An audit will help a company understand whether its HR practices help, hinder or have little impact on the organization’s business goals. The audit also helps quantify the results of the department’s initiatives and provides a roadmap for necessary changes. Audits can also help the organization achieve and maintain world-class HR practices.
Types of Audits
An HR audit can be structured to be either comprehensive or specifically focused, within the constraints of time, budgets and staff. There are several types of audits, and each is designed to accomplish different objectives. Some of the more common types are:
• Compliance: Focuses on how well the company is complying with current federal, state and local laws and regulations.
• Best Practices: Helps the organization maintain or improve a competitive advantage by comparing its practices with those of companies identified as having exceptional HR practices.
• Strategic: Focuses on strengths and weaknesses of systems and processes to determine whether they align with the HR departments’ and/or the company’s strategic plan.
• Function-Specific: Focuses on a specific area in the HR function (e.g., payroll, performance management, records retention, etc.).
Now an important question is -What to Audit
Deciding what to audit will depend largely on the perceived weaknesses in the company’s HR environment, the type of audit decided on and the available resources. Keeping a log of issues that have arisen but are not covered in the company’s procedures or policies will help identify areas of potential exposure that can be addressed during the annual review process (if they do not need to be addressed immediately).
There are, however, certain areas in which companies are particularly vulnerable. Most of the issues are related to hiring, performance management, discipline or termination. Some additional risk areas that should be carefully reviewed include:
• Overtime. Almost every company has job positions that have been misclassified as exempt from overtime eligibility. The complexity of wage and hour laws and regulations makes it easy to err in classifying a job as exempt, thereby exposing the company to liability for past overtime.
• Inadequate personnel files. A review of sample personnel files often reveals inadequate documentation of performance—for example, informal, vague and/or inconsistent disciplinary warnings. Performance evaluations may be ambiguous, inaccurate or outdated. Personal health information is often found in personnel files, despite medical privacy laws requiring such data to be kept separate. Accurate and detailed records are essential for employers to defend any type of employee claim, particularly unemployment compensation or wrongful termination claims.
• Prohibited attendance policies. Controlling excessive absenteeism is a big concern for most employers. Absences affect workers’ compensation, family and medical leave, disability accommodations and pregnancy laws. Companies often have attendance policies that either do not comply with relevant laws and regulations or grant employees more protections than required.
• Inaccurate time records. Employers typically require nonexempt employees to punch a time clock or to fill out time sheets reflecting their time worked each week. The records generated by these systems typically are the employer’s primary means of defense against wage and hour claims, so it is essential that timekeeping policies and practices be clearly communicated and consistently administered.
• Insufficient documentation. Reviews of employer hiring practices often uncover inadequate documentation, such as missing or incomplete Forms, No pan card, No tax submitting proofs etc.
Best Time to Audit
Given the resources required for a full-scale audit, most companies will not want to go through this process more than once a year; however, mini-audits that allow for some course correction can be accomplished without too much departmental pain approximately every six months. Another strategy is to conduct an audit following any significant event (e.g. new plans, management changes, etc.).
What to Expect
A comprehensive audit is a time-consuming and intensely focused project that may require the review of numerous documents and policies, as well as interviewing HR staff, selected employees and managers from other departments. The amount of time involved and the effort required will depend on the size and type of company, the type of information the company hopes to glean, the scope of the audit and the number of people on the audit team.
Who Should Conduct an Audit
The company’s HR professionals can perform an audit in-house if they have the expertise, the time, a willingness to objectively acknowledge inadequacies in current procedures and, most importantly, the clout to make or influence the necessary organizational changes.
However, if the audit is conducted with internal resources or even with an outside consultant who is a non-lawyer that would be sufficient to get the desired results.