Most employers don’t realize they have compliance gaps until someone points them out. During HR audits, we routinely uncover issues that could expose businesses to fines, penalties, employee claims, and unnecessary risk.

Here are the five most common findings we see—and why they matter.

1. Outdated Employee Handbooks

This is by far one of the most common findings.

We regularly review handbooks that have not been updated in several years. During that time, California has often introduced new laws affecting paid sick leave, reproductive loss leave, workplace violence prevention, protected categories, and more.

Example: An employer’s handbook still referenced California’s old paid sick leave requirements and was missing several legally required policy updates.

Potential Risk: An outdated handbook can become evidence in a wage claim, discrimination complaint, or employment lawsuit, making it more difficult to defend employment decisions.

2. Missing or Incomplete I-9 Forms

Federal law requires employers to complete and maintain Form I-9 documentation for every employee properly.

Unfortunately, we frequently find missing forms, incomplete sections, missing signatures, or employers retaining incorrect supporting documents.

Example: We recently found multiple I-9s where Section 2 had not been completed correctly, even though the employees had worked for the company for years.

Potential Risk: Federal fines for I-9 paperwork violations can exceed $288 to $2,861 per form and may reach thousands of dollars per violation depending on the circumstances.

The fines are higher for companies that knowingly hire unauthorized workers.

• First offense: $716 to $5,724 per worker
• Second offense: $5,724 to $14,308 per worker
• Third or subsequent offenses: $8,586 to $28,619 per worker

3. Wage Statement Errors

California has very specific requirements regarding what must appear on employee pay stubs.

We have seen that employers using payroll providers experience issues if the information is not configured correctly.

Example: We’ve found wage statements missing required information such as legal entity names, accrued sick leave balances, or accurate hourly rates.

Potential Risk: California penalties can reach up to $4,000 per employee, plus attorney fees and additional exposure through wage-and-hour claims.

4. Missing Required Notices and Posters

California employers are required to provide and display numerous workplace notices.

Many employers are surprised to learn that simply hanging a labor law poster is not enough. Certain notices must also be distributed directly to employees, especially if they work remotely or are in the field as part of their job.

Example: We frequently find employers using outdated labor law posters or failing to post required notices on workers’ compensation, paid leave, or employee rights.

Potential Risk: Missing notices can result in agency penalties and may make it more difficult for employers to defend claims if disputes arise.

5. Incomplete Personnel Files

Personnel files tell the story of the employment relationship. When documentation is missing, employers often struggle to support hiring, disciplinary, compensation, or termination decisions.

Example: We routinely find missing performance documentation, unsigned acknowledgments, outdated job descriptions, or required employment records scattered across multiple systems.

Potential Risk: When an employee files a claim, the employer’s best defense is often documentation. If it doesn’t exist, it becomes much harder to demonstrate that decisions were made fairly and consistently.

What We Often Hear

“We’ve never had a problem before.” That’s exactly what many employers say before an audit.

The truth is that compliance issues often remain hidden until an employee complaint, an agency investigation, a lawsuit, an acquisition, or a due diligence review brings them to light.

A Small Problem Today Can Become an Expensive Problem Tomorrow

An HR audit is not about finding fault. It is about identifying risks before they result in fines, penalties, employee claims, or costly legal fees.

At Ethos, we conduct audits every week and consistently uncover issues employers never knew existed. Most are fixable. The key is finding them before someone else does.

Wondering what might be hiding in your HR practices? Contact Ethos Human Capital Solutions to schedule an HR audit and gain the peace of mind that comes from knowing where you stand.