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What is Compliance Management? Definition, Types, Significance, Examples
Compliance is like a coin. It has only two sides to it, with your business either being compliant with laws and regulations or not. And here’s the thing—no matter how many times it lands on side you called, the moment it lands on the side you didn’t, it’s more than just bad luck for your compliance management system and team. Non-compliance leads to loss of reputation, drop in employee and candidate engagement and earns fines and penalties. A compliance management solution in HR is key to ensure that none of these things happen.
How Can We Define Compliance Management?
Compliance management in HR is the process of monitoring and assessing processes in HR to ensure that they meet regulatory and statutory norms in addition to also complying with corporate policies and requirements. A Compliance management system and team is mandatory to ensure that the compliance requirements set by center, state and other regulatory bodies are being met by organizations.
What are the Four Types of Compliance?
1. Statutory compliance
The compliance requirements put forth by the state and central governments is called statutory compliance.
2. Regulatory compliance
The requirements for compliance imposed by regulatory bodies are called regulatory compliance.
3. Corporate compliance
The set of policies within a company to meet its internal requirements is called corporate compliance.
4. Union law compliance
The set of rules and regulations put forth by Unions is called union law compliance, and generally every occupation has its own unions.
What is the Significance of Compliance Management?
Compliance management in HR helps ensure that HR policies and processes of the company are aligned with the goals set by the company and the government of the country where the business is located. Ensuring compliance in HR:
- Ensures freedom from fines and penalties.
- Provides Government benefits one can claim.
- Provides guaranteed trust and quality in HR processes.
- Improves employee engagement.
- Improves the reputation of your brand.
Examples of Compliance Management
Some examples of compliance management solutions are mentioned below:
- Complying with data protection laws like the recently enacted laws for data privacy in India in 2024.
- Adhering to the ESIC and EPF related acts, intended to ensure employee benefits.
- Getting all requisite licenses for operating a business.
- The timely filing and paying of all taxes.
- Complying with labor laws on matters of worker recruitment, wage payments, and termination.
- Observing the requirements of relevant professional bodies.
- The need to file annual financial reports or biennial statements, depending on your state’s requirements.
Compliance Management Process
Any compliance management solution consists of three main steps, often referred to as the Triad. They are:
1. Prevent
In this phase, the compliance managers try to prevent any non-compliance from happening, be they based on statutory, regulatory or corporate laws.
2. Detect
In this stage, the compliance officers, committee and the management together work towards identifying the non-compliance in the organization.
3. Respond
In this stage, following the detection of non-compliance, responses are initiated for issues of non-compliance.
How to Create a Compliance Management Program?
Some basic things you must do to create a compliance management program, and none of them are as elementary or as important as those mentioned here. Let us now look at some of them:
1. Identify compliance issues and create a compliance policy
Keeping track of the compliance that applies to you is crucial for your business. This is determined by the industry you work in, the size of the company and the number of employees etc. Make note of the compliance issues you are facing currently and if possible, use software to keep track of them as and when compliance requirements are updated by the Government or regulatory bodies.
2. Educate employees on compliance management
Employees need to know about compliance management and what policies are a must to be adhered to. They must also be empowered enough to spot any gaps in the compliance management solution and bring it to the notice of the higher management, if possible.
3. Conduct a risk assessment for your compliance management program
Are there any future risks you expect in compliance, either due to internal policy changes or external shifts in the market, government policy etc.? What are you planning to do about it and how successful do you think you would be? These are some questions you would need to answer.
4. Divide compliance responsibilities
HR team members need to be educated about compliance, if they are not already aware of it, and with the different types of compliance, what they entail and how to keep track of them using a compliance management system. The responsibility for understanding compliance lies with the members of your HR team.
But how many members would be involved with compliance issues and how much time would they dedicate to compliance issues? These are questions that you as an HR manager or leader must answer.
5. Stay up to date with legal changes
Follow the portal of the Ministry of Labour in your country ardently. Subscribe to an HR newsletter and faithfully visit the compliance section contained in it which would hold some latest updates that you may need to be familiar with.
Most newspapers such as the Economic Times and Financial Times also have some information related to HR and probably even HR compliance. It’s good to read other daily newspapers as well to stay in touch with the updates in labor laws and compliance.
6. Regularly audit your HR policies
As a company you will have several policies in place at the workplace. These include leave policies, policies on diversity, and policies regarding work hours. You need to ensure that these HR policies are compliant with the laws and regulations laid down.
Employees and HR personnel also need to be trained routinely on compliance and compliance management systems and programs and this can happen through assessments or even interactive quizzes and webinars from big names in the compliance field in HR.
7. Utilize HR technology that is compliant
Most HR technology is compliant with the laws and regulations in certain parts of the world but not in others. Make sure that you check with the vendor to see if it is compliant with the laws prevailing in your country of operation.
Some HR technology software and compliance management systems (HRIS or HRMS), as they are called, have inbuilt online compliance management monitoring tools to see if the processes within your company are compliant or not. E-Manage is such a tool. Please contact Alp Consulting to know more.
What are Compliance Management Challenges?
Several things can pose a challenge in any compliance management system or process. Some of these challenges are:
1. Siloed structures
Organizational siloes limit the exchange of information from one department to another, thereby leading to a lack of transparency and clarity which can lead to non-compliance.
2. Lack of integration between systems
Sometimes information cannot flow from one system to another because of lack of integration between the systems.
3. Lack of visibility
A lack of visibility into internal processes can really hamper decision-making on compliance, as it is impossible to say if the company’s HR department is compliant or not.
4. Lack of metrics to analyze
When you cannot agree on the metrics to use to determine compliance, this can be another obstacle for the assessment of compliance.
5. Manual processes
Manual processes can increase the time it takes to respond to compliance issues and address them. It is possible that it will become difficult to prevent compliance issues as well.
Compliance vs. Risk Management
Compliance and risk are closely aligned. Where compliance hopes to prevent any violation of set principles through industry and state-wide regulations, risk hopes to prevent anything that could lead to non-compliance or any other damage to the working processes itself.
Compliance is managed in a reactive way whereas risk management is done in a proactive way. This means that while compliance issues are reported and managed as they arise, risk management happens always in a preventive manner only where attempts are made to mitigate risk as much as possible.
Can a Third-Party HR Company Help You Win at Compliance Management?
Alp Consulting is an HR consulting company with over 25 years of experience handling recruitment, staffing, compliance, payroll and managed services for HR too. We can help you manage not only statutory but regulatory and corporate compliance as well, ensuring that the brand name and quality of work does not suffer. You can count on us to foster a great compliance management program for you.
Frequently Asked Questions
1. What is compliance management in HR?
Compliance management is the process of bringing the HR policies in a company to align with the laws imposed by state and central governments, regulatory bodies and the internal policies of the company itself.
2. What is the function of compliance management?
The main function of compliance management is to avoid non-compliance with any statutory, regulatory or corporate guidance given to the company. This will help to prevent any legal issues and help maintain the organization’s reputation.
3. What is the relationship between HR and compliance management?
HR oversees maintaining employee relationships and productivity and scouts for talent among many other things that involve the workforce. Since labor compliance is a part of this, HR takes over compliance management too, to ensure that the brand reputation stays strong, and employees are happy, productive and well-paid.
4. What are some KPI for HR compliance management?
Compliance management in HR becomes easier when you focus on some key KPIs. Some of the most important KPIs for HR compliance management are percentage of employee trained in HR policies, diversity and inclusion, and salary competitiveness.
