A Human Resources Audit is a comprehensive method (or means) to review current human resources policies, procedures, documentation and systems to identify needs for improvement and enhancement of the HR function as well as to assess compliance with ever-changing rules and regulations. An Audit involves systematically reviewing all aspects of human resources, usually in a checklist fashion.
Sections of review include:
- Hiring and Onboarding
- Performance evaluation process
- Termination process and exit interviews
- Job descriptions
- Form review
- Personnel file review
The purpose of an HR Audit is to recognize strengths and identify any needs for improvement in the human resources function. A properly executed Audit will reveal problem areas and provide recommendations and suggestions for the remedy of these problems. Some of the reasons to conduct such a review include:
- Ensuring the effective utilization of the organization’s human resources
- Reviewing compliance in relation to administration of the organization
- Instilling a sense of confidence in management and the human resources function
- Maintaining or enhancing the organization and the department’s reputation in the community
- Performing “due diligence” review for shareholders or potential investors/owners
- Establishing a baseline for future improvement for the function
Because of the multitude of laws affecting each stage of the employment process, it is extremely important for an employer to regularly conduct an HR analysis of their policies and practices. This helps to identify regulatory compliance issues if they exist and avoids potentially costly fines and/or lawsuits, if otherwise ignored. An employer overlooking regulatory compliance with their human resource practices could face:
- A fine of $1,100 for any violation of the appropriate payment of overtime for non-exempt employees in accordance with the Fair Labor Standards Act.
- Penalties as high as $10,000 each occurrence for failing to post required safety notices or keeping accurate records.
- Fines up to $1,000 per employee for non-compliance with the Federal Immigration Reform Act.
While penalties such as these help define the risk of non-compliance and signify the importance of conducting periodic HR Audits, an Audit can also ensure that policies and procedures are fair and consistent across the organization and strengthen employee satisfaction. By maintaining a satisfied and productive workforce, an employer lessens the expense associated with costly turnover of staff. Losing one employee is estimated to cost a company 50 – 150% of the lost employee’s salary in time and money spent to replace that employee.