Understanding Human Resources Audit

A human resources audit is a process through which you assess the effectiveness of your human resources (HR) department. Its purpose is to identify your strengths and discover areas for improvement.

An audit will typically cover:

• Compliance with labor laws
• Departmental policies
• Record keeping
• Systems and technology
• Aligning HR with business strategy

A HR audit may relate to your entire department or individual functions, such as performance management or payroll.

You can perform an internal HR audit or involve a third party to conduct the evaluation. If you carry out a thorough audit, you will likely only need to perform one per year. However, you may also decide to conduct less in-depth assessments on a more frequent basis.

The Importance of HR Audits

Performing an HR audit may, at first glance, appear daunting. However, there can be numerous benefits for your business. These include the following:

Ensuring legal compliance

One of the most important functions of an HR audit is to ensure that your company follows labor regulations at both state and federal levels.

If your audit identifies any potential issues before they escalate, it could help your business avoid future legal action from employees or investigations from labor standards authorities.

Long-term cost and inefficiency savings

An audit can help address any cost wastage across your HR department. If, for example, your business is using an inefficient payroll system, your HR employees are likely to be spending too much time organizing wages. By investing in a better system, you could save money in the longer term.

Helping to increase employee retention

An inefficient HR department can result in a poor experience for your employees. In a worst-case scenario, this could lead your people to seek employment elsewhere. In contrast, a well-run HR department can contribute to an improved company culture and higher levels of job satisfaction.

What Key Areas Should a Human Resources Audit Include?

All companies will have different HR policies and be seeking to achieve different outcomes from their audit. Broadly speaking, however, a robust audit should cover certain key areas. These include the below:

Health and safety

One of the most important functions of an HR audit is to ensure that you follow all federal and state laws on employee safety.

As well as putting your employees at risk, failing to follow health and safety regulations could expose you to serious legal risk. In the most extreme cases, business leaders who do not  follow health and safety protocols may face criminal charges.

A health safety audit will typically include points such as:

• Emergency and fire evacuations
• First aid
• Handling of dangerous materials
• Policies for remote workers

Hiring

If you would like to attract top talent to your business, auditing your hiring process is crucial. This typically includes:

• Ensuring job descriptions are written correctly
• Providing hiring managers with appropriate interview questions
• Verifying that employees are correctly vetted, where necessary
• Confirming employment contracts are legally compliant

Likewise, it’s a good idea to check that your hiring manager checklist is up to date.

Onboarding

Auditing your onboarding process involves checking that new staff members receive all relevant information about your business and their role, such as handbooks, welcome letters, and payroll details.

In addition, you may also want to check that your procedure for your employees’ first days is running effectively.

Training

Verifying that your employees have completed all necessary training is another key component of an HR audit. If you work in a larger business, you may find the most effective way of doing so is through learning management software. It’s also wise to audit both training pass rates and completion rates.

Performance management

As part of the audit, you should ensure that performance reviews are conducted on at least an annual basis, and that detailed records are kept.

Likewise, you should examine the quality of feedback your managers provide.

For performance reviews to be effective, managers should give clear actionable areas for improvement.

Benefits package

When assessing your HR function, it’s essential that you check that your employee benefits package is correctly administered and that employers are aware of their entitlement.

In addition, you should make sure that your package is competitive in relation to others in your industry. If your benefits fall behind those of other companies, your most talented members of staff may look for alternative employment.

Records of employee hours

If you have hourly employees within your organization, you will need to keep accurate records of their hours worked. Not only is this good practice, it is a requirement of the Fair Labor Standards Act. According to the terms of the act, you should keep this information for at least two years.

Payroll

An audit should also involve identifying, and remedying, inconsistencies in your payroll processes. For example, you should verify that you are correctly calculating tax deductions and garnishments for your employees’ wages.

Technology

If your business uses HR management software, it’s essential that you regularly review these systems. As well as making sure your software performs all the tasks you need it to, it’s sensible to investigate if more affordable options are available.

Employee data

As part of your audit, you should also make sure that your employee database is up to date and accurate. One of the common ways of doing this is by spot checking information to confirm that it is accurate and has been recently updated.

It’s also sensible to check whether the information you hold on your employees is collected and stored in accordance with federal and state laws. Note, for instance, that the Americans With Disabilities Act makes it illegal to keep medical details alongside other employee data.

Communication with employees

Another important part of the audit process is to confirm that all your HR policies are easily available to employee. They should also know who to contact if they have a query. Likewise, it’s wise to review your company handbook to confirm that it is still accurate.

Tips for a Successful Audit

By following the tips below, you can greatly increase the likelihood that your audit will benefit your HR department and your wider business.

Study relevant legislation

WIth labor legislation forming a key part of an HR audit, it is important to understand which regulations apply to your business. One of the most useful places to start is by visiting the Department of Labor’s website. In addition, you can find further information from the Office of Labor Standards for the state in which your business operates.

If you are uncertain about any aspect of labor laws, it would be sensible to seek professional advice before you begin your audit.

Decide the scope of your audit

Before you begin, you should have a clear idea of what your audit will—and won’t—include. Doing so will allow you to keep a strong focus and help prevent you from becoming distracted by irrelevant issues. Likewise, you should allow sufficient time to perform the audit thoroughly.

Get buy-in from senior leaders

You are far more likely to gain business-wide support for your audit if your company’s leaders champion the initiative. Try to put in some time with your business heads to explain your goals and how the audit can benefit your overall business strategy. If your CEO openly endorses the process, others will likely follow.

Act on your findings

Once you have concluded your assessment, identify meaningful actions that you can take to address any issues you have uncovered, and put in timeframes to make these improvements.

It’s also useful to group these actions in terms of urgency. Looking for a new time-management system may, for example, be less of a priority than remedying any legal issues you identify.

Conclusion

An audit is a valuable tool for stepping back from your HR department’s day-to-day operations and identifying both your strengths and weaknesses. Although it may be time-consuming, an audit can greatly improve efficiency and help guarantee that your business is legally compliant.

One key point to bear in mind: an audit may be an annual process, but acting on its findings should be a yearound process. This way, you can help guarantee that your HR department and your business are constantly moving forward.