A thorough method of objective and systematic verification of the current practices, documentation, policies, and procedures used in the organization’s HR system is known as human resource auditing. An efficient HR audit aids in determining where the HR function needs to be improved and strengthened. Additionally, it directs the organization in maintaining adherence to laws and regulations that are constantly changing. Thus, HR audit aids in analyzing the discrepancy between the organization’s “current HR function” and “what should be/could be the best possible HR function.”
Organizations now choose to conduct routine HR audits to examine the current HR system in accordance with the organization’s policies, strategies, and objectives, as well as legal requirements, even though HR auditing is not required, like financial auditing. HR auditor can be internal or external to the organization. Typically, external HR auditors are provided by HR consulting firms.
For the audit to be successful, top management must clearly define the terms and scope of the audit before the external firm. This includes defining the exact purpose of audit, viz. Analyzing ways to better serve the needs of relevant parties, such as employees, partners, or society, evaluating compliance with legal requirements and organizational policies, identifying problem areas to avoid crisis situations with appropriate planning, measuring work processes, looking for HR-related opportunities within the organization, handling merger and acquisition situations, etc.
extensive quantitative and qualitative data collection is done during the first three phases. The strategy for gathering data is determined by the size of the intended audience, the amount of time available, and the type of information to be gathered. Reviewing the organization’s policies, HR manuals, employee handbooks, reports, etc. is part of the pre-audit information phase. which form the basis of working in the organization. In order to gather the necessary input from the organization’s members, the next stage of the on-site review includes surveys, questionnaires, interviews, observations, informal discussions, and interviews, or a combination of these methods. Current HR records, employee files, statistics on employee absenteeism and turnover, notices, compensation claims, performance evaluations, etc. must all be thoroughly scanned during the records review phase.
Using the information gathered, the widely used method for conducting an HR audit, the HR checklist, is finished. In the checklist approach, a list of all the system details being audited, including The policies, practices, or procedures are developed in a sequential fashion. The actual procedure followed by the organization is mentioned next to each specific item. Then, a comparison between the defined practice and the actual practice is made in order to assess compliance between the two and analyze any deviations from compliance. Based on this analysis, the audit’s final report is put together with pertinent conclusions and suggestions that highlight the HR function’s strengths and weaknesses and call for any necessary improvements.
How to Conduct an HR Audit
Types of human resources audits
A specialist may design a human resources audit to have a particular focus or take a more thorough approach. Here are a few different kinds of human resources audits, each of which achieves a different goal:
Reasons to perform a human resources audit
You might perform a human resources audit for several reasons. A company can identify problems with its HR department and find solutions by conducting HR audits. Audits can help businesses identify best practices, pinpoint areas for improvement, and lower operational costs. By determining the elements that affect an employee’s decision to remain with the company, they may increase staff retention. These audits assist a business in avoiding legal and regulatory liability brought on by improper behavior in the HR department. An audit of a company’s human resources can help determine whether it is following all relevant laws and regulations.
A company can learn about the effectiveness of its procedures by comparing it to the HR departments of other companies through human resources audits. HR audit services can help a business adapt to shifting employment laws and identify broad business trends that may have an impact on its operations. An HR audit may be used by a company to guide its hiring procedures and employee classification. They assist an employer in determining the fair pay for their employees and resolving any discrepancies with pay or benefits.
What to review during a human resources audit
When conducting a human resources audit, you might review:
Hiring and onboarding processes
You could look at the hiring practices used by an organization, such as who chooses applicants for interviews, whether or not a business trains its hiring managers, and whether or not they record the recruitment, screening, and selection processes. Examine the workplace policies and how well a company communicates them to new hires when it comes to onboarding procedures. Check the employee handbook and ensure its updated.
Benefits and compensation
During a human resources audit, you can examine the benefits and compensation plans offered by a company. Examine whether the company offers its current employees the proper compensation for promotions or position changes. You could determine who decides on benefits and compensation and whether these processes are properly documented. Check to see if a company reviews and monitors its benefits and compensation plans annually. You can record the formal pay structure and make a note if the employer bases employee compensation on performance. Ensure that the company informs employees of its compensation and benefit plans.
Performance evaluation process
The performance evaluation process of a company can be examined through human resources audits. You can look into an organization’s performance evaluation system and the different types of evaluations it conducts. Check to see if the company has a system in place to monitor the efficacy of employee evaluations. You could insist that an employer evaluate an employee’s output in terms of both quality and quantity.
