AI's widespread global adoption is transforming industries and boosting business efficiency, productivity, and growth.
In fact, 49% of technology leaders in PwC's October 2024 Pulse Survey said that AI was "fully integrated" into their companies' core business strategy, and one-third said AI was fully integrated into their products and services.
But, as the use of artificial intelligence grows, so do concerns about potential risks.
The European Union (EU) tackled this issue head-on in 2024, introducing the Artificial Intelligence Act of the European Union, also known as the EU AI Act or the AI Act.
Whether your business is based inside or outside the EU, it's critical to understand how the AI Act impacts your business and take proactive measures to comply with the law.
Key takeaways:
- The EU AI Act is the world's first comprehensive legal framework to govern and regulate the development and use of AI in the EU.
- Every business must comply if their AI technology affects EU citizens, similar to how the General Data Protection Regulation (GDPR) operates.
- HR teams are directly impacted by the EU AI Act and must take proactive steps to ensure compliance, as many essential HR systems and practices are classified as high risk under the regulation.
What is the EU AI Act, and Why Was it Created?
The European Commission and European Parliament adopted the AI Act to promote responsible and transparent development and use of AI through defined legislation.
It outlines clear requirements for governance, risk management, and oversight to ensure safe and trustworthy use of AI, stimulate AI investment, promote AI innovation, and prevent harmful use cases (particularly those affecting citizens' safety, health, privacy, and fundamental rights).
It defines requirements and transparency obligations to:
- Provide a broad definition of AI, covered by the Act
- Establish a comprehensive legal framework
- Ensure trustworthy AI practices in the European Union
- Protect fundamental rights through AI regulation
- Ensure human oversight and personal data protection, much like GDPR
When Will the EU AI Act Become Law?
The EU AI Act initially took effect in August 2024, with subsequent phases rolling out through 2027. This phased approach gives businesses and impacted parties time to understand and comply with the law.
For example:
- Prohibitions on unacceptable risk applications took effect in February 2025.
- Rules for any new general-purpose AI or Global Partnership on Artificial Intelligence (GPAI) models go into effect in August 2025.
- Rules for high-risk AI systems go into effect in August 2026.
This approach reflects the EU's stance that all AI systems and practices are unequal, with some carrying heavier risks than others.
Risk-Based Classification of AI Systems
The EU AI Act takes a risk-based approach, categorizing AI systems into four categories:
Unacceptable Risk
AI applications that threaten people's safety, livelihoods, or fundamental rights are banned.
For example, social scoring systems, real-time biometric surveillance in public spaces, and emotion recognition in workplaces are all included in the EU AI Act's unacceptable risk category.
High Risk
While AI can benefit society, many use cases could harm health, safety, and fundamental rights if left unchecked.
This is particularly true in critical sectors like healthcare, law enforcement, and employment.
Therefore, the EU AI Act lays out strict compliance obligations for high-risk use cases, including transparency, third-party safety assessments, quality data sets, detailed documentation, human oversight, and rigorous testing — both before and on an ongoing basis after an AI solution, product, or component launches.
Sample high-risk AI use cases include:
- AI-based safety components (e.g., AI application in robot-assisted surgery).
- AI used in employment, management of workers, and access to self-employment (e.g., AI reviewing and routing applicant resumes).
- AI used to vet access to essential public or private services (e.g., AI determining if an applicant is approved for a bank loan).
Limited Risk
The limited risk category specifies transparency obligations to ensure people know when they're interacting with AI.
For example, when citizens interact with a chatbot, the law requires disclosing that the chatbot is a machine, not a human, so people can decide whether or not to proceed.
The same applies to AI-generated deepfake imagery; the law requires clear and visible labeling to not mislead the public.
Limited risk systems and practices face fewer regulatory constraints outside of disclosure obligations.
Minimal Risk or No Risk
The law acknowledges that many AI use cases pose little to no threat to users, such as using AI in video games, spam filters, and content recommendations.
Most EU use cases currently fall under this category and are largely unregulated..
What Businesses Need to Comply With the EU AI Act?
The EU AI Act applies to all businesses operating within the EU market and organizations outside the EU if their AI, or the outputs of their AI, are used in the EU.
The Act breaks down impacted parties into three categories:
- Providers are individuals or businesses that design, develop, or commission the creation of an AI system or GPAI model and then introduce it to the European market under their own name or trademark. A software company launching a generative AI tool is a provider.
- Deployers are organizations using AI for their goals, solutions, or products. A business using an AI product recommendation widget on their website is a deployer.
- Importers/distributors are people or organizations within the EU that resell or bring AI systems to the EU market that originate from a person or company established outside the EU.
These roles are not mutually exclusive — you can be both a provider (developing the AI) and a deployer (using the AI).
Because this legal framework is the first of its kind, other countries are expected to follow suit with similar regulatory frameworks.
