Artificial intelligence (AI) has become a part of employees’ work lives, whether through digital assistants, navigation apps, or conversational bots. Employees are adopting AI at a faster pace than employers can set comprehensive AI policies. A recent Founder Report survey found that 44% of U.S. workers say their employer has no clear AI policy or they’re unsure whether one exists. That number increases to 59% at companies with fewer than 10 employees. And yet, 89% of workers have used AI at work.
Not having an AI policy creates business risks, including the possibility of AI tools producing inaccurate content, data uncertainty, or compliance concerns. Employees could accidentally expose sensitive company information or develop an over-reliance on AI for decision-making that requires human discernment.
Fortunately, institutions are responding to these risks with standards and best practices, such as the NIST AI Risk Management Framework and the U.S. Department of Labor’s AI best practices.
In This Article, You'll Learn:
- Identify AI risks in Human Resources, including compliance, confidentiality, and discrimination concerns.
- Reduce business risk by establishing clear guidelines for responsible AI use.
- Develop an AI governance policy that defines approved tools, data privacy standards, and human review requirements.
- Incorporate AI policies into your employee handbook or policy library for consistent governance.
Why Is AI Governance Becoming an HR Issue?
AI governance is not just an IT concern. While employers may currently be leaving artificial intelligence guidance and integration to the technical team, they must also consider Human Resources. AI impacts employee communication, data management, work completion, decision-making, document handling, hiring and recruitment, client service, and more.
Employees are probably already using AI tools, even if the company hasn’t approved them yet. When someone uses ChatGPT for work tasks, for example, it poses risks to confidentiality, accuracy, data privacy, bias, and compliance.
Mitigate risks with HR policies that clarify AI usage expectations. Align AI rules with existing employee handbook sections and incorporate them throughout your policies. For example, review confidentiality, technology, data security, anti-discrimination, and workplace conduct policies, and integrate specific rules for AI in each area.
What Can Go Wrong Without a Workplace AI Policy?
Most AI risks aren’t intentional. Employees are probably not trying to use it in dangerous ways. But risks arise anyway when there are no clear policies in place, when employees aren’t properly trained in AI, or when they don’t fully understand its limits.
AI Risks in the Workplace
Consider these top AI use scenarios that create risks:
- Employees enter confidential company, client, payroll, or employee data into public AI tools.
- AI-generated content is shared without fact-checking, impacting the company’s reputation.
- Managers start relying on artificially generated summaries or recommendations without human review.
- Hiring or performance-related tools create discrimination or ADA concerns.
- Employees use AI-generated work without proper disclosure.
- Sensitive documents are uploaded into programs that do not meet company security standards.
- AI outputs create inaccurate, misleading, or off-brand communication.
Addressing each of these concerns in a holistic AI governance policy provides employees with a necessary framework to use AI safely and productively. It will, in turn, limit employer exposure.
What Should an Employer AI Governance Policy Include?
Because every organization is different, AI policies will vary depending on factors like industry, workforce size, and the nature of the work. However, every AI governance policy should be practical and connected to the work performed daily.
AI Governance Policy Components
While individual elements will vary based on what’s relevant to the company and workforce, this outline provides each component to address in an AI governance policy:
Purpose and Scope
There needs to be a clear reason this policy exists. This section explains why the policy exists and everything it applies to, including departments, teams, employees, tools, and tasks.
Approved and Prohibited Uses of AI
This section should outline how employees can use AI and which uses are restricted or banned completely. Language needs to be clear, and you may also want to provide reasoning for these rules so employees fully understand them.
Data Privacy and Confidentiality
Businesses have and use a lot of sensitive information, from customer data to financial details. The policy should clearly define the information that must be kept private and never fed into AI tools. Reinforce company, client, employee, financial, payroll, and benefits data protections.
Review and Accuracy Standards
Before using AI-generated content, human employees or managers will need to review it to ensure accuracy. This requirement should be included in the policy so that there’s a process in place for thorough human intervention. The policy should also require fact-checking, editing, and source verification for AI content.
