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HR Audit: A Measure of Success

Not unlike an annual employee performance evaluation, an HR or employment law audit provides an objective means to measure the effectiveness of HR functions with respect to productivity, efficiency, and morale, among others. As a risk-management tool, an audit can identify obsolete or ineffective practices and flag compliance issues. In fact, employment practices liability insurance policies often require employers to conduct an annual HR audit.

There are different ways to approach an HR audit; many employers work closely with employment law counsel in conducting the audit and addressing/correcting noncompliance issues. In fact, consultation with counsel is recommended if compliance concerns or questions arise during or as a result of an audit.

Audit scope and complexity will vary according to employer size and need but should include a review of policies and procedures, information systems, and input from employees and key personnel. Keep in mind, however, that much like an employee performance review, the HR audit should be approached as a learning tool, not a test.

Audit your policies and practices with the Employment Practices Self-Audit Workbook

Step 1: Identify audit goals
Defining the scope of any audit should begin with the audit goals: What do you want or need to know about your HR processes? A typical audit might begin with goals related to compliance issues: whether policies and practices comply with applicable local, state, and federal requirements.

List the local, state, and federal laws you are obligated to follow — such as the Americans with Disabilities Act (ADA), Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA), the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), COBRA, the Internal Revenue Code, the Davis-Bacon Act, and the Immigration Reform and Control Act (IRCA) — and the benchmarks of compliance.

For example, to measure FLSA compliance, issues relating to classification of employees as exempt/non-exempt, recordkeeping, and overtime compensation, among others, should be reviewed.

Review your written policies to determine whether your company’s compliance needs are being met. Are policies communicated to employees in a timely manner? Are your practices consistent with your policies?

HR Guide to Employment Law: A practical compliance reference manual covering 14 topics, including health benefits, overtime, employee privacy, hiring, discipline, and documentation, and workplace violence

Step 2: Establish an audit framework
An audit framework consists of the key elements of your HR processes. It isn’t possible to provide a complete or exhaustive list of issues to include in an audit framework, but the following list identifies certain HR processes and the corresponding practices. These examples may be helpful in drafting an audit framework.

Hiring practices. An audit of hiring practices is a critical step in effective risk management. Instances of blatant discrimination or harassment aren’t required for lawsuits related to hiring issues.

Employee handbooks. Use of employee handbooks has increased significantly over the last 10 years for a number of reasons. Handbooks are an efficient way to educate new employees about policies, practices, and procedures. That said, a handbook is a tool that requires regular tuning and maintenance. Failure to do a compliance review on your handbook on a scheduled basis may transform your handbook into a liability minefield. An annual legal compliance review by your company lawyer is a good investment.

Job descriptions. For many employers, maintaining up-to-date job descriptions is at the bottom of the HR “to do” list, if it makes the list at all. Job descriptions should be viewed as a value-added commodity. For example, the job description should be the foundation by which an employee’s job performance is evaluated and any discipline is administered. It also should provide guidance for medical providers performing preemployment or postinjury return-to-work medical exams. Much like an employee handbook, an outdated or obsolete job description is an unnecessary liability risk.

Performance evaluations. Employee evaluations performed by managers and supervisors who receive regular training related to the evaluation process can be worth their weight in gold and should be scheduled at least annually. Employee performance is the basis for any decision to promote, discipline, demote, or fire an employee. Without a written performance appraisal, the employer’s justification for an adverse action may be perceived as “he said-she said.” Consistent, objective documented performance appraisals are often the best defense in a wrongful termination claim.

Employee termination practices. Employee terminations are the basis for most adverse action employment claims. For that reason alone, such actions require care and attention to detail.

Wage and hour law and employee leave practices. Correctly classifying employees as exempt or non-exempt, timekeeping, and overtime pay issues are just some of the challenges and concerns that every employer faces. Similarly, leave entitlement determinations and recordkeeping, particularly as related to the FMLA, must be done painstakingly.

EEO (harassment/discrimination) compliance. EEO compliance is a concern for every employer, regardless of size. Employers that choose not to use an employee handbook should nonetheless have a written policy addressing workplace prohibitions against sexual or any other form of harassment or discrimination. Employees should receive the policy and acknowledge receipt in writing. At a minimum, you should provide annual antiharassment and discrimination training to managers and supervisors, although certain employers are required by law to train more frequently. Ideally, all employees should receive antiharassment and discrimination training.

State-by-state comparison of 50 employment laws in all 50 states

Step 3: Compile findings; review and address any deficiencies
Once the audit is completed, compile the findings in a report or other organized manner. If employment counsel assists with the audit, schedule a meeting with the lawyer to review and discuss the audit results. If deficiencies are noted, it’s important that you as the employer understand the nature and consequences of and any underlying cause for those deficiencies.

Education, training, and communication can alleviate many workplace problems. The effectiveness of any solution, however, may depend on you understanding the problem and the reasons it arose in the first place. If more formalized corrective measures are needed, discuss available options with counsel and take action as quickly as possible.

Practice pointers
The best part of an HR audit may be the confirmation that your processes are sound. Conducting an HR audit at the start of a new year has multiple benefits: It can minimize liability risk across the board and provide a foundation for HR’s work plan, goals, and objectives.