The Business of People: Conducting HR Audits

What Is an HR Audit?

An HR audit is an objective evaluation of an organization’s HR policies and practices. The goal is to uncover damaging or non-compliance issues and identify ways you can improve. Some HR departments hire an outside company to perform an external audit while others perform an internal audit.

Why Are HR Audits Important?

HR audits help organizations stay compliant with applicable laws and regulations. They aid in ensuring the right processes are in place for hiring, onboarding, performance management, and terminating employees, and assessing the costs associated with these activities.

From a legal perspective, HR audits can help a human resources department identify their greatest risks and how to better comply with the laws and regulations they are expected to follow. This is especially important for the hiring and termination processes, benefits, healthcare, and conflict resolution.

Financially, audits can tell an HR department how and where they are spending their budget and if that money is being used efficiently. This way, HR can lower their financial risks, make better use of their budget, and put money towards their most important projects.

When the HR department is running properly (and performing at its best) then the rest of the company and workforce is often able to perform better, too. Let’s say, for example, an audit discovers your wages aren’t competitive compared to your direct competitors. We know that 81% of workers say that they are more productive when paid fairly, so you could improve the performance of your employees by improving compensation — but it sometimes takes a data-driven audit to prompt that discussion. 

By having the best support and reinforcing the most rewarding parts of your organizational culture, human resources can truly be a force for good. Audits help give management the perspective they need to make positive adjustments.

Types of Audits

HR audits are not all the same! Your HR team handles so many things, from onboarding to benefits and everything in between. Given this variety, there are different types of audits to cover the most important elements of your HR setup. We’ll address the following, common types of audits: compliance, strategy, function-specific, and best practices.

Compliance

Compliance audits are to ensure all policies and procedures align with laws, regulations and standards at the federal, state, and industry level. State laws, for example, may differ based on company location. An audit should catch any current violations and mitigate any risk by preventing future compliance violations — the last thing your company needs is a liability lawsuit on its hands.

Strategic

A strategic audit focuses on the strengths and weaknesses of your current HR systems and how they are serving your organization. This includes how HR’s processes or rules are supplementing the business operations and the employee experience. A strategic audit is specific to your organization and should determine how aligned your working systems are to the company’s policies, mission, and objectives.

Function-specific

Function-specific audits focus on a narrow HR area to evaluate how effective or budget-friendly it is. This could be assessing how your current healthcare plans are working for your employees and whether or not they suit their current economic needs. Or it could be a review of your wellness program to see if it’s making a positive impact on the health of your employees. This may also address how you approach certain procedures or policies like payroll management, employee review policies, or record-keeping efficiency.

Best practices

This audit is all about your internal workings as an HR department: You compare your company’s HR practices against those in the industry’s best HR practices and see how you measure up. Are your practices competitive? For example,  93% of employees consider their wellbeing to be just as important as their salary, so are you offering wellness benefits and talking about them in your job descriptions? How do your payroll, handbooks, and onboarding process compare?

What to Include in Audits

Audits can cover a wide range of topics since human resource departments impact so many aspects of an organization. You may want to conduct a general audit that covers all HR practices, or you may want to focus on specific practices, such as employee relations or hiring. The data collected will depend on the practices under review, but will typically include metrics related to costs, processes, and HR effectiveness, such as employee satisfaction or engagement. Other metrics frequently involved in HR duties include:

• Performance. What do personnel files tell us about the quality of feedback that managers are giving their employees?
• Compliance. Are all of the rules and regulations being followed according to local, state, federal, and industry standards?
• Best practices. Is HR management prioritizing the right practices, systems, and policies?
• Competitiveness. How do the company’s compensation and benefits compare to other organizations in your industry and area?
• Function-specific. What processes does HR need to take a closer look at to determine their effectiveness and affordability?
• Additional areas:
  • Misclassified jobs
  • I-9 errors
  • Noncompliant attendance policies
  • Incorrect time records
  • Incomplete personnel files

When to Conduct Audits

HR audits can technically be conducted at any time, but it’s best to have audits regularly if you want to continually improve. That’s why a well-structured HR department will have HR audits on a consistent basis, such as annually or semiannually. A full-blown audit doesn’t need to be done more than once a year — you’re going to burn out or stress out your team if you do it any more often. But you can do smaller audits every six months to make sure everything is on track.

They are also commonly used at the beginning of a new organizational initiative or when there has been a change in organizational leadership, such as a new CEO or CFO. If you introduce or implement a new HR system or process, that process needs to be audited to ensure that everything is aligned with your organization’s mission and any legal requirements.

Who Should Audit

Who conducts an audit will often depend on the type of audit at hand. For compliance audits, an external auditor is typically used. You don’t really want the same people performing legal paperwork tasks to double-check them…that’ll get a little circular. Plus, if a legal audit is conducted using internal sources or a non-qualified third party, the findings of the audit are at risk for litigation.

For strategic and function-specific audits, an internal HR representative may be the best fit, such as an HR manager or an individual in charge of a specific function who understands the overall goals of your organization. If the internal auditor is both qualified and objective, this may work well. Some organizations, however, choose to use external hires to really ensure all results are objective.

Wrapping It All Up

HR audits may initially sound intimidating, but especially when they are conducted regularly and intentionally, they won’t catch your team off-guard or be a source of stress. Instead, a human resource audit is an opportunity to assess your current procedures and ensure that your team is doing the best job that they can.

Audits can reveal so much about your HR department and your organization as a whole, including the culture you’re creating. They illuminate how policies and benefits impact your employees and business, and what you can do to make your organization a great (and legally sound) place to work. If you want to discover new ways to improve your workplace, especially by helping your employees improve their health, talk to a Wellbeing Specialist to learn about some amazing wellness program resources today!