How to Avoid These 7 Costly HR Compliance Mistakes

The human resources department can be one of the most expensive departments within an organization. Not because of workplace technology or recruitment costs, but because of mistakes and compliance issues.

According to data, mistakes made by the HR team can cost a business upwards of $200,000 in a court judgment. Avoiding these mistakes is becoming trickier by the day with an ever-changing and complex compliance landscape.

Some of the most common mistakes HR teams make include hiring only based on the interview, not having a structured salary increase plan, and poor worker classification.

Here’s a look into these common mistakes and more that your HR team will likely make and how to avoid them.

The Cost of HR Mistakes

HR mistakes can be expensive from a monetary and talent perspective.

The cost of court settlements continues to soar, putting more financial pressure on HR teams and organizations to remain compliant. The additional costs of insurance and litigation often balloon these expenses. 

For instance, a sexual harassment lawsuit can cost an average of $250,000 in settlement fees. Simple employee recruitment can cost $3,665 per employee, with poor communication and productivity per employee costing an average of $26,000. A discrimination lawsuit costs an average of $125,000. These costs do not include litigation fees.

When it comes to talent, HR mistakes have an equally damaging expense. Data shows that losing a great employee can cost a business 1.5 to 2 times their annual salary. 

That’s why your HR team should invest in better monitoring, training, and HR compliance software to minimize mistakes and costs.

Top HR Mistakes You Should Avoid

Here are some of the top HR mistakes your team can make and how you can avoid them.

Poor Discrimination and Harassment Training

Sexual harassment charges are among the most expensive and rampant within organizations. According to data, about 10% of these cases reach a court settlement. All cases can be reputationally damaging to the organization.

The need for proper training to deal with discrimination and harassment cases cannot be overstated. HR teams need to start training against discrimination and harassment as early as during the onboarding process. This training should continue and be regularly updated throughout the employee’s tenure. 

Some strategies you can use include holding seminars and workshops and posting friendly reminders around the workspace. Your HR team should clarify acceptable and unacceptable behavior and have a zero-tolerance approach to harassment.

Not Handling Employee-Reported Issues

Issues are bound to arise within an organization. The biggest duty of an HR team lies in how they handle them. If your employees are always presenting issues, but you’re sweeping them under the rug, you’re bound to have major legal and talent problems.

Poor handling of employee-reported cases creates hostility and turmoil within the workforce, leading to high employee turnover, not to mention liability and risk. Your HR team should show employees that they care and listen to their issues by sympathizing and empathizing with them and laying out clear procedures to get to a solution in a timely fashion. 

Poor Paper Trail

HR teams can easily get overwhelmed with paperwork that needs to be signed and filed. Most of this paperwork is mandatory for compliance, meaning you must maintain a clear paper trail to avoid legal liabilities.

Lawyers often advise organizations that clear paper trails are crucial to winning a court case such as harassment, discrimination, or termination. Instead of having a heap of files in the office or department store, invest in software that will digitize most of your paperwork and create a document retention policy that adheres to all federal, state, and local laws.

Hiring Based Only on the Interview

Most HR teams are conditioned to think that the interview is the sole most important procedure in the hiring process. However, most candidates are aware of this. Thus, they can be excellent at “selling” what the team needs to hear during an interview. Little effort is put into assessing whether the candidate fits the workplace’s culture.

This oversight often leads to hiring the wrong talent, costing the organization a lot more. Your interview process should be multi-step, incorporating a culture-fit test to ensure the employee is not just the most talented person you could find but also one who fits within the workplace’s culture. 

Not Updating the Employee Handbook

An employee handbook is an essential tool in HR. However, many teams leave their original drafts outdated, despite changes in compliance and other applicable employment laws. 

Not updating your employee handbook is a testament to outdated internal HR policies that can put the business at legal and financial risk.

You should review and update the employee handbook at least once annually and ensure everyone has read and understood the contents. Software, such as VirgilHR, can help you create a compliant handbook and help you keep it up-to-date in real time.

Misclassifying Workers

Some HR teams don’t fully understand the difference between how a “full-time employee” and an “independent contractor” should be appropriately classified. These classifications are imperative for understanding the roles a worker should play and the legal requirements of hiring such a classification of workers.

For instance, federal law may require a different type of recordkeeping based on a worker’s classification. Independent contractors misclassified lose out on benefits, such as healthcare and overtime, leading to wage theft claims in the future.

The IRS and DOL can impose financial penalties on your business if you misclassify your workers. 

Unstructured Salary Increase Plan

Performance reviews and associated salary increases are tricky HR areas to navigate. If employees notice a pattern, they’ll often build expectations over their annual salary increments. There should be well-defined quantitative and qualitative measurements for performance reviews to warrant a salary increase. 

Maintain a Firm Grip on Compliance

HR mistakes need to be minimal. Perceivably small mistakes can be very costly to the business, hurting its financial position and workforce morale. VirgilHR can help keep your HR team compliant and avoid these costly mistakes. Contact us today and learn more about our compliance software solution.