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The Complete Guide to HR Compliance for Canadian SMBs

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Morgane Lança 5 August 2025
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Ever heard of HR compliance? We certainly hope so, as every business that manages any number of employees is responsible for following these rules set by the government!

However, operating in a small business often means you have fewer resources and less time to dedicate to HR, which means compliance can be more challenging. Smaller organizations are often at greater risk for legal issues because they may not have a dedicated HR team. And the problem should not be taken lightly: after all, non-compliance can result in fines ranging from several hundred… to thousands of dollars!

If you are responsible for human resources management in a Canadian SMB setting, no need to look further: here is a complete guide to help you be HR compliant and avoid potential issues.

What Is HR Compliance for Small Businesses?

HR compliance for small businesses means making workplace policies and practices follow federal, provincial, and local employment laws. This creates systems and rules that protect both employees and the company from legal issues.

HR compliance differs from general HR practices. While general HR includes activities like recruiting, onboarding, and employee development, compliance focuses on following the law and meeting specific requirements.

Small businesses face unique challenges with compliance:

  • Limited resources: Fewer staff members handle multiple responsibilities.
  • Time constraints: Owners juggle compliance with core business operations.
  • Knowledge gaps: Less access to specialized HR expertise.
  • Higher vulnerability: Mistakes can have proportionally larger financial impact.

Failing to comply with employment laws can lead to lawsuits, fines, or government investigations. Even a single violation, such as not keeping accurate payroll records or missing workplace safety requirements, creates costly problems that are particularly damaging to SMBs.

Essential Laws and Regulations that Small Businesses Must Know

1. Employment Standards Acts (per province)

Depending on the province you operate in, Employment Standards Acts set minimum employment conditions such as wages, hours, vacation days and leaves). For instance, in Quebec, these requirements are covered by the “Loi sur les normes du travail” (LNT).

It is important to know that these standards apply to most employees, unless they are covered by a collective agreement!

 

2. Occupational Health and Safety Acts

Employers must identify risks, provide safety gear and train staff to ensure that their work environment is safe for everyone. That’s why occupational health and safety acts mandate safe work conditions with mandatory training hours and incident reporting. 

What it is: Mandates safe working environments, training and incident reporting. In Quebec, CNESST is the organization overseeing these aspects of HR compliance!

 

3. Human Rights Legislation

These laws prohibit discrimination based on race, gender, religion, disability, etc. This means that HR policies must include non-discrimination, accommodation, and inclusive hiring.

 

4. Pay Equity Acts

Pay equity acts require equal pay for work of equal value, especially across genders. In Quebec, this set of rules applies to all employers with 10 employees or more. 

 

5. Privacy Laws

The goal of these laws is to protect employee personal data and monitor how it is collected, stored and used by the company. At the federal level, PIPEDA covers these questions, while Quebec uses Law 25 to manage data access rights and consent and prevent breaches.

In any case, SMB employers should not forget to get consent to collect data and securely manage employee records.

 

6. Labour Relations Acts

These acts govern union rights, collective bargaining, and strikes. In unionized settings, HR must follow collective agreements precisely.

 

7. Workplace Harassment and Violence Legislation

This legislation requires clear anti-harassment and violence prevention policies. Federal workplaces use the Canada Labour Code Part II while Quebec-based workplaces require employers to have a written policy and act on potential complaints.

 

8. Leaves of Absence

This aspect covers statutory leaves for maternity, paternity, sick leave, bereavement, family care, etc. Remember that these leaves are job-protected, which means that employees cannot be penalized for using them.

 

9. Termination Laws & Severance

Employers must give notice or pay in lieu, and in some cases, severance. In Quebec, this entitlement is based on seniority. As for group terminations of 10 or more employees, they require previous notice to CNESST.

For federal companies, there is an obligation to provide a record of employment (ROE) within specific deadlines.

Common HR Compliance Pitfalls and How to Avoid Them

Small businesses encounter compliance problems that lead to legal actions, fines, and workplace issues. The most common errors involve worker classification, handling discrimination or harassment complaints, and improper recordkeeping.

Worker misclassification occurs when a business incorrectly labels an employee as an independent contractor, or mistakes exempt and non-exempt status.

Discrimination can occur during hiring, promotions, or terminations when decisions are based on race, gender, religion, age, disability, or other protected characteristics. Harassment includes any unwelcome behavior that creates a hostile work environment.

Prevention practices include:

  • Clear policies: Written anti-discrimination and harassment guidelines.
  • Regular training: Annual sessions for all staff members.
  • Easy reporting: Multiple channels for employees to file complaints.
  • Prompt investigations: Quick, impartial response to all complaints.

Proper recordkeeping includes storing and maintaining documents like payroll records, tax forms, performance reviews, disciplinary actions, and workplace injury reports. Missing or incorrect records can lead to fines, failed audits, and legal issues.

Steps to Build a Proactive Compliance Strategy

1. Review your existing HR policies

A compliance audit starts by reviewing existing HR policies, procedures, and records for alignment with employment laws. Sample audit questions include whether employee classifications are correct, payroll records are accurate, and workplace safety procedures are documented and followed.
 

2. Set clear roles and responsibilities

Clear roles and responsibilities are essential to help maintain compliance. In small businesses, the business owner, manager, or designated staff member often oversees compliance tasks. When there is no dedicated HR person, the owner or trusted manager tracks legal changes, reviews policies, and ensures documentation is complete.

