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Unraveling the HR Compliance Myth

Vendors' guarantees of complete HR compliance should be met with skepticism.
By: | August 16, 2018 • 3 min read
Topics: HR Technology
HR compliance

I’m not going to call out anyone, but HR vendors often overstate how well they support compliance. Vendors that provide HR systems or outsourcing services do this. It’s sometimes ingrained in their marketing and sales pitches. Some even make assertions of complete compliance. Others are less clear and create a (mis)impression of complete compliance.

But, it’s impossible for any employer to be completely compliant. This is true of an employer attempting to comply only for its own employees, and it’s definitely true of an employer using a vendor for its HR needs. The laws governing HR are too vague, often don’t anticipate the use of technology and often don’t anticipate outsourcing.

HR laws are too vague

Like other types of laws, those governing HR are ambiguous and subject to different interpretations. Here’s a straightforward example: Some employment leave laws specify leave entitlements in days. But “day” isn’t defined. And there usually aren’t relevant regulations or court decisions. So it’s unclear whether the entitlement is based on business or calendar days.

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An employer focused on employees abusing leave will minimize the entitlement by calculating it in calendar days. The employee’s entitlement may then run over a weekend or other days that aren’t worked. But a more risk-adverse employer will calculate it based on business days, and only count days that the employee would have worked.

Also, even regulations intended to clarify employer requirements are often too unclear to be subject to a uniform interpretation. A well-informed lawyer for the employer and a well-informed lawyer for the vendor can have a perfectly cordial and painstaking discussion, and still decide to reach different interpretations.

Keying in a correct number, such as a payroll withholding amount, is possible. Automating forms like the W-4 can make processing and retention much more efficient. But anyone who’s spent some time working with a good employment lawyer knows that it’s often unclear what to do. And the employer’s approach is then necessarily based on risk-tolerances and other considerations.

HR laws don’t anticipate the use of technology

Many HR laws have been on the books for a long time. The Fair Labor Standards Act was enacted in 1938. The Americans with Disabilities Act is considered a modern law, and it was enacted back in 1990. As these laws are amended and new laws are enacted, there is often no mention in them about technology.

Technology can certainly support compliance, but it’s not a panacea. Systems don’t cover every scenario, and some HR administration needs to be done outside of the system. Also, the use of technology often raises questions. For example, the employer is required to distribute a notice. But can the notice be emailed like nearly every other communication the employer sends to employees? This is often unclear, or sometimes the notice may be emailed if specific but still vague requirements are met. Figuring out how to comply with requirements that don’t anticipate technology, by using technology to comply, can be very challenging.

Government agencies are catching up and issuing HR regulations that address technology. But the agencies are often deliberately vague so they don’t have to amend regulations as technology evolves. For example, in its 2006 Internet Applicant Rule, the Office of Federal Contract Compliance Programs didn’t provide a precise definition of “Internet and related electronic data technologies.” The OFCCP didn’t do this because of the “rapid changes in technology in this area.” This made sense, and there certainly have been many changes in the years since. But this lack of direction can leave employers fretful as to whether their technology properly supports compliance.

HR laws don’t anticipate administration by a vendor

As with the use of technology, the use of a vendor often raises questions about compliance. A vendor or its HR system necessarily means more complexity, including about the allocation of tasks and risks between the employer and vendor. In particular, data privacy and security become very important concerns. If a vendor’s system is used, it needs to be current. For example, a vendor’s applicant tracking system may continue to ask questions about criminal or salary history that are now impermissible in some cities and states.

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Compliance is the employer’s responsibility. And because HR laws typically don’t mention the use of a vendor, employers get little comfort from these laws. Their compliance depends on a vendor whose system and services they can influence only to a limited extent. This limited ability to influence is particularly true with SaaS vendors, who make much of their mostly uniform platforms.

Employers have much to gain by using technology and outsourcing HR. I don’t mean to suggest in any way that employers shouldn’t use technology or outsource. But retaining a vendor or implementing a new system doesn’t mean complete compliance. Simply put, it’s not simple—despite what vendors’ salespeople might say. So employers should be wary of the simple sales pitch about compliance.

Employers should ask prospective vendors the specific steps they take to support compliance and understand that they likely need to provide direction to their vendors about compliance. They also might want to seek agreement from their vendors to cover damages or other losses resulting from non-compliance. All in all, they shouldn’t take too much for granted.

Peter Warman is an HR technology consultant at HR Tech Insights LLC in the Chicago area.

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