Termination process
When conducting an HR audit, you might look at an organization’s termination procedure. Determine whether exit interviews take place after an employees termination. You can assess whether a management team member assesses a termination before it occurs.
Job descriptions and classifications
You might examine a company’s job classifications and descriptions during a human resources audit. Examine the platforms that employers use to post job openings, such as job boards, social media, and paid advertisements. Ensure that the company advertises any open positions and extends job offers to current employees. You could check to see if a business has identified and addressed any problems with the job classification of its current employees, such as the proper classification of exempt employees and independent contractors.
Forms and personnel files
To make sure there is sufficient documentation of performance and adherence to laws and regulations, you might examine a sample of personnel files. For instance, medical privacy laws mandate that businesses separate employees’ general files from those pertaining to their personal health. You can make sure a company keeps protected medical information in a separate, secure location. Verify that new hires have completed W-4 forms and inquire about the retention period for employees’ records after they leave.
How to conduct a human resources audit
The following actions can be taken when conducting a human resources audit:
1. Identify who will conduct the audit
Determine whos responsible for the audit. You could carry out the audit by yourself, enlist the aid of team members, or contract with a third party. This can assist you in assigning tasks when creating the audit and in setting expectations for your assessment.
2. Determine the type of audit
Decide on the type of audit you want to carry out before you start the process for a human resources audit. Depending on an organization’s requirements, you might consider conducting a performance audit, a strategic audit, or a competitive audit. For instance, you might want to conduct a compliance audit if there have been significant legal changes to make sure that the HR department and practices of the company comply with these new laws. You can direct the audit to focus on a particular procedure or policy if you have concerns about a particular aspect of human resources.
3. Develop a survey
You can then create the audit survey or questionnaire once you’ve decided on the type of audit you want to conduct. Create a thorough document that enquires about a specific aspect of the HR department or its general procedures. For instance, when conducting a performance audit, you might ask candidates about the criteria managers use to assess workers’ performance and how they convey feedback.
4. Collect data
To gather information about its practices, examine the pertinent sections of a human resources department. When conducting your evaluation, you can refer to the survey created in the previous step as a guide. For instance, when auditing the company’s performance review process, you might use information from the personnel files. Ensure you have permission before using any of the information you collect.
5. Analyze the results
Analyze the outcomes of your audit findings and contrast them with HR industry standards. Data from the internal organization, from other businesses, or from national standards could be used. This can shed light on how a company’s results stack up against other relevant data. You could, for instance, compare the cost per new hire for the company, the ratio of total employees to HR staff, general and administrative costs, or the amount spent on HR-related activities to total sales.
Additionally, you can assess the average cost of employee benefits, absenteeism rates, and the number of days it takes to fill a position using national standards. Identify any potential issues and opportunities for improvement.
6. Provide feedback
Write a summary of your findings to give a human resources professional or the management team of an organization feedback and recommendations. You might put together a written report with a hierarchy of recommendations. Prioritize each recommendation based on the risk level that you have determined. To inform them of any necessary changes, you can talk to the management team and HR staff about the audit’s findings. For instance, you might advise a business to order personal protective equipment more frequently to prevent injuries in the future.
7. Create a plan
A plan for improvement should be made based on the audit’s findings. Prioritize areas with the highest level of risk. For instance, your strategy might be to first address any compliance problems. Then, you can move on to other procedures or guidelines that need improvement. Create a plan for implementing the changes recommended by an audit and let the staff know about it.
FAQ
What is human resource audit?
An objective assessment of your company’s HR policies, practices, and procedures is what an HR audit is. The objective is to find problem areas and/or suggest ways to improve. You have two options for the audit: either hire an outside firm or ask your HR department to conduct an internal audit.
What are the types of HR audit?
- Functional audit. Functional audits are not only about compliance. …
- Culture Audit. It is well known that a strong culture is a reflection of a successful organization.
- Strategic Audit. …
- Compliance Audit. …
- Policy Audit.
What does an HR audit cover?
By reviewing current policies, practices, documentation, and systems, a human resources audit can identify areas that require improvement or updating to remain compliant with the most recent rules and regulations.
What is the importance of human resource audit?
Performing an HR audit: Guards you, reduces risk to your company’s bottom line ensures you are current with employment law, compliant, and performing or adhering to best practices. shifts the emphasis to a more strategic HR function, aligning activity with larger business goals
