HR Audit – The Why and How
“HR screening/auditing ensures the employer is complying with those various laws so that when the employer gets sued (and it will), the employer will have good defenses to raise. For example, an HR audit could possibly have prevented the type of class action lawsuit Wal-Mart is currently facing by red-flagging the fact that women in the same positions as men were making significantly less.
This is where the time and effort part comes in. First, we need to know what to look at and what questions to ask. Then, we need substantive knowledge of the applicable legal requirements so that we can evaluate whether what we have found satisfies the laws that apply in our workplace.
Most Human Resources professionals are well aware of the issues that create the greatest legal risks. Hiring, firing, benefits, wage and hour compliance, employee handbooks, and illegal discrimination are the most common areas where lawsuits arise. In order to assess the degree of exposure that company has, we must first be familiar with the legal requirements in each of these areas. Other legal obligations arise from state and local laws as well. The Human Resources professional must also have at least a basic familiarity with the employer's obligations under those laws.
Process of conducting the hr audit:
Assess abilities and available time to perform the Human Resources audit. Next, choose the appropriate audit tools that best suit for the company.
Should perform the audit our self using software or the Internet?
Should hire a service provider? Confer with employment lawyer before starting the audit.
An HR audit can be done even if do not have the necessary legal knowledge. There are commercial HR audit tools available that will guide through a self-audit. In addition, there are service providers who will perform an audit for fee, and other professionals who will perform the service at no charge as an adjunct to other services they provide. Regardless of how to do audit, that involve employment lawyer at the beginning of the process because it is important to protect the confidentiality of audit and avoid creating evidence that would document potentially illegal current practices.
The next step in conducting an audit is to gather information on operating environment and procedures. Typically, will be guided in this process by a checklist (which might be in print, on software, or web-based). The checklist will ask questions on practices and policies in many areas. It might also ask for copies of existing employment policies and forms, and your employee handbook. This part of the process may be tedious and time consuming, but it should not be difficult.
Analyze the information. After having the provided information requested in the checklist, it is time to analyze employment practices and policies to determine whether company is in compliance with applicable laws. At the same time, a good audit will provide guidance to avoid common mistakes that lead to employee claims. The net result of HR audit should be some sort of scorecard, or a list of action items that need attention. What to do next is the key to whether the audit will be a success or a potential disaster.
Take action:
The audit report should provide both a snapshot of company's strengths and also a roadmap for how to correct its weaknesses. If act to correct the deficiencies, the audit will have been a worthwhile project. After finding out the areas where company is not complying with its legal obligations and do not correct those problems, the audit report may come back later as extremely damaging evidence in an employee's lawsuit. The simplest way to look at it is, don't start an audit unless willing to follow through and change what needs to be changed!
Sometimes all that is needed is a new or rewritten policy statement. The key here is to make a list, assign the work, and stay with it until you have made all the necessary changes.
HR Review Analysis and Results:
The results of the review are typically summarized in a written report and reviewed with the company's management. Recommendations are listed in priority of importance based on the potential of the liability. Interpreting and understanding the results of the review should result in an action plan of initiatives.
Benefits by doing an HR audit: If company is in the market for financing, investors will want to know that have done all to protect the company from unnecessary lawsuits. The results of an HR audit can be presented to investors for their due diligence review.
Similarly, if an employer is interested in obtaining Employment Practices Liability Insurance, the insurance carrier will assess the degree of existing risk by asking many of the same questions one would ask in an HR audit. Typically, an insurance company will not issue a policy unless the employer can demonstrate (i) substantial compliance with applicable employment laws and (ii) the existence of appropriate employment procedures and policies. However, the benefits will obtain for company will be well worth the effort. In addition to the potential for lessening exposure to legal risks, there is a related benefit. Employees will realize that the company values their contributions and is committed to improving the workplace for all.