Regulatory compliance is the extent to which a company follows laws that guide activity. The term can refer to many different areas of industry and commerce, including safety regulations, hiring practices, account and tax reporting, and environmental regulations. Many businesses create programs, such as internal auditing, safety checks, and various types of tests, to ensure that they stay compliant with any applicable regulations.
Some issues that require regulatory compliance revolve around the employer/employee dynamic. Non-discriminatory hiring policies, family leave, wage levels, permitted labor hours, and restrictions on employing minors may all be a result of regulatory compliance. These regulations are often a result of government legislation, but may also come from labor or trade unions. If a company fails to follow mandated regulations in regards to its employees, it runs the risk of civil lawsuits and strikes.
Maintaining regulatory compliance in industry often has to do with working conditions and safety procedures. These regulations may set rules as to what type of employees can perform which tasks, and what safety precautions are needed for each type of job. Companies can and often do efficiently monitor their own regulatory compliance, but a complaint may trigger a plant inspection by a representative of a regulatory body. Violations of safety or manufacturing regulations can lead to a diminished reputation, loss of government contracts, fines, increased danger for workers, and possible lawsuits should an injury or death occur due to negligence on the part of the company.
Environmental standards are becoming a very important area of regulatory compliance in the 21st century. Governments, concerned with rising pollution levels, have begun to set caps on the amount of air, water, or land damage permitted by businesses. Those in violation face heavy fines, though some programs allow alternative solutions, such as the trading of carbon credits. This allows heavy polluters to add to their cap by buying excess carbon credits from non-polluting businesses. Regulatory compliance with regard to environmental policy may be monitored by government-based environmental departments, such as the Environmental Protection Agency (EPA).
Internal regulatory compliance usually refers to the level to which a company follows its own rules. Failure to maintain internal policies can open doors to fraud, embezzlement, and illegal practices within the company. If employees are able to skirt internal policies, this also creates the potential for failure to comply with government and union regulations, which can lead to enormous consequences for businesses. Many companies create strict internal auditing and training programs to ensure that all departments comply with both internal and external regulations.