Why Your Company Needs an AI Policy and How to Implement One

Do you know how many of your employees are already using AI? And if they are, which AI platforms are they using? 

AI is changing the way businesses operate. It’s making workflows more efficient, automating repetitive tasks, and even assisting with decision-making. But with these advancements come risks—accuracy, data security concerns, legal complications, and ethical dilemmas that could put your company in a difficult position. 

If your employees are already using AI, do you have a clear AI policy in place? Without one, sensitive data could be shared unintentionally, employees may rely too heavily on AI-generated content, and your company could be exposed to compliance risks. 

In this blog, we will break down why an AI policy matters, what it should include, and how to put one in place. 

Why Your Company Needs an AI Policy 

While it can enhance productivity, it also introduces challenges that your business can’t afford to ignore. A well-structured AI use policy helps you set boundaries, manage risks, and protect company data. 

AI’s Impact on the Workplace 

AI may be the way of the future, but its use presents challenges, such as: 

• The risk of sharing sensitive business information with external AI platforms 

• The need to monitor AI-driven efficiencies and prevent misuse of newfound “free time” 

• The potential for AI-generated misinformation or biased outputs 

By establishing an AI policy for your business, you create guidelines that help your employees use AI effectively without putting your business at risk.   

AI Legislation by State 

Several states have either proposed or enacted legislation around the use of AI in employment decisions and activities: 

California (proposed): Assembly Bill 2930 that will require employers using automated decision systems to conduct an impact assessment before deploying the system and annually thereafter. 

Colorado (enacted) - Effective February 1, 2026, Senate Bill 24-205 that will mandate employers to comply with high-risk AI system standards, including conducting bias audits for AI used in employment and insurance. 

Illinois— Effective January 2020, the Artificial Intelligence Video Interview Act, 820 ILCS 42/1, prohibits employers from using AI tools in recruitment, hiring, promotion, or other employment-related decisions when the use of AI leads to discrimination based on protected characteristics. 

Maryland (enacted) SB 446 prohibits an employer from using certain facial recognition services during an applicant’s interview for employment unless the applicant consents under certain conditions. 

New York State (proposed)—Bill A00567/2025 would require a summary of the bias audit results to be shared with the state’s Department of Labor and would authorize an internal auditor under certain circumstances. 

Texas (proposed) - House Bill 1709 would set up a comprehensive legal framework to prevent and remedy algorithmic discrimination against people based on protected characteristics. 

Virginia's proposed HB 2094 would prevent the use of AI systems that result in “differential treatment or impact that disfavors an individual or group” based on protected characteristics. 

While other states are reviewing the impact of AI on employment decisions, we are confident the above list will continue to grow.  The question is, is your company prepared for these coming restrictions?  If you’re recruiting remote workers across the country, chances are they will. 

For a deeper look at the risks and benefits of AI in business, cybersecurity expert Dave Hatter recently joined Pandy on The Human Resource USA Podcast to discuss what your business needs to know when drafting an AI policy. 

Legal and Ethical Considerations 

AI can be a legal minefield. It’s trained on massive amounts of online data, often without clear attribution, which raises serious concerns about copyright violations, trade secret exposure, and regulatory compliance. 

Some risks to consider include: 

• Data privacy laws—Employees may unknowingly input personal or proprietary data into AI systems that store or share information.  This includes employee benefits, compensation plans, and medical information. 

• Bias and fairness—AI models can reinforce biases in hiring, performance evaluations, and business decision-making. Candidates or employees with disabilities can be negatively affected by certain AI systems. 

• Security vulnerabilities—AI-powered voice cloning is a growing fraud risk. Inconsistencies in real-time conversation responses may be a warning sign. 

Your corporate AI policy should outline acceptable usage, prevent legal missteps, and protect your company from potential liabilities. 

Customization Based on Your Business Needs 

There’s no one-size-fits-all approach to AI policy. Every company has different risk factors, compliance needs, and operational goals. 

An AI policy template can give you a starting point, but it should be adapted to address: 

• The specific AI tools employees can and cannot use 

• What types of company data can (and cannot) be entered into AI systems 

• How AI usage aligns with state-specific and industry-specific laws 

• Internal auditing and compliance procedures 

Using a generic AI use policy without tailoring it to your company can leave you vulnerable. A customized approach ensures your business is covered.   

We suggest using our AI questionnaire to narrow your focus to the best and most compliant use of AI in your company. 

Components and Considerations of an AI Policy 

An effective AI policy should clearly define acceptable use, security protocols, and where human oversight is necessary. 

Defining Acceptable Use and Data Management 

Setting boundaries for AI in the workplace helps prevent accidental misuse and security breaches.  

Your policy should specify: 

• Which AI tools employees are allowed to use 

• What kind of data can be entered into AI platforms 

• Whether AI-generated content needs human review before being used 

Without clear guidelines, employees may unintentionally expose confidential business information. 

Security, Compliance, and Audit Protocols 

AI security risks evolve constantly. A proactive corporate AI policy should include: 

• Clear restrictions on using AI-generated content for legal or contractual documents, severance agreements, non-compete and non-solicitation agreements and confidentiality agreements 

• Regular audits to ensure compliance and identify AI-related risks 

•  Employee training on AI security threats, including fraud risks like voice cloning 

Your AI policy should also align with any relevant state or industry regulations. 

Recognizing AI Limitations and the Role of Human Oversight 

AI can assist with decision-making, but it’s not infallible. It can generate errors, spread misinformation, and make flawed recommendations.  

Your policy should outline: 

• When human oversight is required for AI-generated work 

• Where AI should not be used, such as in sensitive HR decisions 

• How to address AI mistakes and prevent them from affecting business operations 

Keeping humans in the loop ensures AI remains a tool rather than an unchecked authority. 

Implementing Your AI Policy Effectively 

A well-written workplace AI policy is only effective if it’s properly implemented. 

Start with a Template and Customization 

Many businesses begin with an AI policy template, but modifications are necessary to ensure it meets legal and operational needs. Before rolling out the policy, work with your HR and legal teams to refine and finalize it. 

Policy Communication and Employee Training 

Your AI policy will only work if employees understand it.  

Training programs should: 

• Explain AI’s capabilities and limitations in a way that’s easy to grasp 

• Provide examples of AI misuse and the potential consequences 

• Reinforce compliance with ongoing education and updates 

Even a well-crafted policy won’t be effective without employee awareness. 

Monitoring, Auditing, and Policy Updates 

AI technology is evolving rapidly, and your AI use policy needs to keep up.  

Make regular policy reviews a standard practice to: 

• Conduct audits on AI usage within your company 

• Adjust policies based on new legal and security developments 

• Keep employees informed about changes to AI guidelines 

By treating AI policies as ongoing initiatives rather than static documents, your company will be better prepared for future advancements. 

Empower Your Future with The Human Resource USA 

AI is here to stay, and having a clear policy in place will protect your business, strengthen compliance, and help your team use AI effectively. 

Looking for guidance on crafting your AI policy? Get expert advice from a trusted HR consultant. Plus, we have an exclusive free resource on writing an AI policy—contact us to get your copy.   

Our AI questionnaire is the perfect starting point for these crucial conversations in crafting an AI policy to meet the needs of your business. 

For more HR insights and resources, visit the HR Academy to sign up and stay informed. 

AI is transforming the workplace—let’s make sure your business is prepared.