What Is an HR Audit and Why Is It Necessary?
This blog is the start of a series of blogs related to my last blog on HR Compliance. And yes, conducting an HR audit is vital to HR Compliance, but not the only reason you should conduct an audit. HR audits should consider an organization’s strategic actions when looking at its HR policies, procedures and practices. A review of the company’s current state can help identify whether specific HR practice areas and processes are adequate, current, legal and effective.
The monetary costs of ignoring HR-related legal compliance can be avoided by conducting a periodic HR audit. The purpose of an HR audit is to identify gaps in HR practices so that you can prioritize these gaps in an effort to minimize lawsuits or regulatory violations, as well as creating best practices in key HR areas.
Areas of Focus
An HR audit involves taking an objective look at the organization’s HR policies, practices, procedures and strategies to protect the organization, establish best practices and identify opportunities for improvement. An HR audit follows two main directions:
HR Policies, Practices and Processes
An evaluation of policies, practices and processes with a focus on key HR department delivery areas, such as:
- Employee retention
- Compensation and job classifications
- Employee benefits
- Performance management
- Corrective action
- Employee relations
- Training and development
- Employee handbook
Current HR Indicators
A review of current HR indicators, such as:
- Number of unfilled positions
- Time it takes to fill a new position
- Employee satisfaction
- Internal grievances filed
- Number of legal complaints
- Absenteeism rates
- Exit interviews
In addition, businesses are particularly vulnerable in certain areas. Most lawsuits can be traced to issues related to hiring, performance management, discipline or termination. Make sure you seriously review the following:
- Classification of exempt and nonexempt jobs.
- Inadequate personnel files such as inadequate documentation of performance or personal health information that should not be in personnel files but kept separate.
- Prohibited attendance policies. Organizations often have attendance policies that do not comply with relevant state and federal laws and regulations.
- Inaccurate time records
- Form I-9 errors. Employers can be fined between $100 and $1,000 for each failure to accurately complete a Form I-9.
The HR Audit Process
According to the Society for Human Resource Management, the general process of conducting an audit includes seven key steps:
- Determine the scope and type of audit.
- Develop the audit questionnaire.
- Collect the data.
- Benchmark the findings.
- Provide feedback about the results.
- Create action plans.
- Foster a climate of continuous improvement.
Where to Begin
To conduct an audit, you will need to develop either a questionnaire or check-list that asks or lists the evaluation of the above-mentioned specific practice areas. In addition, you’ll want to include interviews and surveys to solicit feedback from selected HR employees and other department managers to learn whether certain policies and procedures are understood and practiced.
Once you’ve gathered your data, you will compare them with HR benchmarks. This comparison should provide insight into how the audit results compare against other similarly sized firms, national standards or internal organizational data. Typical benchmarking data that you can easily find on the web include: ratio of total employees to HR professionals, ratio of dollars spent on HR function relative to total sales, general and administrative costs, cost per practice area, and cost per new employee hired. National standard benchmarking might include the number of days to fill a position, average cost of annual employee benefits and absenteeism rates.
Is Performing an HR Audit Time Consuming?
HR Audits don’t have to be time consuming, though they need to be thorough. How thorough depends on the purpose of your audit in the first place. The good news is, once you have completed a highly thorough compliance audit, each year only involves follow-up so that you can continue to improve your HR services. I look forward to delving further into each practice area to discuss best practices and compliance in future blogs.