What Should an HR Audit Include?

The goal of a human resources audit is to identify issues, root out their causes, and present solutions. HR audits are also used to find out what a business is doing successfully so those processes can be replicated. 

The effectiveness of your human resources department can greatly impact the health of your business. Consider the following: 

• One study from SHRM found that the cost to replace an employee is estimated to be three to four times the position’s salary. This includes recruiting costs, onboarding, and lost historical knowledge.
• Record-keeping violations, such as failing to compensate employees for overtime, can cost employers over $1,000 per incident.
• In 2022, the labor market will continue to be competitive, and employers will have to find out what candidates value most to meet staffing needs.

These challenges and more can strain your HR department. However, with the right auditing methods, your business can plan a clear path forward. This post will discuss how to begin planning an HR audit process, provide an HR audit checklist, and offer internal and outsourced HR solutions.

How Do You Audit HR Policies and Procedures?

When conducting an HR audit, you will likely focus on one of the following categories:

• HR Compliance Audit: On top of running your business and providing a great product or service for your community, you also need to make sure that your business is compliant with the latest labor laws. This audit can examine your personnel files to ensure that they are up to date and sensitive information is protected, evaluate your hiring practices to avoid discriminatory behavior, and see if disputes between employees are being handled correctly.
• Employee Lifecycle Audit: This audit involves looking at the complete lifecycle of an employee from the moment a recruiter reaches out to resignation. The audit will study any gaps that are keeping your company from attracting top talent, as well as any regulatory hurdles your company needs to overcome in order to remain compliant. 
• HR Strategic Audit: How is your company set up to handle an evolving employee trend? Over the last several years, understanding whether a company can transition to a remote workforce is a popular strategic audit. Making the decision to move your company to a virtual workforce has serious consequences, both positive and negative, that need to be understood before you move forward. 

If your business has the resources, these audits can be conducted internally. Otherwise, an outsourced HR services provider, like Milestone Business Solutions, can provide strategically-minded audits to achieve your goals.

What Is the First Step in Preparing for an HR Audit?

“What should be audited in human resources?” is often the first question asked. When answering this question, consider some of the following goals and the categories they would fit into. Here are some examples of how you could define an audit scope:

HR Compliance Audit: 

• Benefit from the array of perspectives brought by a diverse team by providing equitable employment in compliance with Equal Employment Opportunity laws and the Americans with Disabilities Act. 

Employee Lifecycle Audit:

• The complete employee lifecycle should be a reflection of your brand values from first contact through resignation
• Our company has a strategy to tackle how our work environment is portrayed on platforms like Glassdoor so we are attractive to top talent
• Our hiring and interviewing process is streamlined and effect so we are identifying talent and offering them within a necessary timeframe

Prioritize one aspect of your human resources to be audited. A single audit will become too diluted and confusing if it tries to cover too many topics, so align it with the part of your business you want to focus on.

Your strategy will determine the areas of HR audit you include, but how do you align your strategy with measurable HR metrics? By using the HR policies and procedures described earlier (compliance, payroll, and benefits), you can hone in on the issues that will yield the most improvement.

HR Audit Checklist Template

When preparing for an HR audit, it helps to have a checklist of questions to stay focused on your prioritized metrics. The following checklist will focus on HR compliance, staffing, payroll, and safety. 

Compliance

• Are we in line with local, state, and federal labor laws?
• What is our employee relation and resolution strategy?
• Who has access to documents that contain sensitive information?

Talent

• How full is our talent pipeline?
• How long does it take to onboard a new employee?
• Do we offer a competitive compensation package?
• What is our employee turnover rate?
• What is the complete employee experience, and how does it align with our brand values?

Safety

• What are we doing to foster a culture of safety at our company?
• Have we created safe reporting guidelines for employees, and have those been communicated?
• Have employees gone through sexual harassment training?

This checklist, while a great starting point, is not exhaustive, and each business will prioritize different metrics. 

A Partner in Strengthening Your Human Resources

Whether you need help deciding what your internal HR audit should include or you could benefit from the expertise and efficiency an external audit provides, Milestone Business Solutions is here to help you unleash your back office. If you find yourself worried more about being prepared for tax season or keeping up with the latest laws than providing your customers with the best service possible, contact us to see how we can help you continue to do what you do best.