Stay Out of Trouble: Five Tips for HR Compliance

When you’re running a small business, it’s easy to focus on the day-to-day: hiring great people, building your product, serving your customers. But overlooking HR compliance – whether it’s staying current on employment laws or keeping proper records – can lead to costly penalties and legal headaches. 

The good news? You don’t need to be an HR expert to keep your business on track. With the right systems and a little guidance, even the smallest companies can stay compliant and protect themselves from unnecessary risks. Here are five essential HR compliance tips every small business should keep in mind.

1. Know Which Labor Laws Apply to You

HR compliance starts with understanding which federal, state, and local laws apply to your business – and the size of your company matters. For example, the Family and Medical Leave Act (FMLA) applies to businesses with 50 or more employees, while the Fair Labor Standards Act (FLSA), which covers things like minimum wage and overtime pay, applies to most employers regardless of size.

But it’s not just federal laws. States and cities often have their own requirements around sick leave, final paychecks, meal breaks, and more. If you have remote employees working in different states, that can complicate things further. The key is to stay informed – and when in doubt, check in with a trusted HR or legal advisor.

The more you grow, the more rules you'll need to follow. That’s why it pays to understand these thresholds early and make sure your policies and processes evolve alongside your team.

2. Classify Workers Correctly

Misclassifying employees as independent contractors (or vice versa) is one of the most common compliance mistakes small businesses make – and it can be a costly one. If you treat a contractor like an employee, you could be on the hook for back taxes, unpaid overtime, and even penalties.

So how do you know the difference? In general, if you control how, when, and where someone works, they’re probably an employee. Independent contractors, on the other hand, typically set their own schedules, use their own tools, and provide services to multiple clients.

Classification also matters when it comes to exempt vs. non-exempt employees. Exempt employees aren't eligible for overtime under the FLSA, while non-exempt workers are. To qualify as exempt, employees must meet certain criteria related to job duties and salary levels. Getting this wrong can lead to wage and hour claims you don’t want to deal with.

3. Document Everything

When it comes to compliance, documentation is your best defense. Keep thorough records of everything from job applications and offer letters to performance reviews, time-off requests, and disciplinary actions.

Good recordkeeping isn’t just about covering your bases in case of an audit or dispute – it also helps you create a more consistent, transparent, and fair workplace. For example, if an employee asks for a reasonable accommodation or disputes the terms of their termination, having clear records can help you respond confidently and appropriately.

Most employee records should be kept for a set period of time – typically three to seven years, depending on the document. Using a secure, centralized system (like an HR platform) can make this much easier to manage.

4. Set Up a Clearly Defined Remote Work Policy

As more small businesses embrace remote or hybrid teams, it's essential to formalize how remote work fits into your operations—and that starts with a clear policy. A well-crafted remote work policy outlines expectations around work hours, communication, data security, time tracking, and equipment use. It helps prevent confusion, ensures consistency, and protects your business legally.

From an HR compliance standpoint, your policy should also address wage and hour laws for remote employees, especially if they’re non-exempt. That includes tracking hours accurately and ensuring employees take appropriate breaks. You’ll also want to clarify which state’s labor laws apply—typically, it’s the state where the employee physically works, not where your business is based.

Finally, don’t forget to include details about reimbursement for work-related expenses, like internet or phone bills. Several states (like California and Illinois) require employers to cover necessary business expenses, even for remote workers. Taking time to get your remote work policy right now can help avoid misunderstandings or compliance issues down the road. 

5. Don’t Forget About Anti-Discrimination and Harassment Policies 

Every workplace should be safe, respectful, and free from discrimination and harassment – and that starts with having clear, written policies. These should cover your expectations for behavior, the steps employees can take if they experience or witness misconduct, and how complaints will be investigated.

Some states require harassment prevention training, particularly for supervisors, and some mandate that this training happen within a specific timeframe after hiring. Even if your state doesn’t require it, offering regular training and reminders is a smart move. 

Make sure all employees have easy access to your policies and know how to report concerns confidentially. Taking a proactive approach shows your team that you care – and it protects your business from legal risk down the road.

Bonus Tip:  Stay on Top of Required Posters and Notices

Believe it or not, failing to display the right labor law posters in your workplace can lead to fines. Most businesses are required to post federal and state employment law notices in a place where employees can see them, such as a break room or near the time clock.

If your team is remote, the rules still apply. Many states now allow or require digital delivery of these notices, so it’s a good idea to include them in your onboarding materials or employee portal. 

Keep in mind that posters can change whenever laws are updated, which means you’ll need to check in regularly – ideally once a year or whenever you hire in a new state. Some HR solutions will even alert you when new notices are required, saving you the guesswork. 

How Outsourced HR Can Help You Stay Compliant

Even with the best intentions, staying on top of HR compliance can be overwhelming, especially for small businesses without a dedicated HR team. That’s where outsourced HR consultants and services like DianaHR come in. By tapping into expert guidance, you get peace of mind knowing your policies, processes, and paperwork are not only current, but legally sound.

Outsourced providers can help with everything from employee handbooks and onboarding workflows to wage and hour compliance, benefits administration, and remote work policies. They’re also well-versed in the ever-changing state and federal laws that can trip up small business owners, like paid leave requirements or mandatory training regulations.

Best of all, working with a service like DianaHR gives you time back – time to focus on your team, your customers, and growing your business – without the fear of missed deadlines, fines, or legal headaches. It’s like having a built-in HR department, minus the overhead.

Make Compliance Part of Your Everyday Routine

HR compliance isn’t just a one-time checklist – it’s an ongoing part of managing your team and running your business. The more proactive you are, the fewer surprises you’ll face.

The good news? You don’t have to tackle it alone. Whether you use a modern HR platform or partner with an outsourced HR service like DianaHR, the right support can streamline your processes and reduce your risk. From managing documents and tracking time off to navigating wage laws and remote work policies, outsourced HR consultants can serve as a trusted resource, giving you expert guidance without the cost of an in-house hire.

With the right tools and advisors in your corner, you’ll spend less time worrying about compliance and more time building a thriving, people-first business.

FAQs

What are some of the most common HR compliance mistakes small businesses make?

Some of the most common missteps include misclassifying employees (especially contractors vs. employees), failing to keep proper records, overlooking required workplace policies, and not staying current with federal or state labor law updates—particularly around paid leave, overtime, and remote work regulations. 

Do remote businesses still need to follow labor law posting requirements? 

Yes. Even without a physical office, businesses are still required to provide employees with access to federal and state labor law posters. For remote teams, that typically means distributing electronic versions via email or a company intranet/HR portal. 

How can I stay on top of changing state and federal employment laws?

Monitoring compliance updates can be tricky, especially if you have employees in multiple states. Subscribing to HR compliance newsletters, using automated HR software with built-in alerts, or partnering with an outsourced HR provider like DianaHR can help ensure you're aware of changes as they happen. 

When should a small business consider outsourcing HR compliance? 

If you’re spending too much time managing paperwork, worried about making a costly mistake, or simply don’t have the expertise in-house, it may be time to outsource. Many small businesses turn to HR consultants or services like DianaHR for scalable support—whether it's help with onboarding, policy development, or ongoing compliance.