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What exactly is an HR audit, and what does it entail?

HR Audit

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Borrowed from (http://www.strategichrinc.com):

What is a Human Resources Audit?

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 ensure 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 Orientation
Benefits
Compensation
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 concerns with a myriad of administrative regulations
Instilling a sense of confidence in management and the human resources function
Maintaining or enhancing the organization’s 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 review their policies and practices to ensure regulatory compliance in order to avoid potentially costly fines and/or lawsuits. 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.

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

This is comprehensive response. I would add to analyze some of your processes to see if there are potentially unintended discriminatory practices based on gender, race, etc. Your organization may have bona fide reasons for the differentials in pay, performance ratings, # of promotions, training opportunities etc. but you should be aware of them proactively.

Richard Tung
Title: CFO
Company: Schnadig International Corp
(CFO, Schnadig International Corp) |

In general, there are 3+ HR audit subject to the purpose of audit:

1. HR audit from State Employment Authority, mostly for employment claim cases that they focus on Labor Law compliance, hiring process, discrimination, documentation, Equal employment opportunity ... to validate the claim;

2. HR audit from IRS, this will be on Income Tax Law compliance on Exempt / Non-Exempt, Employee / Independent Contractor, ... mostly relate to Income Tax issues

3. HR audit from M&A, which will be part of due diligence (Business, Legal, HR, IT, IP ...due diligence), they focus on employment agreement (Executive to key persons), IP patent generate by employee, benefit plan, special program(s) offered to employees, MBO, bonus plan, employee packages ... of course, Labor Law compliance is a basis of HR due diligence;

There are some others, however, the audit scope / content is subject to the purpose of the audit!

Hope this will help!

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