An HR audit is a review of human resource department practices, policies, and procedures to identify strengths and specific opportunities for improvement.
An HR audit is a detailed evaluation of a company’s human resource department to check for noncompliance with labor laws and inefficiencies in specific areas of HR operations.
Who conducts HR audits?
Companies may allow their own human resources department to conduct an internal audit or hire a third-party auditor to perform the human resource audit.
While internal HR audits are often faster and more cost-effective, evaluations completed by an outside agency may appear more trustworthy and transparent. Companies may use both approaches, depending on the type of HR audit completed and the intentions behind the audit. In some cases, internal HR audits are used to prepare for audits by outside authorities.
What does an HR audit involve?
The audit process may involve a thorough review of every HR function, including HR systems, HR processes, and HR practices. Data collected is used by the human resources department to create an action plan that may improve everything from legal compliance with local, state, and federal employment laws to performance management, record-keeping processes, and company policies for onboarding new hires.
Why conduct an HR audit?
An HR audit can protect a company from legal, regulatory, financial, and public relation hardships when performed thoroughly and with integrity. Some of the most common reasons a business may authorize a human resource audit include the following:
- Identify noncompliance with local, state, and federal labor laws
- Discover opportunities to reduce costs while improving efficiency
- Identify risks for legal liabilities
- Highlight opportunities to improve competitiveness and retain top talent
- Recognize company culture issues that may interfere with a positive employee experience
- Identify what is working well and praise areas of human resource excellence
- Collect data for comparison over time
The main goal is often to identify small issues before they escalate into serious problems. Companies may decide to evaluate the human resources department due to employee complaints or known problems, or they may audit as a preventive measure.
What areas do HR audits examine?
There are many types of HR audits, each focused on a specific HR function or process. The type of audit selected should correlate with the goals and intentions of the company. The following list highlights some of the most common audit types and their primary function:
- HR compliance audit: A compliance audit is designed to ensure full compliance with labor laws. For example, US-based companies must comply with the Americans with Disabilities Act (ADA), the Fair Labor Standards Act (FLSA), and the Family and Medical Leave Act (FMLA). An audit of I-9 forms to ensure accuracy and full completion for all employees may also fall into this category.
- Functional audit: This general HR audit category should focus on one specific HR policy or practice area. Some examples of focus areas include wages and hour practices, safety, compensation and employee benefits, personnel files, and employee retention. The goal is to improve efficiency and performance in key elements within the HR department.
- Hiring and training audit: HR audits focusing on hiring and employee training practices may analyze the employee handbook, job descriptions, onboarding strategies, and employee performance evaluation process. The audit may include questionnaires answered by new hires and information collected in exit interviews.
- Safety audit: A safety audit overviews the safety procedures within the HR department and/or throughout the company. The evaluation includes the relevancy and efficiency of the current policies and the company’s adherence to policies in all departments.
In general, an HR audit may examine any HR process, policy, or function that the company wants to monitor or improve. Selecting the right type of audit and designing a thorough and efficient audit process is key to collecting useful data and turning it into impactful action plans.
How often should you conduct an HR audit?
Most human resource audits are conducted annually or at least every two years. Some types of HR audits are conducted every six months or quarterly if the company is checking for progress in key areas that need a lot of improvement.
The effectiveness of an HR audit depends on how the data is analyzed and implemented. The HR team must evaluate the audit results honestly and create in-house changes to the right human resources policies. Those changes should lead to improvements in key areas that the audit highlighted as inefficient or legally non-compliant. Performing regular HR audits is critical and allows the human resources department to compare data over time to monitor progress in specific areas.