When businesses think of compliance, legal obligations often come to mind: adherence to labor laws, environmental regulations, financial reporting requirements, and a host of other mandates. While these regulations are necessary to avoid penalties, lawsuits, and reputational harm, the true potential of compliance extends far beyond simply meeting legal requirements.
A comprehensive approach to compliance can drive employee satisfaction, enhance risk management, and contribute to overall business success—including helping the bottom-line. In fact, businesses that integrate compliance into their core strategies often gain a competitive advantage in their industries.
For HR, compliance is often seen as an administrative burden, but in reality, it’s an investment that can pay significant dividends in employee recruitment, satisfaction, and engagement.
A company’s commitment to creating a compliant work environment, which includes following labor laws, health and safety regulations, and anti-discrimination policies, sends a clear message to employees: their well-being matters. That message has several beneficial implications, starting with an easier ability to recruit higher-value talent.
“Adeptly navigating the legal landscape, particularly when it comes to workplace equality, can help you stay ahead of the competition by offering a more attractive place to work,” argues staffing firm Randstad USA. “Staying on top of labor laws can give you a competitive edge.”
Then, employees are more likely to be engaged and productive when they know their employer is committed to providing a safe, respectful, and fair workplace. For example, adhering to workplace safety regulations not only reduces accidents and injuries but also boosts employee morale. A safer workplace fosters trust, which leads to higher retention rates and lower absenteeism.
In fact, one study looked at employees’ self-reports of employer business compliance and found it to be a “significant predictor” of organizational commitment and intention to stay. “Employers can expect, as the results suggest, an increase in conscientiousness and involvement as well as commitment among employees and a decrease in employee turnover,” the researchers write.
At its core, compliance serves as a vital component of risk management. To start, there’s the sheer cost involved. U.S. businesses spend $10,000 per employee on average dealing with regulatory issues already, and non-compliance costs 2.71 times as much as compliance ($14.82 million vs. $5.47 million on average), per one study.
Complicating matters, there’s some evidence that labor law-related compliance violations seem to be on the rise, making the issue even more pressing. “More class actions are being filed and are being settled at higher numbers than before,” Gerald Maatman, an attorney with law firm Duane Morris in Chicago, told the Society for Human Resource Management. “Companies are entering a new era of higher risks and higher stakes.”
For example, court rulings on motions for class certification increased by 35% just from 2022 to 2023, with the most common reason being alleged violations of the Fair Labor Standards Act (FLSA), SHRM reports.
Effective compliance solutions can identify and mitigate these risks before they escalate. By viewing compliance as a proactive measure rather than a reactive obligation, businesses can minimize their exposure to risks, safeguard their reputations, maintain operational continuity, and reduce/avoid unnecessary costs. This approach enables companies to be better prepared for potential crises and market shifts.
Beyond risk mitigation, compliance can drive overall business success and serve as a strategic asset in competitive markets. A company that is transparent about its compliance with consumer protection laws, data privacy regulations, and ethical business practices signals to customers that it prioritizes their safety and satisfaction.
This trust, in turn, can translate into a loyal customer base, repeat business, and positive word-of-mouth referrals. “[It] builds customer confidence, which in turn increases brand loyalty,” says Kathleen Calabro, Global Product Leader for advisory group EY Nexus in reference to the impact of compliance on customers.
SCORE, the nation’s largest network of volunteer, expert business mentors, agrees: “Compliance fosters a trustworthy business environment, enhancing both reputation and customer trust. Companies adhering to legal standards are perceived as reliable and ethical. Such perception boosts customer loyalty and can attract new clients.”
In fact, some companies can use compliance initiatives to bring about bottom-line benefits. One example: Preem, a Swedish fuel company that implemented a new data tracking platform to comply with European Union-mandated biofuel goals. The icing on the cake: the new platform also enabled greater visibility into operations that powered better business decisions, including optimizing the economic value of their use of biofuels. In short, compliance initiatives aren’t just a sunk cost; they are often investments that can return unexpected bottom-line dividends and can be purposed to serve multiple goals at once.
While business compliance is often seen as a legal necessity, its broader implications offer businesses significant opportunities for growth, risk management, and employee engagement. By prioritizing compliance, businesses can not only avoid legal and financial penalties but also foster a positive work environment, build stronger relationships with customers, and gain a competitive edge in the marketplace.
But how can organizations—especially resource-strapped smaller firms—ensure compliance in a way that drives these value-added benefits?
First, training and education are key to building a culture of compliance. Regular training sessions that explain the importance of compliance, the specific regulations relevant to the business, and the consequences of non-compliance can help employees understand their role in upholding compliance standards. This training should be comprehensive, from big-picture compliance issues down to specific segments of the employee experience, like employee benefits compliance.
Second, outsourcing can help. Over a third of businesses outsource some or all HR compliance functionality to vendors like PEOs that offer extensive, dedicated, and continuously updated knowledge of state and federal labor laws. Ultimately, third-party compliance experts can help businesses focus on their core operations, knowing that their HR processes are well-executed, compliant, and attuned to the ever-changing legal landscape.
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