Decision-Making Rules
It should be clear that AI doesn’t make final decisions. It could be used to support work and certain tasks, but it cannot replace human judgment. This should be clarified in the AI governance policy.
Disclosure Requirements
Sometimes, employees must disclose when they use AI in their work. Make it clear when this is required for both internal and external situations.
Manager Responsibilities
Define which roles approve AI tools, review usage and content, and escalate concerns, if necessary. This way, there is little room for argument when a problem does arise.
Policy Violation Processes
Finally, the policy needs to clearly state how AI misuse will be handled. What are the consequences? Who will be involved? What will the process look like once a problem is discovered?
The goal of an AI governance policy is not to ban AI outright, in most cases; it is to create solid guardrails that lead to responsible, consistent, and secure use of AI tools.
Should AI Usage Rules Be Included in the Employee Handbook?
In general, having an AI policy in the employee handbook is a good idea. An organization may also have a policy library or supplemental manual where AI guidelines are further outlined. This is especially important when AI use impacts confidentiality, technology, data privacy, and compliance.
Incorporating AI Policies Into the Employee Handbook
Start by adding an AI section to the employee handbook. This section should reference related policies, such as confidentiality guidelines, data security, anti-discrimination, and document practices. It should also state that employees be trained regularly on AI policies, incorporating real workplace scenarios where concerns and risks arise.
The employee handbook is an effective location for AI rules related to employee expectations, even if complete procedures are provided elsewhere.
AI, Data Privacy, and Confidential Company Information
Data privacy is one of the biggest risks for companies using artificial intelligence. It should thus be top of mind when creating an AI governance policy. Many employees simply may not know that when they enter information into a tool that data and sensitive information could be at risk.
Examples of Information That Should Typically Be Restricted
A strong policy will outline exactly which types of data are prohibited from being shared in AI tools. Consider these examples:
- Employees’ personal information: Date of birth, SSNs, addresses
- Payroll data: Salaries, wages, direct deposit details
- Employee benefits information: Health insurance or retirement account details
- Medical or leave-related information: FMLA or disability documentation
- Client or customer records: Names, account numbers, service agreements
- Financial data: Bank account details, budgets, tax returns
- Proprietary company information: Trade secrets, designs, source code, pricing models
- Login credentials or security details: Usernames and passwords, encryption keys
- Internal strategy documents: Marketing strategies, competitive analyses
- Contracts or legal documents: Vendor agreements, employment contracts, NDAs
The AI governance policy is where all of these restrictions can be clearly outlined. Per the FTC’s business privacy and security guidance, companies need to understand what information they collect, limit what they store, protect what they store, dispose of data safely, and plan for security incidents. All of those concerns should play into an AI policy.
AI, Data Privacy, and Confidential Company Information
Data privacy is one of the biggest risks for companies using artificial intelligence. It should thus be top of mind when creating an AI governance policy. Many employees simply may not know that when they enter information into a tool that data and sensitive information could be at risk.
Examples of Information That Should Typically Be Restricted
A strong policy will outline exactly which types of data are prohibited from being shared in AI tools. Consider these examples:
- Employees’ personal information: Date of birth, SSNs, addresses
- Payroll data: Salaries, wages, direct deposit details
- Employee benefits information: Health insurance or retirement account details
- Medical or leave-related information: FMLA or disability documentation
- Client or customer records: Names, account numbers, service agreements
- Financial data: Bank account details, budgets, tax returns
- Proprietary company information: Trade secrets, designs, source code, pricing models
- Login credentials or security details: Usernames and passwords, encryption keys
- Internal strategy documents: Marketing strategies, competitive analyses
- Contracts or legal documents: Vendor agreements, employment contracts, NDAs
The AI governance policy is where all of these restrictions can be clearly outlined. Per the FTC’s business privacy and security guidance, companies need to understand what information they collect, limit what they store, protect what they store, dispose of data safely, and plan for security incidents. All of those concerns should play into an AI policy.