 

3. Train your teams on HR compliance

Compliance training is a must, as it covers required topics such as workplace safety, anti-harassment, discrimination, and wage and hour rules. Remember to document training by keeping records of attendance, dates, and completed modules.

 

4. Plan frequent audits and ongoing evaluations

Regular audits are conducted on a set schedule, such as once a year or every quarter. Reviews focus on high-risk areas, recent policy changes, and any incidents or complaints. Findings from each audit are documented, including issues found and steps taken to address them.

 

Training and Technology Tools to Simplify HR Compliance

Many small businesses use training and technology to improve their HR compliance processes. Combining learning with the right tools helps organizations meet legal requirements and keep accurate records.
 

1. Supervisor and HR manager training

Supervisor training covers employment law basics, harassment prevention, and correct documentation of workplace events.

This includes recognizing discrimination, handling employee complaints, and understanding wage and hour rules.

Many organizations deliver this training annually and record attendance to stay on the right track!
 

2. Outsourcing HR compliance audits

HR compliance services are also a viable option for companies looking to manage these responsibilities more efficiently, especially when internal resources are limited or specialized knowledge is required. These services can include policy reviews, training programs, payroll compliance, and help with audits.

 

3. Human Resource Information Systems (HRIS)

Cloud-based HR platforms automate many compliance tasks such as tracking employee hours, storing documents, and ensuring policies stay current with laws. These systems send reminders for training renewals, flag missing paperwork, and centralize all records in one secure location.

HR platforms like Folks HR allow businesses to manage compliance requirements through a single dashboard. This approach reduces manual work, helps maintain audit trails, and makes it easier to access information during reviews or inspections.

Example of HR Compliance Checklist

Using a HR compliance checklist helps companies organize the key steps for staying compliant with employment laws. This checklist covers the basic HR functions and processes required for most small businesses.

✅ Document hiring and onboarding by collecting required forms such as work permits, job descriptions for each role, and interview records.

✅ Record onboarding items including signed offer letters, confidentiality agreements, and acknowledgment of company policies.

✅ Confirm wage, hour, and payroll obligations by tracking hours worked using a reliable system.

✅ Calculate overtime pay for non-exempt employees according to federal and provincial rules.

✅ Set payroll schedules that comply with local requirements and withhold required payroll taxes.

✅ Maintain updated employee files by storing personnel files with job applications, performance reviews, and disciplinary records.

✅ Keep confidential medical files separate from personnel files with limited access.

✅ Store work eligibility forms and permits in a designated, secure location separate from other employee files.

✅ Conduct regular policy reviews at least once per year.

✅ Update policies when employment laws change or business operations shift.

✅ Communicate policy changes to employees in writing and collect acknowledgments.

Staying Current With Evolving Regulations

Employment laws change regularly at federal, provincial or local levels. Some changes apply to all employers, while others are specific to certain industries, business sizes, or locations.

Reliable sources for law updates include official government websites such as Employment and Social Development Canada, the Canadian Human Rights Commission, or provincial labor ministries.

Evaluating which changes affect a business involves reviewing each new law for relevance to the organization’s size, industry, and location. A minimum wage change in Ontario will not impact a business with no employees in that province. Changes to federal laws may apply to all locations, while local ordinances may only apply to employees in certain cities.

Implementation strategies for new requirements include updating written policies, adjusting payroll systems, providing training to employees and managers, and revising employment contracts or forms. Documentation of compliance changes involves keeping records of all policy updates, communications to employees, and training sessions.
 

Empowering Sustainable Growth Through HR Compliance

HR compliance functions as a foundation for sustainable business growth. When an organization’s HR practices consistently follow employment laws and regulations, this helps align business operations with long-term objectives.

Organizations that maintain strong compliance processes often stand out in the market. Adhering to legal standards helps build trust with employees, partners, and regulators, making it easier to attract and retain talent.

A scalable compliance system adapts as a business grows. This involves standardizing processes, documenting procedures, and organizing records so requirements are met regardless of company size. As headcount increases or new locations open, a scalable system can absorb the complexity without creating bottlenecks.

Technology supports sustainable compliance management by centralizing information, automating routine tasks, and providing timely updates on regulatory changes. HR platforms organize compliance workflows, store records securely, and generate reports. This enables small businesses to focus on growth while maintaining compliance standards.

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A woman with long brown hair, wearing a white shirt with yellow and black text and graphics, smiles at the camera against a plain white background.

Morgane Lança

Passionate about organic content creation, Morgane has been working at Folks since 2021, first as a Copywriter, then as a Content Manager, and now as a Team Lead. Her favorite HR topics? Performance appraisals, recruiting and new hire onboarding.

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Frequently Asked Questions About HR Compliance

What specific penalties do organizations face for HR compliance violations?

Failed HR compliance audits result in financial penalties, orders to pay back wages, and requirements to change workplace policies. The exact consequences depend on the type of violation and its severity.

How often do companies need to update their employee handbooks for compliance?

Most small businesses review all HR compliance policies once a year. Some areas, such as wage rates or workplace safety, are reviewed every three months.

Can small businesses handle HR compliance without dedicated HR staff?

The law does not require a small business to have a dedicated HR person. However, someone in the organization is responsible for completing HR compliance tasks. Some businesses use outside HR consulting or HR software to help with these responsibilities.

What does HR compliance typically cost annually?

HR compliance costs include expenses for training, HR software solutions, or outsourcing. These costs range from a few hundred to several thousand dollars per year. However, costs for not following HR laws are unsurprisingly higher than the cost of ongoing compliance!

Need help to ensure HR compliance and effective HR strategies in your company?