Why Conduct an HR Audit

SHRM, the Society for Human Resources Management, recommends an annual review of HR policies and practices. However, if your company experiences one of these six events, it should trigger an HR audit immediately.

• There are significant organizational changes, for example, a merger, acquisition, sale of the business, additions or departures of key senior management.
• Major regulations or legal changes are announced.
• The business grows to the point of supervisors making hiring, discipline, promotion, demotions, transfer, or termination decisions without direct supervision of the HR department.
• The company opens new facilities in another state or country.
• Employee morale, high turnover, attendance or excessive discipline problems become key issues.
• The company becomes a government contractor or subcontractor.

The Most Likely Problem Areas

Most lawsuits can be traced to four distinct stage of the employment relationship:

1. Hiring (job descriptions, application forms, employment contracts, references, etc.)
2. Employee evaluation (performance appraisals and promotions)
3. Employee discipline (rule infractions, evidence, poor performance etc.)
4. Termination (comparison with other similar situation, proper warnings, adherence to the complain procedures, etc.)

If you want to reduce the opportunity for these situations to arise, it’s important to audit these areas of the business on a regular and systematic basis.

Companies are vulnerable to mistakes in other areas as well, including:

• Misclassification of exempt and nonexempt jobs

Almost every company has job positions that have been misclassified as exempt from overtime requirements.

• Inadequate personnel files

A review of sample personnel files often reveals inadequate documentation of performance. For example, disciplinary warnings are frequently informal, vague and/or inconsistent. Medical information is often found in personnel files, despite laws requiring that such data be kept separate. Accurate and detailed records are essential for employers to defend any type of claim brought by an employee, particularly unemployment compensation or wrongful discharge claims.

• Time keeping records

With the new FLSA laws, it is even more important that time worked is recorded accurately.

• Insufficient documentation

Reviews of employer hiring practices often uncover inadequate documentation, such as missing or incomplete I-9 Forms.

• Compliance with employment laws

It’s hard to keep up with changing regulations, but it’s not a luxury—it’s the law. Audits for compliance with the Americans with Disabilities Act, Workers’ Compensation laws, Drug-Free Workplace Act, and OSHA are particularly important, and expose employers to legal vulnerability.

But that’s not all. A good HR audit will also review job descriptions, performance appraisals, termination procedures, your employee handbook, and recruiting and employment practices. Auditing these areas allows the company to identify weaknesses in its systems and help identify the issues and areas that need to be updated.

What to Expect

The amount of time involved and the effort required will depend on the size and type of your company, the type of information the organization hopes to glean from the audit, the scope of the audit, and the number of people included on the audit team.

At the conclusion of the review, findings are typically reduced to a written report with recommendations that are prioritized based on the risk level assigned to each of them (high, medium, low). From this analysis, a roadmap for action can be developed to determine the order in which to address the issues raised in the HR audit.

Many employers—especially those with a smaller workforce—tend to assume that an HR audit isn’t necessary. No matter what the size of the organization, a good HR audit not only identifies potential issues, it will identify gaps that can cause problems as the company grows.

An HR audit helps you plan for the future, and is an investment in one of your most important assets: people. It not only helps you prevent problems, but helps you better understand how to more effectively recruit, develop, and retain talented individuals.