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HR tech has come a long way, from basic software to advanced AI tools that have transformed the way HR teams operate. But while these tools can boost efficiency for employers, they also open the door to significant compliance risks.
In this article, we’ll break down the most common issues HR teams face today, from AI bias to cross-border compliance confusion — and offer practical steps to help you avoid them.
Why HR compliance must evolve with HR tech
Let’s be clear: HR tech is nothing new. For decades, companies have been using software of one type or another to streamline tasks, improve efficiency and reduce costs. But today’s tools — especially those powered by AI and automation — come with a new set of compliance risks.
And of course, as technology evolves, so do the laws that govern it. Your tech stack needs to comply with a range of legislation related to AI use, data protection, human rights and discrimination — and non-compliance could land you in serious legal hot water.
If your HR tech stack includes tools from this new breed of AI-enabled technology, it’s crucial to be aware of the risks. In this article, we’ll highlight some of the most common compliance pitfalls and offer practical tips to help you navigate them.
5 common compliance pitfalls in modern HR tech stacks
Ready to uncover the compliance pitfalls hiding in your HR tech stack? Here are five key issues to watch out for (and how to avoid them).
1. Lack of regulatory alignment in tech investments
New HR tech tools are constantly emerging, each promising to save HR teams valuable time and money. But without careful consideration, they can also expose companies to regulatory risks.
HR teams must ensure that any new tool they implement aligns with various laws that apply to their organisation, including:
- Data protection laws like the General Data Protection Regulation (GDPR)
- Anti-discrimination laws like the Equality Act 2010 (UK) and Title VII (USA)
- Local AI-related regulations, such as New York City’s Local Law 144
- Emerging AI-centric regulations like the EU AI Act or the US’s AI Bill of Rights
This can be a lot to manage — especially since regulations are always evolving. It’s a good idea to seek specific legal advice or partner with an experienced EoR provider for compliance expertise (more on this later).
2. Blind spots in AI-driven hiring tools
AI tools can be incredibly useful in the hiring process because they excel at quickly processing large amounts of data. But if you‘re not careful, they can end up reproducing biases found in the data they were trained on.
A notorious example comes from Amazon, which began using an AI tool to review job applications in 2014. The tool was trained on data submitted by applicants to Amazon over a 10-year period. While it undoubtedly saved time for Amazon’s recruiters, there was one big problem: it systematically downgraded women’s CVs.
Employers that use AI tools in the hiring process need to put measures in place to identify and mitigate bias — or risk falling foul of anti-discrimination legislation.
3. Cross-border compliance confusion
Employers operating across borders often struggle to stay on top of labour laws. They need to keep track of multiple sets of regulations to ensure their operations in each jurisdiction stay compliant.
A common pitfall is trying to use the same tool (or set of tools) for employee management across different countries. While a tool might be compliant with one country’s regulations, it might not meet the requirements of another. For example, a tool used by US companies might not be suitable for use in Europe if it doesn’t comply with the GDPR.
4. Inadequate data privacy and security
Employers have various obligations under data privacy laws like the GDPR — and missteps could lead to fines, reputational damage, or legal action. For example, these laws require businesses to have a lawful basis for processing data. However, determining what constitutes a lawful basis isn’t always easy. While consent is often used as a lawful basis, it may not be applicable in an employment context.
HR tools represent a compliance risk in this area because they’re often used to collect and process employee data. Ensuring HR tech tools comply with data protection laws like the GDPR should be a top priority for employers. When evaluating new tools, make sure to review the provider’s credentials to ensure they take data privacy seriously.
5. Failure to account for the limits of automation
Automation can boost efficiency for HR teams — but it’s not without its risks. And relying too heavily on automated systems can lead to serious compliance issues.
One concrete example is the ride-sharing platform Uber, which came under fire for its algorithmic management practices in 2021. The company was ordered to reinstate and pay compensation totalling over €100,000 to six drivers after they were unfairly dismissed by an automated system that flagged them for fraudulent activity.
Automation can support human decision-making, but it shouldn’t replace it. And this isn’t just an ethical issue, but a legal one too: legislation like the EU Platform Work Directive now requires companies to be transparent about algorithmic management and ensure meaningful human oversight, especially when decisions impact jobs.
