State and Federal HR Compliance Audits: What Are They?

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Have you ever wondered what it is like to have a state or federal worker stop into your organization and want to do an audit of your human resources department? Some of you may have experienced this. It’s nail-biting and worth a deep sweat if it happens to you, especially if you are not prepared and up to standards on human resources. Let’s talk on ways to be prepared for an audit.

An audit in Minnesota (state or federal) requires you, as the business owner, to understand the state and federal laws and regulations. At Extraordinary Workforce, we teach you that audits are critical to ensure your business is compliant with the latest legal standards and avoid fines or penalties. Here is a comprehensive list of laws you need to make sure you are compliant in: 

Federal Employment Laws

Federal laws apply to all employers across the U.S. and are enforced by agencies such as the U.S. Department of Labor (DOL), the Equal Employment Opportunity Commission (EEOC), and others. Key federal laws that should be covered in an audit include:

A. Fair Labor Standards Act (FLSA)

Governs minimum wage, overtime pay, record-keeping, and child labor standards.

Minnesota employers must ensure they meet the federal minimum wage standards ($7.25 per hour), though Minnesota’s state wage rates are higher.

B. Family and Medical Leave Act (FMLA)

Entitles eligible employees to up to 12 weeks of unpaid leave for certain family and medical reasons.

Employers with 50 or more employees must comply with FMLA.

C. Americans with Disabilities Act (ADA)

Prohibits discrimination against individuals with disabilities in employment.

Employers must ensure reasonable accommodations are provided to employees with disabilities.

D. Equal Employment Opportunity (EEO) Laws

Enforces anti-discrimination laws related to race, color, religion, sex, national origin, age, disability, or genetic information.

Requires equal pay and protection from retaliation for employees exercising their legal rights.

E. Occupational Safety and Health Act (OSHA)

Governs workplace safety and health standards.

OSHA compliance audits review workplace safety programs, hazard communication, emergency response protocols, and injury reporting.

F. Employee Retirement Income Security Act (ERISA)

Governs employee benefit plans, including retirement plans and health insurance.

Minnesota State Employment Laws

Minnesota’s labor laws may be stricter than federal regulations in some areas. Employers in Minnesota must adhere to both state and federal regulations, following the more stringent rules where applicable.

A. Minnesota Fair Labor Standards Act (MFLSA)

Sets state minimum wage, overtime, and working conditions.

The current minimum wage in Minnesota (as of 2024) is:

  • Large employers (annual revenue of $500,000 or more): $10.33 per hour
  • Small employers (annual revenue of less than $500,000): $8.42 per hour

B. Minnesota Human Rights Act (MHRA)

Prohibits discrimination in employment based on race, color, creed, religion, national origin, sex, marital status, disability, public assistance status, age, sexual orientation, and familial status.

The law applies to employers with one or more employees.

C. Minnesota Wage Theft Law

Enforces stricter wage and hour record-keeping requirements.

Employers must provide employees with written notices of pay rates, hours worked, and wages earned, including any deductions.

D. Minnesota Sick and Safe Leave Laws

Requires certain employers to provide sick leave to employees for medical reasons, care for a family member, or reasons related to domestic violence, sexual assault, or stalking.

E. Minnesota Pregnancy and Parenting Leave Act

Requires employers to provide up to 12 weeks of unpaid leave for childbirth, adoption, or pregnancy-related conditions.

Employers with 21 or more employees must comply.

F. Minnesota Ban the Box Law

Prohibits employers from inquiring into a job applicant’s criminal history before the applicant has been selected for an interview.

Applies to both public and private employers.

G. Minnesota Drug and Alcohol Testing in the Workplace Act

Outlines specific rules employers must follow if they implement drug and alcohol testing, including when tests can be conducted and how results are handled.

H. Minnesota Whistleblower Act

Protects employees who report violations of law or refuse to engage in illegal activity from retaliation by their employer.

I. Minnesota Parental Leave and Accommodations for Pregnant Workers

Requires employers to provide unpaid parental leave and reasonable accommodations for pregnant workers.

J. Paid Sick Leave Ordinances (Minneapolis and St. Paul)

In Minneapolis and St. Paul, employers must provide paid sick leave to employees based on the number of hours worked.

Employers in these cities must comply with both local and state regulations.

