An HR audit (human resources audit) becomes necessary as soon as you have employees to manage. No matter how few employees you have, HR issues will arise. Conducting an HR audit is a crucial step in making sure that your HR team is ready to deal with these issues.

The human resource audit process assesses how your HR department approaches specific areas of policy and regulatory compliance. Since 2003, employment lawsuits have increased by 400%. In most cases, an HR-related discrepancy or oversight was the cause.

This highlights the importance of human resource audits.  An equitable, safe workplace culture increases employee satisfaction while decreasing your organization’s risk of major financial losses.

What is an HR Audit?

An HR audit evaluates the policies and procedures established by, and disseminated through, the human resources department. Many organizations hire external consultants to conduct the audit due to their expertise with employment policies, including new recruiting, safety, and training regulations at the state and federal level.

External consultants help maintain confidentiality and objectivity and may also assist in establishing corrective process guidelines. It’s important to conduct regular HR audits – sometimes as often as once per year – to ensure ongoing compliance with local, state, and federal regulatory changes.

The Objectives of an HR Audit

There are 4 main objectives of an HR audit.

1. HR Compliance

Compliance audits consume the bulk of the HR audit process. This process verifies that your HR department follows:

• Local, state, and federal labor laws
• Specific industry regulations
• Company policies

Most HR audits also include an analysis of compliance with ADA, ADEA, Title 7, PDA, FMLA, and EEOC protections.

2. Performance Management

Alongside compliance, the process also evaluates HR employee performance relative to consistent, accurate implementation of policies and regulations. It gives you a deeper understanding of what’s working, what isn’t, where risks may exist, and if any employees need additional training. 

3. Risk Management

An in-depth HR audit spots potential recruiting, hiring, pay equity, pay structure, and EEOC risks. It includes a review of:

• Your Employee Handbook
• Employee Exemption Classification Review
• State New Hire Reporting
• Supplemental HR Policies
• Hiring & Onboarding Protocols
• Performance Management Review Processes
• Offboarding
• Training and Development
• Labor Law Poster Compliance

The sooner you can identify problems, the sooner you can implement a customized action plan based on your employee size, culture, and compliance needs. 

4. Alignment With Strategic Goals

Every organization has a big-picture strategy that involves all departments. An HR audit can check if your HR practices are consistent across departments and ensure that your policies are in sync with your business goals.

Methods of HR Audit

While the objectives remain the same, the methods may differ. Your organization might prefer one HR audit style over another. Here are some useful HR audit methods.

1. Questionnaire Method

The questionnaire method involves sending a survey to employees and other stakeholders. It asks about HR policies, practices, and other relevant areas. TVRLS has a pre-made questionnaire that you can use for this purpose.

*Note: The TVRLS survey is mainly geared towards executives. 

2. Interview Method

The interview method uses in-person or online chats with individuals or groups about HR’s impact on them. This approach allows for deeper understanding and clear responses.

3. Observation Method

The observation method is when auditors directly watch and review HR processes as they occur within the organization. This decreases the likelihood of a false assessment from inaccurate responses. 

4. Workshop Method

The workshop method actively involves HR and other employees in focused discussions. It’s a way to gather experiences and viewpoints from everyone across your organization.

5. Desk Research Method (Data Analysis)

The desk research method is less human-focused and more data-focused. Auditors focus on written documents to come to their conclusions. These written documents may include (but are not limited to):

• Job descriptions
• Employment contracts
• HR policies
• Employee handbooks
• Recordkeeping
• Safety
• Regulatory complaints 

6. Task Force Method

The task force method involves forming a cross-departmental audit team. This strategy works best for broad HR audits that need diverse perspectives.

HR Audit Checklist

Most employment lawsuits can be traced to 4 distinct stages of the employee relationship:

1. Hiring
2. Employee evaluation
3. Employee discipline
4. Termination

Additionally, many companies are vulnerable to making mistakes in any of these 5 areas:

1. Misclassification of exempt and nonexempt jobs
2. Inadequate personnel files
3. Prohibited absentee policies
4. Inaccurate payment of overtime
5. Insufficient documentation

Start identifying potential issues in any area from either of the above lists with the following basic checklist. It won’t replace a full HR audit, but it’s a good way to detect areas needing closer scrutiny. 

Keep Your HR Processes in Check With Professional Help

HR planning is complex, and mistakes can easily occur. Yet, such errors can have big impacts on companies. Errors are common in these areas:

• Misclassification
• Personnel files
• Absentee policies
• Inaccurate payment of overtime
• Insufficient documentation

Many leaders make these mistakes without realizing it. That’s why it’s important to work collaboratively and proactively with HR audit professionals.

JER HR has over 30 years of experience auditing HR departments like yours. We’ve helped countless businesses set-up their HR department, improve HR processes, mediate EEOC issues, and improve the workplace culture. 

Get your quick 3-minute risk assessment from us today to find and fill any hidden gaps in your policies.