Return on Investment in Labor Law Compliance Programs – Part 1: Your Investment

Investment in Labor Law Compliance Programs Can Offer Returns Beyond Risk Management

The protection from legal or financial exposure is the common reason for investing in compliance. There is a greater return possible in the enablement of your culture, employees and reputation.

In Part 1 of this blog series, we will outline what constitutes investment, and where it can be made. Keep an eye out for Part 2, where we will look at investing for compliance vs. creating a business asset.

What is an Investment?

An investment can include data services, software, location-based services (e.g., poster update programs), professional services (e.g., legal counsel, HR consultant) and dedication of internal resources.

Dedication of internal resources is often overlooked as part of the investment, as the costs already exist. In fact, businesses make a recurring decision to retain an employee as a net new investment with each pay period in revenue generation, operations, or compliance/governance.

The decision to use internal resources should be based upon the opportunity cost of team members working on other business activities (e.g., compensation team tracking changes in law vs. designing compensation plans to attract talent), efficiency and effectiveness to repeatedly achieve outcomes.

The Elements of a Labor Law Compliance Program

Investment in a labor law compliance program is like a shield made of different, but equally important, parts that collectively create an effective program.

Each part of the shield is equally important because it effectively enables the next. For example, it is hard to correct non-compliance when there is not systemized tracking information to enable decisions and actions.

Identification and Tracking – What Applies to You and When It Changes

You begin with identifying the labor laws that apply to your business based upon the jurisdiction and factors like industry, employee size, revenue, etc. This is usually a combination of internal and professional services. Labor law tracking is split into two components – tracking new or updated legislation at the federal, state and local (county and city) levels; and tracking regulatory agencies’ definitions of legislation to be applied.

Policy – It Defines All Your Actions

The once lowly policy is now the roadmap for the entire compliance program. With the explosion of local regulation, once national or statewide policies need to be adjusted for local variations to prevent an incomplete shield.

Communication – The Engine That Makes It Go

Labor laws need to be shared and understood by both those who receive (e.g., employees reviewing posters or notices) and those who provide (e.g., your payroll team knowing when and what rates to update wages). They are the bridge that connects the “understanding of the law” with the “demonstrating compliance to the law.”

Systemize – Process Makes Repeatable Success

With the continuous change in labor laws, incorporating them into your company’s systems and processes is critical to keep pace. The cost to maintain and utilize (e.g., time of internal resources) is a hidden cost to keep an eye on.

Monitoring – You Can Address What You Watch

The systemization of the program is usually what enables your ability to watch for non-compliance, and your policy will define what you watch and at what frequency. For both legal and financial protection, monitoring is one of the most visible points of proof your company is truly engaged in complying with labor laws.

Correction – An Action Is Worth A Thousand Words

At the risk of sounding like a proponent for artificial intelligence, when it comes to correction, you simply want to be able to act when non-compliance is found. If the entire shield is in place, then all the components will provide the information to make decisions that lead to correct actions.

How big is the investment?

Three factors influence the size of the investment: risk tolerance, mechanics and scope.

• Risk Tolerance – the biggest factor in determining your investment. Every company has its own philosophy and where to place value. For any investment to be effective, it needs to align with the risk tolerance level. Otherwise, it will be a compliance program that will likely never be fully implemented or receive adequate support.
• Mechanics – the business factors in determining your investment. The scope of operations, internal expertise, rate of change of laws/regulations within occupied jurisdictions and existing systems will drive the investment needed to meet the risk tolerance level desired.
• Scope – compliance or beyond. Like risk tolerance, the size of the investment will vary based upon whether it’s intended to just meet compliance or generate additional business outcomes.

Return on the investment

Now that we have established the outline for the investment, in Part 2 of this post, we will cover how each element can generate a return.