HR Audit

Nick Staley
Most of us have an unnatural fear of the word “audit.” However, when talking about HR, auditing is helpful. By auditing your processes periodically, you ensure that you are up to date and minimize the chances of a major issue coming up in a Department of Labor audit.

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What Is an HR Audit?

An HR audit consists of auditing policies and procedures for compliance with local and national laws and regulations. These audits can consist of relatively small things, such as employee files and documents, to major undertakings, such as auditing your employee handbook. Whether your company is a startup or a billion-dollar company, it’s important to get comfortable doing audits.

Why HR Needs to Perform Routine Audits

Federal and state employment laws are always changing. If you aren’t aware of them and updating your handbook, policies, and the documents you have employees sign, you are falling behind, and could be found out of compliance with the Department of Labor.

  • Constant changes. A consistent audit procedure ensures you stay up to date with local and national laws and regulations. If you aren’t auditing yourself for compliance, you are setting yourself up for an employee to complain to the Department of Labor—and all it takes is one complaint for them to launch an investigation into your company. You don’t want that!
  • Document legality. Legislation seems to go back and forth on whether or not certain documents that employees sign as part of their new hire packet are legally binding. We see this with arbitration agreements, non-disclosure and non-compete agreements, and employee handbooks.  As stated above, things are constantly changing, so it’s important to take a look at the documents you are using (or have an attorney do so) to ensure that they are still legal and compliant with the current laws and regulations.
  • Employees files. It’s easy to have incomplete employee files or miss documenting a change. An employee ends up not returning from a leave of absence and they don’t get terminated out of the system, or someone is missing a document or a signature from onboarding. It’s important to catch these things as soon as possible and rectify the situation. Periodic file audits are the way to do so.

How to Audit Common Areas of Your Company

How do you know which aspects of your company need audits? Well, that’s a tricky question, and unfortunately, we don’t have a simple answer. Every company and situation is different. Here, we focus on three main aspects you should look at.

Aspect 1: Policies and Procedures

As we said, laws and regulations are always changing. Below we will outline how to audit your current policies and procedures. The main steps will be the same, but the process inside of the steps may be different, depending on what you are auditing.

  1. Gather current versions Start by gathering the current versions of the policies you want to audit.
  2. Research. Start looking for changes (we have included a couple of good starting points below) in your local and federal government. These changes can be small and still have a major impact on your business. Also, your company’s overall policy may have changed since it was originally written (remote work is a great example of this). Even if the law hasn’t changed, if your internal policy is different from when it was written, write up a new one to get it updated.
  3. Implement. Now that you’ve updated the policy, it’s time to get it approved and implemented. First, get the updated policy in front of whoever needs to see it in order to approve it. (You may also consider having an employment attorney vet it.) From there, write up a brief communication outlining the reason for the change and what has actually changed. Additional training with managers or the entire workforce may be necessary depending on the change.

Aspect 2: Documents

Documents often get overlooked in HR audits. Generally speaking, we are pretty good at auditing handbooks and the like, but we forget to take a look at the forms our employees have signed. For example, if the legislature passes a law that prohibits mandatory arbitration agreements, but that’s what you had all of your employees sign when they stated, those agreements are now invalid and can’t be used. Just because you had your employees sign one when they started doesn’t mean you are in trouble; it just means it needs to be updated to comply with the new law.

  1. Gather and group your documents. Gather together the types of documents you want to audit. Group them into types: agreements together, legal documents together, etc. This will help speed up the process because you will be able to apply research to all the documents of that type.
  2. Research.  How do you know when a law has changed? Fortunately, there are many resources out there to identify these laws. The Society for Human Resource Management (SHRM) is a great place to start, but we would also recommend the Fisher & Phillips employment law firm (or similar services). They offer a weekly newsletter subscription that identifies these types of changes.
  3. Implement. Again, you will probably need to get the changes you have made approved. If you are changing the wording of a certain document to make it legally enforceable, you might consider having an attorney or your in-house counsel vet the new document and having all of your employees sign an updated version of that agreement.

Aspect 3: Employee Files

Too often, we see things get missed within our internal employee files.  A missing onboarding document, the lack of a signature on a particular policy, an undocumented employment status change, and many other errors can become problems.These are all things that happen easily and can be caught through regular audits to prevent future problems.

  1. Divide up the employees. It can seem intimidating to tackle all of the employee files at once. We recommend breaking them up by the first letter of the employee’s last name. If you create four groups, you can audit one every quarter on a rotating basis to ensure each file gets audited at least annually.
  2. Build your list of missing docs or incorrect information. There are some issues you will uncover that need to be fixed immediately. Employment status is one of those things. Most commonly you will see an employee who goes out on leave and then doesn’t return to work, but was never terminated in the system. That is something that needs to be addressed right away. Other things, such as a missing document or a missing signature, still need to be handled in a timely manner, but aren’t as pressing. Build your list of missing items, note which are urgent, and start with them.
  3. Update your records. We touched on this briefly, but once you’ve wrapped up your audit of a group of employees and had them sign any missing or changed documents, make sure they’re filed properly. This is also a great time to put the next audit for this group of employees on your calendar so you don’t forget.

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Questions You’ve Asked Us About HR Audits

Can an HR audit help with compliance?
Absolutely! Audits provide the opportunity to uncover any out-of-compliance documents or policies you may have in place. It’s much better for you to uncover them than the Department of Labor.
How often should an HR audit be performed?
We endorse quarterly audits, but nothing says you have to do it at all (although we recommend you do). Some companies do them once a year, but at the end of the day, it’s up to you and your particular situation.
Are there any disadvantages to performing an HR audit?
The only disadvantage is the fact that it can be time consuming, especially if you find yourself needing to change multiple things. However, it is well worth the effort.
Nick Staley

Nick is a certified HR professional holding an SPHR and SHRM-CP. Nick has built HR teams from the ground up as well as worked for big corporations. Nick enjoys consulting and training those who are just getting started in HR. When not working, he enjoys spending time with his family.

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