As a business grows, its HR needs become more complicated. Hiring additional employees can bring new legal requirements, while remote work can create obligations in other states. Positions evolve over time, and policies that once worked well may need updating as the company changes.
Even when everything appears to be running smoothly, gaps can develop between the way a business operates and the HR practices supporting it. An HR audit provides a structured way to find those gaps and address areas that may create unnecessary risk.
What is an HR audit?
An HR audit is a formal review of the policies, records, systems, and practices that affect your employees. The scope of the review will depend on the size and structure of your organization.
For businesses that have never completed an HR audit, some of the most important areas to review are also some of the easiest to overlook.
Understand your workforce
An HR audit should begin with a clear picture of the company’s workforce. The number of employees a business has can determine which state and federal employment laws apply. Therefore, an accurate employee count is an important starting point.
Employers also need to know where their employees are working. When an employee works in another state, the employer may have obligations related to payroll taxes, unemployment insurance, workers’ compensation, and state employment laws.
During an HR audit, these arrangements can be reviewed to determine whether the business has completed the necessary registrations and is handling payroll appropriately.
Review employee files and recordkeeping
Employee records are another important part of an HR audit. Employers should know what information they maintain, where they store it, and who can access it.
Not every employee record belongs in the same file. For example, organizations should keep medical information separate from general personnel records and maintain Form I-9 records separately as well. An audit can help determine whether required documentation is present, records are organized appropriately, and sensitive information is being handled correctly.
Good recordkeeping matters when an employer needs to show what happened months or even years later. Having the right documentation in place can make it much easier to respond when a question, complaint, or government audit arises.
Take a close look at wage and hour practices
Wage and hour compliance is one of the highest-risk areas of an HR audit. Employers should review whether workers are properly classified as exempt or nonexempt, whether overtime is paid correctly, and whether time-tracking practices accurately capture employees’ hours.
An HR audit should also look at how meal and rest breaks are handled and whether the company’s timekeeping system maintains an appropriate audit trail. Without reliable records, an employer may struggle to establish how much time an employee actually worked if a wage dispute arises.
Job descriptions can also play an important role in this review. A position may have changed significantly since its description was originally written, particularly in a growing company. Reviewing what an employee actually does can help determine whether the position’s current classification remains appropriate.
Independent contractor classifications should be reviewed as well. A business may have treated someone as an independent contractor for years without revisiting whether that classification still fits the working relationship. An HR audit can help identify arrangements that warrant a closer look.
Look beyond the highest-risk areas
Once you’ve addressed the most significant compliance areas, an HR audit can dig deeper into the systems that shape the employee experience. That may include reviewing:
- Recruiting and hiring practices
- Employee handbooks
- Workplace policies
- Leave administration
- FMLA requirements
- ADA accommodations
- PTO policies
- Workers’ compensation procedures
This is also an opportunity to ask whether the policies already on the books still reflect how the company operates. A handbook written years ago may no longer account for the size of the workforce, where employees work, or how jobs have evolved.
Protect your business by knowing where it stands
HR issues often come to light after a question, complaint, or government audit draws attention to them. Periodically reviewing your HR practices gives you an opportunity to identify areas that need attention and address them proactively.
At whyHR, we work with businesses to evaluate current HR practices, identify risk areas, and determine what changes may be needed. If it has been a while since someone took a close look at your HR systems, an audit can give you a clearer picture of where things stand and what to address next.
If your business has never had an HR audit or has changed significantly since its last review, contact whyHR to schedule an audit.