Human Resource Audit

What Is a Human Resource Audit?

A human resource audit (HR audit) is an objective evaluation a company’s human resource department undergoes to determine the legality, adequacy, and effectiveness of their:

• Policies

• Practices

• Processes

• Documentation

• Systems 

• Performance

An HR audit can be performed either by the internal HR department or by a third-party professional evaluator. 

What Is the Purpose of an HR Audit?

The purpose of an HR audit is to gain insight, identify gaps, and prioritize efforts to achieve legal/regulatory compliance and to achieve top-of-class performance in key areas. A human resource audit gives a proactive opportunity to find out what is being done right and what could be improved in order to greatly influence the overall productivity and profitability of the company. 

The results of a human resource audit provide necessary information decision-makers (heads of companies, shareholders, and potential investors) need to run the company well. It also helps the company see where it is on the road to reaching its business goals and identifies areas where course-correction is necessary so the achievement of such goals is possible.

What Are the Components of an HR Audit?

There are two main components of an HR audit, each consisting of a few subcomponents:

1. Evaluation of HR policies, practices, and processes, including:

2. 1. Recruiting

   2. Retention

   3. Compensation

   4. Benefits

   5. Performance

   6. Employee relations

   7. Training and development

3. Review of HR indicators such as:

4. 1. Unfilled positions

   2. Turnover

   3. Absences

   4. Satisfaction

   5. Grievances and legal complaints

The main reasons for these two components of a human resource audit are to mitigate legal risk and find areas where value can be created to attract and keep top talent.

What Should Be Included on an HR Audit Checklist?

An HR audit checklist should be comprehensive and include a wide variety of areas to be assessed, such as compliance, strategies, best practices, and specific functions. 

Here is a sample human resource audit questionnaire checklist, but each company’s HR department needs to adjust, add, and take away specific questions to achieve the most encompassing audit possible. Some of the questions are best answered from the perspective of employees to get a more accurate reading.

• Do our recruitment tools work?

• Are hiring strategies consistent, logical, non-discriminatory, and successful?

• Are job classifications and descriptions accurate, and required qualifications uniformly applied?

• Is the Applicant Tracking System working well?

• Are there any misclassifications of exempt/nonexempt jobs?

• Is there an I-9 form (Employment Eligibility Verification) filed for every employee?

• Are the training programs sufficient?

• Are the personnel files adequate with detailed performance reviews, accurate records of any employee claim, and without personal health information?

• Do attendance policies comply with relevant and current laws and regulations?

• Do the company practices comply with employment laws such as paid time off, family and medical leave, disability leave, etc.?

• Are there any mistakes in the company’s or any employee’s salary structure, calculations, or payroll deductions?

• Do payroll and benefits reflect current standards and expectations?

• Have all benefits been effectively communicated?

• Are there any discrimination disparities in compensation? 

• Is there evidence of any favoritism of specific (or specific groups of) employees?

• Are all health and safety laws, policies, and practices up to date and enforced?

• How do our HR policies and practices compare to best practices and to those of our competitors?

• Are all policies and practices clearly communicated and consistently upheld?

• Does the employee handbook have any mistakes?

• Have employees been educated on new changes to the employee handbook?

• Have there been any problems with the feedback process?

• Are managers giving quality feedback on employees?

• Do we maintain a log of issues with HR policies or procedures that aren’t already included in the organization’s handbook (doing so will help to identify potential risk exposures and areas of improvement)?

How Often Should You Conduct an HR Audit?

An HR audit should be conducted no more than once a year if it is extensive in scope. More concise audits of particular areas can be done every six months or as often as your HR department deems necessary. 

How Can You Prepare for an HR Audit?

You can prepare for an HR audit by following these seven steps:

1. Encourage a culture of unceasing improvement.

2. Decide on the scope of the human resource audit. Is it comprehensive or to be focused on a specific area?

3. Choose the audit questions that will elicit information and ensure completeness.

4. Determine whether the audit will be performed from the inside or outside the company, and by whom.

5. Have HR benchmarks ready for the comparison of findings.

6. Discuss how results will be communicated and to whom.

7. Budget the time and money it will take to conduct and complete the human resource audit.

What Should You Do After an HR Audit?

After an HR audit has been performed and the data has been collected and compiled, the findings should be compared to the predetermined HR benchmarks. Feedback regarding the results should then be provided to the interested parties in a timely manner. Finally, action plans need to be created, prioritized, and begun.