State and Federal Payroll and Tax Compliance

A. IRS Compliance (Federal)

Employers must ensure proper classification of employees vs. independent contractors.

Proper withholding of federal income tax, Social Security, and Medicare taxes must be done for employees.

B. Minnesota Department of Revenue (State)

Employers must ensure accurate withholding of state income tax from employees’ paychecks.

Compliance with unemployment insurance tax requirements is also necessary.

C. Workers’ Compensation

Employers in Minnesota are required to have workers’ compensation insurance for their employees.

Ensure proper classification of employees and reporting of any work-related injuries to the Minnesota Department of Labor and Industry.

Mandatory Posters and Notices

Both state and federal law require that specific labor law posters be displayed in the workplace to inform employees of their rights. These include:

  • OSHA posters
  • Fair Labor Standards Act (FLSA) posters
  • EEO notices

Minnesota-specific posters for wage and hour laws, pregnancy accommodations, workers’ compensation, and others.

Record-Keeping and Documentation

Federal and state laws require that certain employment records be kept for specific periods. These include:

  • I-9 Forms: Must be retained for all employees to prove eligibility to work in the U.S.
  • Wage and Hour Records: Maintain records of employee hours, pay, and deductions as required by both the FLSA and Minnesota Wage Theft Law.
  • OSHA Records: Keep records of workplace injuries and illness for at least five years.

Equal Employment Opportunity (EEO) Reporting

Employers with 100 or more employees (50 or more for federal contractors) must file an annual EEO-1 report with the EEOC, detailing the racial, ethnic, and gender composition of their workforce.

Health and Safety Compliance (Minnesota OSHA)

In Minnesota, the Occupational Safety and Health Administration (MNOSHA) enforces safety and health standards. MNOSHA requires:

  • Written safety programs
  • Employee training records
  • Workplace inspections and corrective actions if hazards are identified.

Privacy and Data Protection

Minnesota Government Data Practices Act (MGDPA)

Governs how government entities handle personal data. Although this applies mainly to government employers, it sets important privacy expectations in Minnesota.

Federal Privacy Laws (HIPAA)

Employers handling employee health information must comply with the Health Insurance Portability and Accountability Act (HIPAA).

Unemployment Insurance Compliance

Minnesota employers must report wages and pay unemployment insurance taxes to the Minnesota Unemployment Insurance Program. During a compliance audit, ensure that:

  • Unemployment tax filings are accurate.
  • Proper contributions are being made based on employee earnings.

Miscellaneous Compliance Areas

  • EEO/AA Plan Requirements: If the employer is a government contractor, they must have an affirmative action plan.
  • Minnesota Voting Leave: Employers must provide employees time off to vote in state elections.
  • Jury Duty Leave: Minnesota law requires employers to provide leave for employees serving on a jury.

Steps for Conducting a Compliance Audit in Minnesota:

If you are unfamiliar with how human resource laws work and how they can impact you, I recommend reaching out to us at Extraordinary Workforce. We specialize in the complex HR issues that can cost a business owner like yourself significant dollars in fines if you are not prepared.

Employee Classification: Ensure all workers are correctly classified as employees or independent contractors. This is a very big issue happening in many organizations. If you have contractors, it’s best to reach out to us and get them turned into W2 employees. If they are working for you and you are paying them, chances are, they are actually considered an employee. 

Wage and Hour Compliance: Verify that all wage laws, including overtime and minimum wage rules, are followed.

KEEP EMPLOYEE RECORDS: Check employee records for proper documentation, such as I-9s, payroll records, and timekeeping records.

Training and Policies: Ensure that employees receive required training (e.g., OSHA, harassment prevention) and that HR policies are up-to-date and compliant.

Internal Audits: Regularly perform internal audits to catch compliance issues early and ensure continuous adherence to both state and federal regulations.

Take the stress away from you and hire Extraordinary Workforce. We are educated and experienced in the laws and what you need to know as a business owner. There may be a charge for our work, but I guarantee our charge is going to be much less if you are fined. 

Extraordinary Workforce

Let’s Work Together

At Extraordinary Workforce, we’re committed to helping your business succeed. Whether you need guidance on HR strategy, leadership development, or workforce optimization, we’re here to provide tailored solutions that fit your needs. Reach out to us today, and let’s start the conversation.

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