Key Compliance Requirements
The EU AI Act sets standards for developing high-risk AI systems and rules for general-purpose AI models.
It bans AI systems and practices altogether in the unacceptable risk level category, such as AI used to deceive and exploit elderly populations.
Organizations developing or using high-risk AI systems face the most stringent compliance and transparency measures, including:
- Conducting risk assessments and implementing a continuous risk management system to reveal and mitigate risks.
- Employing rigorous data governance standards, ensuring data is vetted, tested, and high-quality, and mitigating known biases.
- Meeting disclosure obligations, ensuring people know when they're interacting with AI, and that AI-generated content is clearly labeled in machine-readable formats.
- Ensuring human oversight is embedded in high-risk AI decision-making by enabling human intervention, establishing clear escalation protocols, training personnel to interpret AI outcomes, and maintaining accountability.
- Keeping detailed technical documentation specifying the system design, capabilities, and regulatory compliance efforts to date.
- Maintaining postmarket monitoring plans to ensure continued compliance over the system's lifecycle.
GPAI models have their own obligations, like creating policies to align with EU copyright laws, making detailed summaries of training datasets publicly available, and ensuring adequate cybersecurity measures are in place.
The European AI Office and authorities of the Member States are responsible for enforcing the AI Act. Non-compliance can result in hefty fines, with penalties reaching up to EUR 35 million or 7% of worldwide annual turnover.
What HR Leaders Need to Know About the EU AI Act
The EU AI Act directly impacts HR teams, particularly if they use AI-driven tools for hiring, performance management, performance analytics, or other employment-related decisions. Since many HR applications fall under the high-risk category, organizations must take proactive steps to ensure compliance.
Regulating AI in Hiring and Recruitment
AI-powered tools used for resume screening, candidate selection, and interview analysis fall under the "high-risk" category. This means HR teams must:
- Ensure AI recruitment tools are auditable, unbiased, and explainable.
- Avoid discrimination by regularly reviewing algorithms for bias.
- Maintain transparency by informing candidates when AI is used throughout the hiring process.
For example, if you use generative AI to write your job description, it should clearly state that AI generated it.
You can also create a webpage that discloses the AI tools used throughout the hiring process and how they impact the candidate or worker experience. This transparency not only supports compliance but also generates trust with job seekers.
AI in Employee Monitoring & Performance Management
AI-driven tools that track employee productivity, analyze emails, assess performance, or make promotion decisions may also be classified as high-risk.
As a result, HR leaders should:
- Use AI monitoring tools responsibly to avoid over-surveillance and respect employee privacy.
- Communicate how employee data is collected and used.
- Build human oversight into any AI-driven performance evaluations.
- Enable employees to challenge AI-generated insights before taking any HR action.
For example, if you use AI to monitor voice tone in customer service calls, you should combine AI analysis with direct human review and feedback.
Data Privacy & Compliance Obligations
The AI Act reinforces the EU's General Data Protection Regulation (GDPR), meaning HR teams must:
- Protect employee and candidate data and limit AI access to sensitive information.
- Ensure compliance with data processing and storage requirements.
- Work with legal and IT teams to assess AI vendors' compliance with the law and request continuous updates.
For example, if you use AI-powered payroll platforms, your tool must comply with data localization, encryption, and access controls.
What HR Leaders Need to Do Now
With the EU AI Act now in effect, HR leaders must ensure they meet compliance and plan for future obligations.
HR leaders should:
- Audit and inventory existing AI tools: Document where AI is used in HR processes and across your organization, categorizing risk levels.
- Work with vendors: Talk to vendors to understand their compliance efforts and ensure AI-powered HR software is compliant.
- Update AI usage contracts: Require vendors to provide compliance documentation, transparency reports, and built-in human oversight mechanisms.
- Implement transparency measures: Inform employees and candidates about AI usage (especially in hiring, promotions, and performance tracking) and communicate the right to challenge automated decisions.
- Train teams: Educate HR professionals on AI risks and new legal obligations and invest in AI literacy programs for all employees overseeing or using high-risk AI systems.
- Talk to legal: Review policies with your legal teams to ensure compliance and stay updated on AI regulations as the EU AI Act evolves.
- Find a Partner: An AI governance consultant or employment law specialist can help HR teams navigate compliance regulations as they're rolled out.
Ensure Employment Compliance With RemoFirst
Navigating the EU AI Act is complex and can require a significant time investment from your HR team to be in compliance. By partnering with RemoFirst as your Employer of Record, you can offload other HR tasks, allowing your team to focus on EU AI regulatory requirements with greater ease.
As an EOR, we take on the administrative HR tasks for your international employees, such as onboarding, global payroll, administering employee benefits (such as health insurance), and ensuring compliance with local employment laws, including GDPR, where applicable.
Schedule a demo to learn more about how RemoFirst can help your company compliantly employ workers in 185+ countries.
