How to Conduct an HR Audit

Compliance HR Audit HR Best Practices HR compliance human resources
How to Conduct an HR Audit

Human resource audits prevent legal and regulatory issues from an organization's HR policies and practices. These audits spotlight potential legal risks and they assess how a company's HR strategies compare to industry benchmarks. As a result, it is a means to proactively identify problems and propose solutions before issues escalate. 

In today's competitive environment, organizations operate under strict regulatory oversight related to employment. This includes staying current with a complex array of laws and regulations. Improving your HR processes ensures that you follow rules and that your employees and organization succeed.

An HR compliance audit generally consists of two main parts:

  • An evaluation of the organization's operational policies, practices, and processes. This means focusing on crucial department delivery areas (e.g., internal and external recruiting, employee retention, compensation, employee benefits, performance management, employee relations, training and development).
  • A review of current HR indicators (e.g., number of unfilled positions, the time it takes to fill a new position, turnover, employee satisfaction, internal grievances filed, number of legal complaints, absenteeism rates).

An HR audit can be either comprehensive or focused explicitly within the constraints of time, budgets, and staff. Each audit type accomplishes different objectives, some of the more common types and purposes are:

  • Compliance. This focuses on how well the organization is complying with current federal, state, and local laws and regulations.
  • Best practices. This focuses on comparing its practices with those of companies with exceptional HR practices. This ensures the organization maintains or improves competitive advantages.
  • Strategic. This evaluates systems and policies to see if they match strategic goals.
  • Function-specific. This type of report focuses on a specific area of the HR function (e.g., payroll, performance management, records retention).


Best Practices for Conducting an HR Audit

To carry out an effective HR audit, consider the following best practices:

  1. Define the Scope and Objectives: Determine what you aim to achieve with the examination. Understanding the scope helps focus efforts and resources where they are most needed.
  2. Involve Key Stakeholders: Engage leadership and relevant stakeholders in the process to ensure alignment and support. Their involvement is crucial for implementing changes post-audit.
  3. Create an audit questionnaire. Whether conducting a comprehensive audit or an audit of a specific practice, the team should invest sufficient time in developing a comprehensive document that elicits information on all the subjects of the inquiry. HR must develop a list of questions to ensure the questionnaire is complete.
  4. Document Findings and Recommendations: Document findings and provide actionable recommendations. Detailed documentation aids in tracking progress and evaluating the impact of implemented changes.
  5. Focus on high-risk actions. Use the final report and prioritized recommendations to create a clear action plan. Put the action plan into place. This step is crucial and it requires thorough follow-up. Failing to act on the compliance gaps identified by audits can increase your risk.
  6. Plan for Regular Audits: Regular audits help track improvements and ensure ongoing compliance and efficiency.
  7. Educate Your Team: Keep the HR team updated about changes in laws and best practices. Continuous education and training are essential to maintaining compliance and improving HR functions.

HR audits are necessary for HR professionals to ensure compliance with laws, enhance processes, and align with organizational objectives. By understanding different types of audits and adhering to best practices, HR departments can significantly contribute to their organizations' success while mitigating risks.