance. As mentioned before, the key is to know the requirements, establish a process for complying, and most importantly, stick to it!

If you need further resources, consider hiring a third-party consultant to conduct an HR Compliance Assessment to quickly identify what gaps exist to kick-start your road map to mitigate your risk going forward.