Conducting an HR Audit


By: Susan Walsh, SHRM-SCP

Much like an annual visit to the doctor for a check-up, an HR audit is like a health check– it measures the overall health of the HR function. An audit identifies what you’re doing well and where you might need to improve. It also helps an organization determine where there might be small or emerging problems before they become big and costly problems. It also reinforces the things you’re doing well. Audits can focus on strategy, compliance, best practices, or specific HR functional areas.

Consider the six main areas of an HR audit:

Organization – culture, mission, vision, values, communication

Hiring – job descriptions, job postings, sourcing, interview questions, background checks, employment classification, EEO compliance

Compensation & Benefits – salary reviews, paid time off, payroll, benefit plans communication, FMLA and FLSA compliance

Employee Relations – performance reviews, feedback, conflict resolution, complaint process, stay and exit interviews

Safety, Security & Workers Comp – Emergency Response Plans, accessibility, ADA and OSHA compliance, insurance

Record Keeping & Documentation – personnel files, other files, duration of records, labor law posters

Trying to audit all six areas at once might be a daunting task! Often an audit is conducted on one or two specific areas to start. Work with leadership to determine what is important to them and understand their risk tolerance. Also, look at the data you already have access to– high turnover and exit interview data may indicate a growing concern with the competitiveness of your pay and benefits. Knowing this will help prioritize areas of focus. Pick one or two key areas to start rather than trying to tackle everything at once.

Look at an audit as an opportunity to begin the cycle of process improvement. It’s never a once-and-done! Periodic spot checks and scheduled micro-audits ensure improvements are made on a regular basis. For example, as the benefit plan year changes, it’s an opportunity to verify the correct amount is being deferred from employees’ paychecks. A good time to audit 401k documents (beneficiaries, deferrals, etc) is just prior to an annual 401k education meeting. I often find the time around the holidays to be a perfect time to review employee files and make sure everything is in order. The key to continuous auditing is to block off the time (monthly, quarterly) and to conduct micro-audits as changes happen.

An audit can be conducted by an external vendor or it can be conducted internally. The decision of who audits is one that depends on the scope, capacity, financial resources, and urgency. Some organizations choose to have a baseline audit conducted by an external source with spot-checks completed by the internal HR department. Smaller organizations with fewer risk factors may choose to conduct all or part of the audit themselves. The best audits are those that are initiated within the organization to improve HR processes since these audits are ones you control. The less favorable audit is the one the government requires of you.

Armed with audit results, the HR professional can begin to fully vet the issue, assess the risks involved, and develop a business case for implementing change. It’s important to prioritize issues and identify those that are of greatest concern. Most lawsuits can be traced to hiring, performance management, discipline, or termination policies and practices. These are typically addressed in the functional area audit. The following tend to be of greatest risk for non-compliance and maybe a good start in ticking off your audit efforts:

● Misclassification of exempt and nonexempt jobs

● Poorly maintained personnel files

● Prohibited attendance policies

● Form I-9 errors

● Inaccurate time or wage and hour records

● Non-existent or outdated federal and state labor posters

Consider how a health check for the HR function can benefit the organization and add value to your leadership team. No need to call central scheduling! Just put the appointment on your calendar to start the audit process and the HR function will be on its way to better health.

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