Your People Experts

HR Audits – Part I

What is an HR Audit and do I need to conduct one?
An HR Audit is a standard procedure that can help you determine if your policies and practices are up-to-date and compliant with local, state, and federal regulations. While HR Audits are not a requirement, they are a useful tool to stay on top of your organization’s strategic procedures. So yes, every organization should conduct an HR Audit.

Audits can assess if you have risks that may leave your organization open to litigation, as well as keeping you up with the latest practices. As your organization grows and changes, your policies and practices need to grow and change as well. You need to update certain practices for your in-house processes, as well as stay compliant with laws and regulations that may become a factor depending on your company size or new laws that are passed or revised.

When preparing to conduct an audit, you need to plan accordingly…conducting an audit takes time. Generally a formal HR Audit should be conducted annually in order to ensure you are up on best practices and meeting your legal obligations. Once a formal audit has been completed, you can conduct mini-audits throughout the year or whenever you learn of a new requirement or meet a legal threshold. Depending on your company size and the scope of your audit, this process can take a couple days to a couple weeks.

There are several options when conducting an HR Audit. The audit process can range from a basic audit to review your policies and practices, to more comprehensive audits which may include legal compliance, compensation and safety practices.

Also keep in mind, the best person to conduct an audit depends on their position and what policies and practices they are responsible for. Your compensation manager may not be the best person to conduct your safety audit. Having the right person for the right audit can save time and expense.

Let’s look at some of the most common audits. You may have different audits depending on your type of business and requirements.

Handbook Policy Audit – a basic review of your policies to make sure they are the best practices for your company.

  • First and foremost…are your policies in writing? If you want to enforce a policy, make sure it’s in writing and all employees know about it. Verbal policies can be misconstrued and lead to litigation issues.
  • Do your policies meet the current needs of the organization? Policies that no longer apply should be removed from your handbook and archived. It’s not a good idea to completely delete old policies. They should be kept for reference and accessible if referred to in a litigation suit.
  • Are your policies up-to-date with any changes that have been made to your attendance rules, PTO requirements, dress code, etc.?
  • Where are your policies located? Do all employees have access to them? Most companies tend to keep a copy of their handbook policies in HR. This is ok as long as employees have the opportunity to come in at any time and review them. Try keeping a copy of your policy handbook in the breakroom where it is readily accessible to everyone. If your policies are available on an Intranet platform, make sure a base computer is accessible for use.
  • Are they applied consistently and fairly to all employees or groups? How do you ensure compliance? One of the biggest policy litigation issues is employees believing they have been treated unfairly.
  • Lastly, do your employees understand your policies? Normal routine is to have employees sign an acknowledgement that they have read your policy handbook, but do they really understand what they have just “skimmed” over. Make sure your employees know what they are signing.

I-9 Audit – a review of your Form I-9s is essential to remain in compliance with immigration requirements.

  • Are the forms completed as required? USCIS requires all spaces to have a response, even if it is entering “NA” on the form.
  • Is the form signed by the employee? This is something that catches many employers during a formal DOL I-9 Audit.
  • Is the form signed by a designated company representative? The form must be signed by a manager or representative who has physically reviewed the documents used as identification & eligibility. This may require training your managers at remote work sites.
  • Are corrections documented properly? Updated information must be in the place and corrections should have a single line and initials of the person making the correction.
  • Are you retaining them for the required timeframe? Employers must retain original I-9 forms for three years after the date of hire, or one year after the date employment ends, whichever is later.
  • Are you consistent in your I-9 procedure? Every new employee is required to complete a Form I-9 and you cannot specify what type of documentation is provided. If you make copies of documentation, be consistent and make copies of everyone’s documentation…don’t copy Bill’s paperwork and not Joe’s.
  • Do you have a system in place to reverify expiring employment authorization documents?

Compliance Audit – compliance audits are a great way to make sure you are in compliant with local, state, and federal regulations and laws. Local and state requirements will vary, but federal regulations would include, but are not limited to:

  • FMLA
  • EEOC
  • GINA
  • ADA
  • Federal contractor regulations
    • VEVRAA
    • Davis-Bacon Act
    • Walsh-Healy Public Contracts Act
  • and other laws that may apply to your organization

Compensation Audit – this includes a Wage & Hour audit to ensure you are classifying your employees correctly.

  • Job descriptions – are your job descriptions up to date? Do you have a job evaluation program?
  • Salary structures – how do you determine job values? Do you have a formal salary structure? Do you utilize wage surveys?
  • Performance reviews – do you have a formal review process? Does the review truly reflect the employee’s performance? Do you train your managers in the review process?
  • FLSA Wage & Hour – are your employees classified correctly? Do the exempt employees meet the criteria for this status? Are you calculating overtime correctly? How do you handle your bonuses?

Benefits Audit – some benefits are required by law and some are in-house fringe benefits at the discretion of the company.

  • Insurance – do you offer health, life, long-term disability, short-term disability benefits? Are they applied correctly and fairly?
  • Retirement – do you offer a pension plan or a 401(k)? Does the employee contribute? Is nondiscrimination testing conducted?
  • In-house benefits – what type of PTO do you offer: vacation, sick days, personal days, holidays, etc. Are these days off given fairly and consistently with your policy?
  • Cost of benefits – do you relay the cost of benefits to your employees?
  • Are you familiar with ERISA fiduciary rules for both welfare and benefits plans?

Posters – local, state, and federal posters may be required to be posted in your organization.

  • Are you posting the proper posters for a private business vs a public business?
  • Do you know what posters are required at specific employee levels?
  • Are you posting posters specific to your industry? Different posters may be required for specific industries, such as agriculture.
  • Are you a federal contractor or subcontractor? Are you posting the correct posters for this status?
  • Do you have the required posters in each of your locations? Are they posted in an area visible to employees and applicants?
  • Click Here to view an sample of questions that may be addressed during a Poster HR Audit.
  • EAF members have access to our Posters Toolkit which has links to the federal and state poster requirements. Members also receive preferred pricing on all poster orders. Click to our EAF Online Store if you need to purchase posters.

The questions above are just a sample of what you may be looking for during your audits. There are many other questions and concerns that can be addressed.

If a company policy is updated or added, make sure all departments are aware of the change or addition and are passing the information to all employees and applying them fairly. If new or updated laws or regulations come into play, an audit can ensure you stay on top of these legal requirements and not fall victim to a litigation suit.

While no simple audit can assure full and complete compliance with every law and regulation, an HR audit can be used by your organization as an effective tool in determining specific areas where additional data or updates are required. EAF members have access to a comprehensive HR Self-Audit on the member’s only website and the HR Specialists at EAF can provide additional information and/or research, and in partnership with their labor law attorneys, can provide a thorough analysis and compliance assurance of governmental regulations such as wage-hour, affirmative action, OSHA, and labor relations.

Look for HR Audits Part II where we will talk about other audits that may be a part of an HR Audit.

EAF responds to hundreds of hotline calls and emails monthly. We would be happy to answer any interesting questions you may have too! Contacts us at [email protected] or 407.260.6556.

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EAF provides information about current developments in labor and employment law. This information is intended for educational purposes only and should not be considered legal advice. Questions requiring legal advice should be addressed to the attorney of your choice. EAF members may be able to obtain a legal interpretation through our FREE Legal Hotline.