What is an HR Audit?

Updated on May 30th, 2021
What is an HR Audit?

An HR audit is a way to assess the effectiveness of your human resources department. It can be an annual event or done on-demand when there are problems in the department. The goal is to find ways that can improve your team and make sure you have a healthy work culture that supports employees at all levels. This blog post will discuss some common areas where audits should focus their attention in addition to their components, types, and checklist.

HR professionals, once through with this, become part of a renewed action plan. All the personnel files are reviewed for pitfalls.

What is an HR Audit?

HR audits are reviews of documentation, HR policies, and practices through which organizations can identify gaps in HR compliance and address them before they become problematic or even unsafe for staff members. 

The process not only evaluates how compliant companies are but also ensures they’re giving employees all that satisfaction required while being sensitive to cultural differences and religious beliefs—ultimately leading to collective growth.

Eventually, they are the agents of change to maintain healthy, successful teams. Also, they provide an objective third-party perspective and can help identify areas of refinement that your team may have missed on their own.

If you're interested in learning more via video then watch below. Otherwise, skip ahead.

HR Audit Benefits 

There are many benefits associated with having an in-depth audit done periodically: 

  • Understanding employee satisfaction levels and giving employees input into the process
  • Improving employee relations that eventually smoothens the onboarding process and having new employees
  • Identifying potential risks for your organization from both data analytics and expert analysis
  • Helping you stay compliant with the local laws and federal employment laws by identifying all necessary documentation requirements (e.g., wage/hour) and making sure critical tasks like payroll processing run smoothly, so there is no disruption in HR operations if something goes wrong due to human error or system failure. Non-compliance with the laws like FMLA or any other may result in fines and a bad reputation. 

If you think there needs to be fixes to your HR department policies, you can hire a legal counsel in an advisory role during the audit.

The HR Audit Review Process

An HR audit process can be tailored to your organization’s needs and resources. The important thing is that it has an initial assessment, a detailed review of the findings with HR managers and key stakeholders, and ongoing follow-up on corrective actions as they are being implemented.

It is designed to review and evaluate organizational policies, practices, programs, and other factors related to human resource management (e.g., recruitment), in order to identify areas of development. Here's another useful article on the process: SHRM (Society of Human Resource Management).

Once you know where the risks lie within your organization (e.g., excessive turnover), then you will have taken one step closer towards creating sustainable change by developing solutions designed to meet specific challenges.

Who Does It?

HR audits are conducted by outside experts to provide insight into the strengths and weaknesses of an organization's human resources policies. A well-designed audit should have a mix of qualitative data from interviews with stakeholders, as well as quantitative analysis such as employee happiness or absenteeism rates to create a holistic view of organizational culture. 

HR functions could be reviewed by an internal audit team provided by the organization as well.

As far as an external audit is concerned, it can be conducted by an independent contractor or employee of the company outsourcing their HR department to that outside specialist.

HR Audit Components 

HR audits will assess the positives, negatives, and risks in a company's HR policies. Here are some of the components that should be assessed during an HR audit:

  • The quality of recruitment processes 
  • Employee communication and employee engagement 
  • Performance management systems (including performance reviews) 
  • Management practices for employees with disabilities or other considerations to take into account when designing alternative work arrangements. 
  • Ensuring the policy complies with the Americans with Disabilities Act (ADA) at all times.

Approaches

HR audit approaches can vary greatly and depend on the needs of the organization. Some organizations choose to refine their understanding by focusing on one or two key areas, while others focus on a range of issues related to HR policies. Regardless of which approach is chosen, an HR audit takes time and effort from all parties involved to be successful.

An example of this would be if an employer wanted to take a look at how their employees are being paid. 

  • Compensation Systems - what employee benefits they offer (e.g., 401(k), health insurance) 
  • Performance Management System - reviews given/received 
  • Employee Communication - training provided about compensation, performance ratings as well as any other aspect that may affect an employee
  • Compensation Rates - in comparison to industry standards 

Types of Human Resources Audit

An HR audit provides an opportunity for organizations to update their management practices and company culture. Two of its types are comprehensive and specifically focused; however, time, budget, and staff are factored into making them meaningful. 

The objective is different depending on which type of Human Resource Accounting (HRA) you choose, but whichever one it may be, they will help your organization take control over its future by using these processes as opportunities for self-reflection and improvement!

Some common types of audits include:

  • Employee Engagement Survey - If the company has one, they should review its questions. 
  • Legal Compliance Audit - It is important to stay up-to-date with the latest legislation and changes in the business environment. It also checks whether the employers' policies, practices are in compliance with the Fair Labor Standards Act (FLSA).
  • HR Benchmarking Audit - There are many free benchmark tools online that could be used for comparison. If an organization has one, it will compare its practices against those of other organizations. 
  • Employee Survey Audit - This type of assessment deals with how well HR departments communicate their company's mission, vision, values, and goals.
  • Organization Culture Audit or Employee Engagement Strategies Evaluation - This is a great way to gauge what improvements can be made within your own corporate culture. 
  • I-9 Audit - This audit confirms the presence of I-9 forms in a company. It is a form necessary to verify employment eligibility for employees. An I-9 form must exist, and it ensures that workers have valid employment authorization in the USA. 

Objectives

It is necessary to know beforehand the purpose and objective of an HR audit. It has two basic purposes.

  • Understanding the importance of implementing HR practices that align with employees’ needs and business objectives.
  • Be able to assess an organization's performance in its adoption of HR strategies that contribute to a positive organizational culture among staff, as well as employee engagement metrics. 

The main goal is for companies to make sure they are taking care of their people by understanding what drives them (their values) while also making sure it contributes positively towards company goals. 

Once these two things are aligned, then you have created a work environment where your team members want to come into work every day because everyone feels like they are involved and valued enough!

HR Audit Checklist

The checklist is based on several questions that an organization has to answer to evaluate the effectiveness of its HR practices.

It's a way for organizations, in particular, SMEs (small and medium enterprises) feel like they're at par with other companies.

  • How does a company measure performance? 
  • Do employees feel they are valued and respected by management, peers, and customers? 
  • Does the company have a culture aligned with its vision and mission statements? 
  • Is there an effective succession planning process in place to ensure leadership continuity? 
  • What percentage of women hold higher-level positions within an organization (and do not just focus on female managers)? 
  • Are people from diverse backgrounds being treated fairly in terms of hiring, promotions, pay raises, or bonuses? 
  • Do you have formalities like dress codes that make sense for your industry while also being sensitive to religious beliefs?
  • Do you have policies against harassment so staff can work in a comfortable environment free from violence or discrimination? 
  • What is the process for disciplinary action and appropriate conduct in the employee handbook? Is there a set of rules that they need to follow?
  • Do you have a set of job descriptions that specify what each HR personnel in the company does? Is it easy to see who is responsible for which tasks based on their accountabilities and responsibilities?

The answers to these questions will prove to be vital to an organization's long-term success.

Conclusion

An audit is an organizational overhaul. It's an evaluation that identifies any gaps in the HR department to ensure the company protects its employees. While this may seem like a daunting task, it will ultimately lead to meeting compliance requirements for your industry, as well as ensuring you're providing your team with what they need from their employer.

In a way, it creates a better working atmosphere for your employees. When they know that their company fairly wants them to progress, they're more likely to be motivated and happy in the workplace.

An audit can uncover potential hazards, like discrimination or harassment issues that have been ignored for years. It's important not only because it helps identify these risks but also because your employees deserve to work in a safe environment free from sexual assault or any other form of violence.