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Katie Navarra
By: Katie Navarra

Our Small Business Expert

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Don’t let the word “audit” send you into a panic. There’s no reason to fear the human resources audit with these simple steps for getting started.

I’ll never forget the first time a corporate auditor showed up for a surprise review of the store I managed. My stomach flipped, my heart raced, and I started sweating.

Fortunately for me, our company provided audit training. The tedious half-day session explained each line on the multi-page scoresheet. As soon as I got back, I evaluated my store against the standards. Thank goodness I didn’t wait since the corporate auditor arrived six months later.

While I was nervous, I was also confident that preparation was on my side. The store received an impressive 82% compliance rate, one of the highest in the company.

It’s natural to fear audits. No one likes being checked on. In part, audits make sure policies, procedures, and laws are followed, but they can also offer insights into opportunities for improvement.

There are many types of audits, with the nature of the business driving which one to use. Depending on the size of the company, each department may benefit from an audit. Regardless of the business, a human resources (HR) audit is a universal need.

Overview: What is an HR audit?

The HR team performs a wide variety of critical roles. An audit is a systematic process used to evaluate how the department is performing its assigned tasks.

Here are a few HR metrics a human resources auditor reviews:

  • Policies
  • Procedures
  • Documentation
  • Systems
  • Practices
  • Strategies

What is the purpose of an HR audit?

It’s impossible to improve when weaknesses are unknown. An audit is a comprehensive review of what’s working well and which areas are lacking or out of compliance.

3 types of HR audits

Audits can be broken down into three broad categories. Understanding these core areas can help narrow down which HR audit templates will best serve your business.

1. Company culture audits

It’s no secret that company culture drives profitability, so it’s crucial to keep track of the workplace climate. Audits focused on measuring culture start with these areas:

  • Hiring processes
  • Performance management procedures
  • Retention rates
  • Employee satisfaction

2. Financial implication audits

Company leaders and investors want to know the HR department is supporting financial goals through its policies and procedures. This helps avoid costly fines for noncompliance while simultaneously enhancing profits when new efficiencies are found.

3. Compliance-focused audits

Compliance is a critical HR function. Legal audits make sure the company’s policies and actions are following related laws. These are a few examples:

  • Leave structure
  • Hiring practices
  • Health
  • Safety
  • Policies
  • Payroll

What is assessed during an HR audit?

Human resources staff perform lots of tasks and responsibilities. It’s impossible to review the effectiveness of all of them with one audit. Creating an HR audit checklist for specific functions makes it less overwhelming.

Here are six types of audits to consider:

Hiring and retention audit

Take a look at the processes you use to attract, hire, and onboard new employees. Besides the legal implications for doing this improperly, reviewing the process can reveal workplace culture implications. For example, if people come in but leave quickly, it may suggest your process is not getting to the right candidates for the job.

Embedded in this type of HR audit checklist is the process used to provide recruits with official offers. For example, if 50 offers were made and only five were accepted, that’s a red flag. This might mean your offers aren’t competitive and give you a starting place for corrective action.

Benefits audit

Contributions to retirement plans and payroll deductions require precise oversight. Making sure benefits administration is done correctly is key to following the law. A benefits audit highlights potential issues that carry fines.

A benefits audit can include a deeper review of what’s included in the benefits package and how information is shared with employees. Ask staff for feedback as part of this audit. What was once a premium benefit may no longer be valuable, and changing benefits to align with the times supports employee retention.

Performance management audit

Evaluating employee performance is central to keeping staff aligned around your company’s goals. A performance management audit digs into the frequency and the process of reviews. Results could show that your staff doesn’t have the resources needed to succeed.

Employee files/data privacy audit

All employers are required to protect workers’ personal information. An employee files audit can confirm that sensitive information is collected and stored according to privacy laws. This type of review also reveals any shortcomings in recordkeeping. For example, all employers are required to have an I-9 form on file for every employee. An audit can confirm that this and other critical forms are being properly collected.

Pay equity audit

Expertise and experience typically drive pay scales. Taking a look at who is earning what, their job requirements, and skill set can uncover pay gaps. It’s important that all employees feel valued, but if an external audit were to reveal pay gaps based on gender, age, etc., it could be problematic and carry penalties.

Safety audit

Businesses are obligated to provide a safe working environment that protects employees’ health. That can look vastly different in an office building, a warehouse, or a retail store. A safety audit highlights potential health risks.

It’s impossible to think of every scenario yourself, so ask employees for feedback on what they feel is impacting their health. Include workers’ compensation reports in the data collection. Information collected from multiple sources through an audit offers a better overview of operations.

How to create your own HR audit checklist

Creating an HR audit sounds like a daunting task. There are countless details to consider and loads of data to analyze. As you develop your HR compliance audit checklist, consider using HR software. Whether you invest in a new platform or use the features in your current system, storing the data in one place simplifies the process.

This checklist gives you a place to start.

1. Decide on the scope

A comprehensive review of all HR areas may not be the best solution, especially if one has never been done before. Focusing on a specific area, such as I-9 forms, allows for a look at every step of the process.

2. Determine a data collection process

An audit is impossible without information. Having a plan for collecting data saves time and headaches midway through the process.

These are a few popular methods for collecting audit information:

  • Reviewing electronic files
  • Circulating a questionnaire among staff
  • Examining the HR database

3. Define “good” defines good as, “satisfactory in quality, quantity, or degree and of high quality; excellent.” What that looks like is incredibly subjective, so before launching an audit, define how to measure “good.”

For example, when looking at labor laws, that means following the language in them. In other cases, industry standards or best practices may be the benchmark to measure against.

4. Know action is needed

The HR audit is only the first step of a larger process. Once the information is collected and reviewed, it’s necessary to brief senior management to decide on further action. In areas where the company is not compliant with the law or national standards, needed changes are obvious. Culture and process changes are likely to need additional exploration for clarity and eventual implementation.

5. Delegate responsibility

HR audits often require a team effort, but one person needs to be assigned to “own the process.” This person decides audit frequency and the type needed and identifies who is responsible for taking action.

These are a few options to consider when deciding who will own the project:

  • Internal HR staff
  • Independent expert contractor
  • HR services firm

Seeing the positive

Choosing to conduct an internal audit or contracting with a firm can help you spot and correct issues that could cause larger legal problems. Should a legal entity come knocking about a complaint, you can’t claim ignorance as a defense.

Just as important, audits are a tool that can reveal new business opportunities and encourage employee engagement. So the next time you hear the word “audit,” give your body 30 seconds for that visceral response and then open your mind to the opportunities for growth.

Our Small Business Expert