What is a HR audit?

Navigating human resources tasks with daily operations can be overwhelming for any business owner. With employee issues potentially arising. employment laws always changing, and the needs of the business evolving, many business owners may look to outside help to supplement their HR practices. This is where HR consulting services come in, offering a way to ensure your organization enhances its’ processes, stays legally compliant and operates smoothly.  Many HR services start with an HR audit of your business.

At Paper Trails, we understand the fears and headaches that come with managing payroll, HR, and small business operations. We’re passionate about helping small businesses navigate these challenges. In this article, you’ll learn what an HR audit is, why it’s essential, and how it can benefit your business. We’ll walk you through the different components of an HR audit, so you can see how it helps uncover illegal processes, establish best practices, and identify opportunities for improvement. Let’s get started!

What is an HR audit of my business?

An HR audit is typically performed by an HR expert, that could be an internal member of your HR team, or an external HR consultant.  A key thing to consider is that the audit needs to be done from an objective point of view and not be biased about your business.  It involves a through examination of all of your business’s HR practices and policies.  The purpose of this audit is to ensure your practices are up-to-date, in line with the latest legal obligations and follow best practices.  You can consider it kind of like a check up at the doctor, but this is a check up for your business’s HR functions. By conducting these HR audits, businesses can ensure that they protect themselves from legal consequences and improve on their current processes.

Why are these audits important?

An HR audit of your business is important because they help identify areas of non-compliance that could lead to legal issues and gaps in your current practices that can be updated for more efficient operations. Regular audits ensure that your HR practices are up-to-date with the latest laws and best practices. This proactive approach can save your business from costly fines and employee issues. Without regular audits, your business may suffer higher employee frustration and turnover as well as potential fines and penalties from state and federal authorities.

What does a HR audit entail?

An audit can entail many things.  It involves gather proper documents of your business such as the employee handbook, job descriptions, all of your policies and more.  Then auditors look for outdated information or bad practices and highlight ways to improve.  Here are some items that areas of focus:

Your organization as a whole

Questions will be asked by auditors about your organization as a whole.  These answers will help determine how your business operates and what laws that you need to comply with based on company size.  Some questions that may arise during an audit include:

• Do you have a current mission and vision statement?
• Are the HR goals aligned with the organizational goals?
• How many managers and supervisors does the company have?
• How many full-time and part-time employees are there?
• How does HR communicate with management and employees?

Hiring and termination practices

Other areas of consideration are your hiring and firing practices.  There are legal landmines to navigate when it comes to how you manage these things.  Some areas where an investigation will focus on includes:

• What procedures are used for hiring in your organization?
• What recruitment sources are used, such as advertisements, job boards, referrals, and social media?
• Do job descriptions exist, and are they up to date and ADA-compliant?
• Are I-9 forms and acceptable documentation reviewed annually?
• Do new employees complete state and federal W-4 forms?
• Are independent contractors accurately identified?
• Are workplace policies in place and communicated, such as EEO, harassment, safety, attendance, etc.?
• Is there an updated employee handbook, and are employees required to sign an acknowledgment of receipt and understanding?
• Are all employees trained in discrimination and harassment issues?

Compensation and benefits

An HR audit will also look at your compensation and benefits programs to ensure they are fair and compliant with laws like the Fair Labor Standards Act (FLSA). Important questions include:

• Are compensation levels and plans monitored and reviewed annually?
• Are employees correctly designated as exempt or non-exempt per the Fair Labor Standards Act?
• Are non-exempt employees compensated for overtime work?
• Are benefit plans reviewed annually?
• Are you holding an annual open enrollment for benefit plans?
• Are Summary Plan Descriptions provided to plan participants annually?
• Do paid time off (vacation, holidays, etc.) structures align with Maine Earned Paid Leave? Are they documented and equally enforced?

Employee relations

Maintaining good employee relations is vital for a productive and positive work environment. An investigation into these areas will look at:

• Is there a system for performance evaluation?
• Is the quality and quantity of work evaluated?
• Are there disciplinary actions for violating workplace policies? Does documentation exist for each incident?
• Are employment practices in line with the applicable anti-discrimination laws?
• Are supervisors and managers trained in anti-discrimination practices?
• Do exit interviews take place?

Recordkeeping

Proper record-keeping is crucial for compliance and operational efficiency. An HR audit will check:

• Are personnel files current?
• What documents are held in personnel files?
• How long are files held, and where are they stored after employees leave?
• Is there training for managers and employees about personnel files?
• Are all federal and state labor posters displayed in a conspicuous place?
• How are Paid Time Off, FMLA, and Worker’s Compensation documented?