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Importance of Conducting a Human Resource Audit

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Importance of Conducting a Human Resource Audit

Posted by Payroll Data Processing in Blog Jan 25 2014

Human Resource (HR) Audit is a comprehensive examination of organization’s current HR policies, systems, and procedures to evaluate compliance with employment regulations and identify areas for improvement. A well-executed HR Audit will reveal gap areas that can potentially lead to costly legal disputes and governmental fines. It is advisable to conduct an HR audit once every year. Additionally, conducting an HR Audit after a significant change in the organization (such as reconstruction, expansion, or deduction in force), will help to identify the right practices and highlight functions in need of modification.

Types of HR Audit

  • Legal Compliance Audit: This audit ensures compliance with all applicable federal, state, and local laws and reviews whether the current HR policies and systems meet the legal requirements.
  • Comparative Audit: This audit involves comparing the current procedures of the organization with other organizations in the market that have proved to be successful in practice, in order to gain a competitive advantage.
  • Strategic Audit: This audit involves evaluating the SWOT (Strengths, Weakness, Opportunities and Threats) analysis of the HR processes to ensure that they are in alignment with the organization’s strategic plan.
  • Function-Specific: This audit focuses on specific functions in HR such as Training, Compensation and Recruitment and helps to measure their effectiveness in relation to long-term business goals.

The HR Audit Process Model 

audit process model


Areas of Focus for HR Audit

  • Documentation – Review of hiring practices often uncovers inadequate documentation, such as a missing or incomplete I-9 Forms. Employers can be fined between $100 and $1,000 for each failure to accurately complete an I-9 Form. Fines for these violations can easily add up, with reported cases of repayment totaling over $100,000.
  • Personnel Files – A review of personnel files often reveals inadequate documentation of performance (e.g., informal, vague and/or inconsistent disciplinary warnings). Performance evaluations may be ambiguous, inaccurate or outdated. Personal health information is often found in personnel files, despite medical privacy laws requiring such data to be kept separate. Accurate and detailed records are essential for employers to defend any type of employee claim, particularly unemployment compensation or wrongful termination claims.
  • Attendance Policies – Controlling excessive absenteeism is a big concern for most employers. However, the complexity of family and medical leave laws, with sometimes conflicting state and federal protections, has made many formerly acceptable absence control policies unacceptable. Absences affect workers’ compensation, family and medical leave, disability accommodations and pregnancy laws. Companies often have policies that either do not comply with relevant laws and regulations or grant employees more protections than required.
  • FLSA Classification – Almost every company has job positions that are misclassified as exempt from overtime eligibility. The complexity of wage and hour laws and regulations makes it easy to err in classifying a job as exempt, thereby exposing the company to liability to for past overtime.
  • Time Records – Employers typically require nonexempt employees to punch a time clock or fill out time sheets reflecting their time worked each week. The records generated by these systems typically are the employer’s primary means of defense against wage and hour claims, so it is essential that timekeeping policies and practices by clearly communicated and consistently administered.


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