Factoring HR compliance into your HRMS requirements

Ensuring your business’s compliance with relevant regulations and labor laws may be the most valuable and practical benefit you can realize from your HRMS. After all, failure to comply with legislation can carry strict financial penalties. And then there’s the issue of ensuring your HR services comply with your own internal policies and processes.

How can an HRMS help your business meet compliance regulations?

For internal compliance, just having your processes built into an HRMS means that the automatic notifications are prompting your managers and staff to comply.  For external compliance, HRMS-driven compliance might take the form of prompting input of legally necessary information, production of required reports, or updates as legislation changes.

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To take the U.S. as an example, the following federal laws have provisions which an HRMS might help with:

The Fair Labor Standards Act (FLSA): enforces minimum wages (set at state level) and ensures compensation for employees doing overtime. An HRMS with payroll functionality can avoid costly errors.

The Family and Medical Leave Act (FMLA): covers time off for medical or family reasons for employees who meet certain criteria.

Federal Income Tax: as part of payroll, employers withhold a percentage of employees’ salaries on behalf of the government.

Federal Insurance Contribution Act (FICA): employers must also deduct contributions to Social Security and Medicare from salaries.

Factoring compliance into HRMS selection

Having researched the relevant rules, regulations, and laws that apply to businesses in your territory, the key tactic when selecting an HRMS is to build appropriate questions into your request for proposal process for vendors. Some compliance-related suggestions are:

1. How does your system comply with [insert legislation here]?

This might be several questions depending on how much legislation applies (or which is especially relevant to your business). Examples might be laws that apply to data security or payroll reporting, or real-time tax reporting, or the encryptions requirements of HIPAA (Health Insurance Portability and Accountability Act).

2. What compliance breaches have you had to deal with?

How does the vendor’s system handle issues such as data protection, recordkeeping, and mandatory reporting. Has the system’s support ever failed? If so, how did they address the issue?

3. How do you handle international data protection laws?

If you operate in multiple territories or countries, this is an important question as laws vary from country to country. If your data center is in a different territory to your business, it’s worth checking which national laws apply.

4. How are Sarbanes-Oxley Requirements Supported?

Following the corporate financial scandals in the U.S. in the 1990s, the Sarbanes-Oxley Act (SOX) was passed to improve transparency.

5. Does your data center have SSAE 16 certification? (Cloud only)

For cloud systems, SSAE 16 (Statement on Standards for Attestation Engagements) makes provisions about your financials systems, including the data center that holds your payroll and HR information.

6. Where does the liability lie in the event of non-compliance?

This is a key question – should the worst happen, who’s responsible, you or the vendor? In what circumstances does your duty of care as an employer include your HRMS vendor?