In Canada’s complex regulatory environment, HR compliance is crucial for any organization. However, this comes with its own set of costs, both in terms of managing compliance effectively and the potential consequences of non-compliance. This blog post will explore these costs and why they are important for every Canadian business, as well as how to re-think HR compliance to reduce its overall cost.
The Costs of Compliance
Salaries
Managing HR compliance requires dedicated personnel, tools, and systems. This includes HR professionals who stay updated on federal and provincial employment laws, regulations, and best practices. Many organizations report that they rely on their internal HR team to manage HR compliance. A 2022 HR Trends report found that 63% of HR professionals reported having HR compliance as a job responsibility.
Respondents reported having job responsibilities for many other areas related to HR compliance – 40% reported having Legal as a job responsibility, 52% reported Labour employee relations, 55% Health, safety and wellness, and 59% Strategy. All of these job responsibilities are connected to HR compliance. A significant amount of an HR professional’s job responsibility is directly connected to HR compliance. The minimum time that an organization spends on HR compliance is 20 hours per month (and as much as 1 FTE or more for a large organization).
This has a cost. At the bare minimum, HR professionals are spending 14% of their time on HR compliance (and the average is between 20-35% of their time). That means the cost of managing HR compliance internally is at least 14% of your HR professional’s salary. Based on a salary of $80,000 per year, that cost is $11,200.
We also need to be aware that the workload for HR professionals is increasing. 91% of HR professionals reported an increase in their workload in the previous 12 months. This means that in order to stay on top of HR compliance, organizations must either find a way to reduce the workload, or hire additional HR staff. All of this comes at a cost.
These costs can be reduced with an efficient HR compliance strategy that incorporates technology into your approach.
Legal Consultation and Audit Costs
Regular legal consultation is necessary to ensure that a company’s policies and procedures comply with Canadian laws. This may involve hiring external legal counsel or bringing in experts to conduct compliance audits. External consultation is particularly important if you do not have a comprehensive internal HR compliance program.
Ongoing legal consultations can cost businesses between $200 to $500 per hour or more, depending on the jurisdiction and complexity of the issues at hand. And compliance audits can range from $5,000 to $20,000, depending on the size and complexity of the organization.
Time and Productivity
Ensuring HR compliance often requires significant time investments from HR personnel and managers, which can detract from other business-critical activities. This loss of productivity is an indirect cost that can affect overall business performance.
On average, HR teams spend 20-35% of their time on compliance-related tasks, which could be used for strategic initiatives that directly contribute to business growth. Consider ways to reduce the amount of time your HR team spends on HR compliance and compliance-related tasks. Our Case Studies provide some examples, including how you can reduce the time spent on research by up to 99%.
The Costs of Non-Compliance
Fines and Penalties
One of the most direct and significant costs of non-compliance is the potential for fines and penalties. These can range from relatively minor infractions to substantial financial penalties, depending on the nature of the violation. For example:
- Employment Standards Violations: Fines for violations of employment standards legislation vary across jurisdictions but generally range from $200 to $100,000 for a first offence, depending on the severity of the infraction. Fines are higher for subsequent offences.
- Occupational Health and Safety Violations: Penalties for violations under the Canada Labour Code or provincial equivalents can reach up to $1.5 million for corporations and $500,000 for individuals, depending on the jurisdiction and seriousness of the offense. In some cases, fines may be incurred for each day that an offence continues.
Legal Costs
Non-compliance can also lead to lawsuits or investigations, whether from employees, regulatory agencies, or other stakeholders. And depending on the nature of the issue, there may also be a risk of class action litigation. Defending against these lawsuits can be costly, even if the company is not found liable.
Legal fees for defending against compliance-related lawsuits can easily run into the tens or hundreds of thousands of dollars. Settlements or judgments can be even higher, depending on the case.
In addition to legal fees, there is the cost associated with the time spent by HR professionals and others in the organization in dealing with the lawsuit or investigation. Time will be spent responding to lawyer’s inquiries, reviewing documents, being examined as a witness, and other litigation related activities. There may also be costs associated with implementing changes required by orders that are made as a result of lawsuits or investigations. We’ve written about some of these costs in our posts on class actions, here and here.
Reputation Damage
The indirect costs of non-compliance, such as damage to a company’s reputation, can be even more devastating than direct financial penalties. Negative publicity can lead to a loss of customers, difficulty attracting talent, and long-term harm to the company’s brand.
Studies have shown that companies with a tarnished reputation due to non-compliance issues can experience a 30% drop in customer trust, leading to significant revenue loss. But reputation damage goes further than lost customers. Investors are looking at your reputation as an employer as well. Forbes recently pointed to survey that showed“…47% of investors considered the “S” aspect of ESG [the Social – which includes the treatment of employees] to be the most important when making decisions, overtaking “E” (the Environment) at 35%”.
Employee Turnover
Non-compliance with HR regulations, especially those related to employee rights and workplace safety, can lead to higher turnover rates. This increases recruitment and training costs, as well as the loss of institutional knowledge. We know that most non-compliance with employment legislation is unintentional – it happens because employers do not know their obligations. That means these are costs that can be avoided.
The cost of replacing an employee can range from 50% to 200% of their annual salary, depending on the role. This is a significant cost that can be addressed by ensuring your workplace understands and complies with its legal obligations to its employees.
Key Takeaway: A Necessary Investment
While managing HR compliance can seem costly, it is essential to view it as a necessary investment in the stability and success of your business. The costs of non-compliance far outweigh the expenses of maintaining proper HR practices. By investing in compliance, businesses not only avoid hefty fines and legal battles but also build a positive reputation and foster a stable, productive workforce.
Ultimately, HR compliance should be seen not just as a regulatory requirement but as a strategic advantage that protects your business and sets the foundation for long-term growth. We’ve written about this as well – its time to think about leveraging HR compliance to improve the bottom line.
Let Compliance Works Reduce your HR Compliance Costs
Compliance Works enables employers to significantly reduce their HR compliance costs. Compliance Works’ smart technology scans and compiles Canada’s latest HR laws so our lawyers can turn them into searchable, easy-to-understand legal summaries. Subscribers get updates on new and upcoming legislation changes in as little as 24 hours. Integrated features make it easy to share information and collaborate with your team, checklists make it easy to conduct compliance audits and comparisons make it easy for multi-jurisdiction employers to understand their obligations across provinces. Pricing starts at $110 per month on an annualized basis.
Contact us to Book a Demo or email us at info@complianceworks.ca to learn how a subscription to Compliance Works can help your organization to save time and money, and reduce risk.