Human Review: Where AI Should Support, Not Replace, Judgment
Remember that AI should only support human review, not replace it. It can make many tasks more efficient, but employers need to clearly define where human review is required. This is especially important for Human Resources and compliance departments.
Areas That Require Careful Review
A major AI concern is ensuring its use aligns with federal civil rights laws. The Equal Employment Opportunity Commission (EEOC) created AI resources to ensure tools comply. This includes algorithmic fairness and Americans with Disabilities Act (ADA) compliance.
Human review is most critical in these areas of a business:
- Recruiting and hiring, including resume screening, chatbot interviews, and video-interview analysis
- Performance monitoring and promotion decisions
- Termination, investigations, or disciplinary actions
- Employee benefits and payroll communications
- Client-facing work
Legal and financial exposure, reputational risk, and litigation are all risks when a company doesn’t prioritize human review and final decision-making.
Balancing Innovation with AI Misuse Reduction
Employers should not treat AI as either completely unsafe or unrestricted. The right approach is finding a balance. AI tools are here to stay and can help businesses with numerous tasks and improvements. However, the risks are significant, and so being proactive against avoidable risk is a must.
Best Practices to Reduce AI Misuse
Implement these steps to prevent AI misuse in the workplace:
- Create a clear acceptable-use policy and ensure it is accessible to all.
- Identify which AI tools are approved for business use and which are prohibited.
- Train employees on data privacy and confidentiality regularly.
- Require human review before using AI-generated work.
- Create simple approval steps for higher-risk AI use.
- Encourage employees to ask before uploading sensitive information or restrict it altogether.
- Review policies regularly as AI tools and regulations evolve.
These steps will ensure you address each aspect of AI use. The goal is to continue encouraging productivity with AI integration while protecting the business, its employees, and its clients.
When Should Employers Review or Update Their AI Policy?
AI tools are always changing and advancing. Businesses should commit to adapting alongside those tools, regularly reviewing and updating AI policies.
Situation to Review the AI Policy
When any of these circumstances arise, the policy should be reviewed and assessed for updates:
- The business is adopting new AI tools
- More departments are using AI
- AI is used in hiring, screening, or performance processes
- Sensitive data may be involved in AI use
- AI tools are assisting with client-facing work
- The employee handbook is being updated
- New laws, regulations, or agency guidance are introduced that affect AI use
Anytime a change occurs that impacts AI, it’s a good idea to review the policy once again. Employers should work with a qualified partner, especially when dealing with AI in employment decisions, privacy, or regulated information.
How PrestigePEO Helps Employers Build Smarter AI Guardrails
The right partner will help employers improve their AI practices, create clear usage policies, and communicate with employees effectively.
PrestigePEO is a practical HR and compliance support partner for employers navigating AI adoption. We help support the following functions:
- Employee handbook updates
- HR policy development
- Compliance risk management
- Employee communication
- Technology adoption conversations
- Manager guidance
- HR infrastructure for growing businesses
PrestigePEO provides expert HR technology support as well as policy and management assistance.
Review Human Resources Policies Before AI Creates New Risk
Most workplaces are impacted by AI, but some policies haven’t caught up. Define clear rules now to reduce employee confusion, protect sensitive data, support innovation in a balanced manner, and give employees more confidence to use AI properly.
Contact PrestigePEO today to review your HR policies before AI creates new risks.
FAQs About AI Governance Policies
What should an AI governance policy include?
A well-crafted AI governance policy should give employees clear guardrails. This includes defining which AI uses are approved and which are off-limits, establishing data privacy and confidentiality expectations, mandating human review at key decision points, setting disclosure standards, and outlining the consequences for misuse.
Should AI usage rules be included in the employee handbook?
Yes. The employee handbook or a policy library should include AI usage rules when AI affects workplace conduct, technology use, confidentiality, data security, HR decisions, or employee communication.
How can HR reduce AI misuse without blocking innovation?
AI is important for modern business innovation. However, HR can reduce misuse by setting clear limits, approving or banning certain tools, training employees, requiring human intervention, protecting sensitive data, and updating policies regularly.
