Top HR Compliance Risks Employers Face and How to Mitigate Them
Top HR Compliance Risks Employers Face and How to Mitigate Them
By Cheryl Petruk
HR compliance in Canada is complex. Employers must navigate both provincial and federal legislation, evolving workplace standards, and increasing employee expectations. If your HR policies are not up to date, you may expose yourself to compliance risks.
Some compliance issues are more common than others. In this discussion, we will cover the top HR compliance risks for Canadian employers and provide advice on how to mitigate them.
Here’s what we’ll cover in this blog:
- What are the biggest HR compliance risks for employers?
- Top questions employers ask about HR compliance risks
- When should an employer bring in HR consulting support?
What are the biggest HR compliance risks for employers?
Canadian employers face a variety of HR compliance risks, including violating employment laws, misclassifying employees, mishandling terminations, failing to protect sensitive employee data, discrimination or harassment, breaching health and safety regulations, and maintaining poor or outdated HR documentation.
Most compliance issues arise not from intent but from outdated policies or insufficient documentation. Here are the most common HR compliance risks, and how to mitigate them:
1. Violating Provincial or Federal Employment Laws
Canadian employers must comply with legislation such as the Employment Standards Act, 2000, the Canada Labour Code, and applicable human rights statutes. These laws govern minimum wage, overtime, vacation pay, leaves of absence, termination entitlements, and more.
Compliance risk often arises when employers fail to keep up with legislation. This leads to outdated policies, managers are unaware of legislative changes, and employers are working using the wrong standards. Even small errors can trigger complaints, audits, penalties, and reputational damage.
How to mitigate risk:
Conduct an
annual HR compliance audit to ensure your policies, employment contracts, and payroll practices align with the legislation in each jurisdiction where you operate.
2. Employee Misclassification
Misclassifying workers as independent contractors instead of employees is a common and costly mistake. The distinction affects tax obligations, benefits, vacation pay, termination entitlements, and statutory protections.
If a contractor is later deemed to be an employee, employers may owe back pay, vacation pay, CPP/EI contributions, and termination pay.
How to mitigate risk:
Before hiring contractors, review the working relationship against legal classification tests. When in doubt, seek legal or HR advice before finalizing the agreement.
Related information: Independent Contractor vs Employee: What's the Difference?
3. Improper Dismissal
Termination is one of the highest-risk areas in HR. Employers who fail to provide proper notice or pay in lieu can face wrongful dismissal claims.
Risk increases when termination clauses in contracts are unenforceable, dismissals are rushed or poorly documented, or when employers claim “just cause” without sufficient evidence.
How to mitigate risk:
Ensure employment agreements contain well-drafted, legally compliant termination clauses and consult HR or legal counsel before proceeding with terminations.
4. Data Security Breaches
HR departments manage highly sensitive employee data, including SIN numbers, banking information, medical records, and performance documentation. A data breach can result in legal liability, privacy commissioner investigations, and reputational harm. Remote work, cloud-based systems, and cyber threats have increased the risk significantly.
How to mitigate risk:
Limit access to employee data on a need-to-know basis and implement strong cybersecurity practices, including multi-factor authentication and regular system audits.
5. Discrimination and Harassment
Employers have a legal duty to provide a workplace free from discrimination and harassment under provincial and federal human rights legislation. Complaints may involve protected grounds such as race, gender, disability, age, religion, or family status.
Risk arises when complaints are ignored or minimized, managers lack training, investigations are poorly handled, and when workplace culture tolerates inappropriate conduct.
How to mitigate risk:
Implement clear anti-harassment and anti-discrimination policies, train all managers annually, and respond to complaints promptly with a fair, documented investigation process.
Related information: When Do I Start a Workplace Harassment Investigation?
6. Violating Health and Safety Regulations
Under occupational health and safety legislation, employers have a legal duty to take every reasonable precaution to protect workers. This includes physical safety, workplace violence prevention, and increasingly, psychological safety.
Non-compliance can result in fines, prosecution and workers’ compensation claims.
How to mitigate risk:
Conduct regular workplace risk assessments and ensure managers understand their responsibilities under applicable occupational health and safety laws.
7. Missing or Poor HR Documentation and Policies
Many compliance issues stem not from intent, but from poor documentation. Without clear policies, signed employment agreements, performance records, and investigation notes, employers have little protection in disputes.
Gaps often include outdated employee handbooks, missing termination clauses, and inconsistent performance documentation.
How to mitigate risk:
Maintain up-to-date employment contracts and policies, and document key employment decisions consistently and objectively.
Top questions employers ask about HR compliance risks
Here are some additional questions employers commonly ask about HR compliance risks:
Why is HR compliance considered a risk management issue?
Think of HR compliance as a safety net for a company. It isn't just about paperwork. Compliance is about protecting the business from a variety of avoidable issues.
Staying compliant means following laws regarding taxes, safety, and fair treatment. If a company ignores these rules, they face major legal, financial, and operational threats:
Instead of seeing HR as an administrative department, progressive companies see it as a strategic department. By catching small mistakes early, a company avoids a massive crisis later. Ultimately, following the rules builds trust with employees and creates a stable foundation for the business to grow.
What happens if an employer is not HR compliant?
Failing to comply with HR regulations can lead to serious legal disputes, costly financial penalties, and reputational damage.
Compliance protects employees by promoting fair treatment, preventing discrimination and harassment, safeguarding benefits, and maintaining a safe work environment, all of which build trust and strengthen workplace culture. It also reduces the likelihood of legal conflicts, supports operational efficiency through clear policies and structure, and helps organizations stay adaptable in a constantly evolving regulatory landscape.
Ultimately, strong HR compliance protects both the business and its people.
How can employers reduce HR compliance risk?
Employers can mitigate compliance risks by taking a proactive approach to HR management. You need to stay on top of compliance rules and legislation.
You can reduce risk by conducting regular compliance audits, using well-drafted employment agreements, training managers, proactively addressing workplace complaints, and maintaining clear, consistent documentation across all HR processes.
What HR policies create the most compliance risk?
While all types of HR documentation and policies create some level of compliance risk, termination and worker classification tend to pose the biggest threat. These policies, when done incorrectly, open the door for significant financial and legal repercussions.
How often should HR policies be reviewed for compliance?
It’s recommended that all HR policies be reviewed annually. Policies should be reviewed immediately if there is a legislative change that could impact your HR documentation or processes. Some industries may require more frequent reviews.
When should an employer bring in HR consulting support?
There is never a bad time to hire HR consultants to assist your business with compliance or other HR functions.
It's common for companies to hire HR consultants when they lack knowledge or capacity internally. Companies outsource HR when they don't require a full HR department, or they bring them in for special projects or to manage a specific function.
Get flexible and cost-effective HR Services from AugmentHR. We deliver the expert guidance and hands-on
HR Services support you need so you can stay focused on your business.
Cheryl Petruk has over 25 years of progressive experience in human resources and organizational leadership. Cheryl provides strategic guidance to clients across various industries, offering tailored solutions in HR policy development, recruitment and retention strategies, employee relations, organizational design, and leadership development.