How to ensure compliance when introducing new tech tools
We’ve established that your HR tech stack could be posing serious compliance risks — but with the right approach, those risks can be managed. Here are some practical steps employers can take to stay compliant while harnessing the power of modern HR tools.
Conduct regular audits of your HR tech stack
Many data privacy and AI laws require organisations to carry out regular audits of the tools they use. These help identify risks, ensure compliance, and address issues like bias or poor data practices before they escalate.
Make sure your audits cover how employee data is collected and processed, and how AI tools make decisions. Some laws require specific types of assessments — like the GDPR’s Data Protection Impact Assessments (DPIAs). In the UK, a draft AI auditing framework was recently published to help employers evaluate AI tools for compliance and fairness.
Choose tools carefully for data security and privacy
Not all HR tech tools are built with compliance in mind — which is why careful vetting is essential. First, ensure any tools you use are compliant with legislation like the GDPR — even if your company isn’t based in Europe. The GDPR applies to any organisation with employees or users in the EU and serves as a global benchmark for privacy standards, so compliance is a good baseline.
It’s also worth looking for tools with recognised security certifications like ISO 27001 or SOC 2. These signal strong internal processes and a serious commitment to protecting employee data.
Train teams to use tools effectively and responsibly
Tech tools are only as effective as the people using them. That’s why it’s crucial to train your HR and recruitment teams on how to use new systems properly — especially those powered by AI or automation.
Training should enable team members to use tools effectively alongside their own expertise, ensuring they add value instead of simply wasting time. It should also highlight the potential risks and pitfalls of using modern HR tech tools. Overall, the goal is to build a culture of digital literacy and awareness, balancing the efficiency brought by innovative tech tools with the potential risks they pose.
Be transparent about AI use
Employees and candidates have the right to know when AI tools are being used to make important decisions that affect them. Employers should be transparent about the AI or automation tools in their HR tech stack, explaining how they’re used and the safeguards in place to prevent issues like bias or discrimination.
This isn’t just good practice — it’s also legally required in many cases. For example, New York’s law on automated employment decision tools (AEDTs) mandates that employers disclose their use of AI for hiring decisions. Companies must also conduct a bias audit within a year of using the tool and make the results publicly available.
Leave room for human intervention
Even when using automated decision-making for aspects of workforce management, it’s important to maintain human oversight. This ensures a balance between human judgment and technology, which can help identify and correct biased or unfair decisions.
Above all, employees should always have the right to have any decision impacting them reviewed by a human. This is a requirement in several key regulations, such as the EU Platform Work Directive. Proper training for HR teams and maintaining consistent, documented processes are crucial to making sure human oversight is effective.
How EoR solutions can bridge the gaps left by your HR tech stack
Each new generation of HR tech tools is more powerful than the last — and AI-enabled technologies have transformed the way HR teams operate. But despite their capabilities, HR tech tools cannot replace human expertise (not yet, anyway).
For companies operating across multiple jurisdictions, staying on top of complex compliance obligations is no mean feat. And while HR tech can help, it can’t handle it all.
That’s where an employer of record (EoR) solution comes in. By combining the efficiency and time-saving benefits of a powerful HR tech stack with the jurisdiction-specific compliance expertise an EoR provides, you can safeguard your business and ensure full compliance across borders.
Building a future-ready HR infrastructure
As HR technology continues to evolve, it’s clear that keeping pace with new tools and compliance requirements isn’t easy. But with the right approach, you can future-proof your HR infrastructure and set your organisation up for long-term success.
The first step is to embrace flexibility. The tech landscape is always changing, so it’s important to stay open to new innovations that can improve efficiency and compliance.
Employers should also prioritise compliance in every step of the process. While automation and AI are great for driving efficiency, you can’t afford to overlook the importance of human oversight and expertise.
As part of this, consider pairing your HR tech stack with an EoR solution that can help you keep track of your compliance obligations. This approach offers the best of both worlds: automation and efficiency paired with expert support to navigate complex legal landscapes.
By combining the efficiency of modern HR tech with the expertise of an EoR provider, you can ensure compliance across borders while empowering your HR teams to embrace innovation with confidence.
Ready to discover how CXC’s EoR solution could bridge the gaps in your HR tech stack? Speak to our team to get started.
