The HR team probably plays the most important role in any organization i.e., managing the workforce. Handling their grievances and looking after almost everything be it the job descriptions, onboarding, salaries, benefits packages, leaves, company policies, the HR manager handles everything like a pro. A well-functioning HR plays a key role in deciding whether the firm is a success or a failure. So, the HR department needs to be handled with utmost care. So, how do you decide whether the HR people are taken care of appropriately or not? This is the role of HR audit. Making the firm aware of its pitfalls and strengths, an HR audit does it all. So, an in-depth overview of all the firm’s activities to understand its strengths and weakness is what an audit does and must be taken seriously.

What is an HR audit?

In layman’s term, an HR audit is kind of a test to evaluate the performance of the human resources department of any firm. It takes a look into all the tasks and activities performed by HR ranging from policies, documentation, systems and everything that comes under the HR preview. The main motive of any HR audit is to look into the areas that are causing troubles and how can be improved. An outsider can be hired by the company to do an external audit or the firm can ask the HR department to perform an internal audit as well.

Some of the areas which the audit department looks into are:

• Hiring process
• The onboarding process for the new employees
• Salary and benefits packages
• Performance reviews of the employees
• Termination of tenure of any employee
• Job descriptions of new job openings
• Exit interviews if any, and many more

What is the need for conducting an HR audit?

An HR audit makes sure that all the processes in the firm are running smoothly and also makes the firm aware of any kind of pitfalls that they have. So, the needs of conducting an HR audit regularly are:

• Measures the effectiveness of the HR department and its management of goals, missions, objectives and strategies.
• It serves as the assessment tool and thus provides a basis for improvement in the future.
• Helps the HR department in proper understanding their roles and how to deliver them efficiently.
• Making sure that all the company’s workings comply with the laws of the government.
• Reviews the resource allocation for the HR department.
• Evaluates the performance of employees and staffs.
• Ensures proper implementation of all the policies and seeks explanations in case of success and failure of the HR.
• It serves as a measure of check and due diligence for all the investors and stakeholders of the firm so that they get an assurance that the company is working efficiently.
• To enhance the brand value of the firm in the market with the perfect audit results.
• Important for delegation of authority and to decentralize the power distributed at the centre.

What are the different types of HR audits that the companies can undertake?

There are many different types of HR audit that the firm needs to perform. Let us look at them objectively:

• I-9 Audit: An I-9 form must be present for all the employees in the company. This form is a legal requirement for all companies to verify that all of their employees have valid employment authorization. This audit checks for any mistakes in the filling of this form.
• Policy or handbook audit: This audit reviews all the current and upcoming policies of the company and makes sure that they comply with the laws. It also makes sure that all the employees are well versed with the policies and everyone has a copy of this and the employer has a signed acknowledgement from everyone.
• Legal Compliance audit: This makes sure that the company’s practices are in sync with the employment laws. This is performed to make sure that there is legal compliance with the reporting laws and regulations. It looks into leaves structure, health and safety, disability structure etc.
• Departmental or Functional audit: This audit keeps on changing focus from one department to another to make sure that all the divisions within the company work on regulations be it payroll, performance management or any other.
• Salary and working hours audit: This looks into the problems in salary structures and the working hours of the employees. It reviews the legal working hours, salary calculations, benefits computations, overtime calculations etc.
• Safety audit: This looks into the necessary safety measures taken by the firm for its employees’ health. It makes sure that the firm limits the risk to which it exposes its employees.
• Hiring process audit: It reviews the hiring process of the company and makes sure that they are efficient, non-discriminatory and fair.
• Employee training audit: This looks into the employee training and development programs at the firm and what new programs to introduce and how to improve the old ones.
• Benefits and compensation package audit: This looks into the minimum wage, compensation according to the company’s objectives, employee benefits and whether certain information like health insurance benefits are kept a secret or not.
• Exemption audit: This makes sure that all the employees that are classified as exempt from overtime are still qualified to receive the exemption.

What is the process of conducting an HR Audit?

The HR audit process is a six-step checklist that needs to be followed.

STEP 1: Determining the scope and the type of audit that needs to be conducted

Determining the scope of the audit is the first step, where which all kinds of audit needs to be performed is mentioned and if the audit is performed for the first time, a comprehensive review of all the policies and HR practices needs to be done, or if the audit is for a specific purpose then that needs to be stated clearly.

STEP 2: Develop the plan and the audit questionnaire

Careful documentation of all the answers that need to be found by conducting this audit, must be done. All the specific questions that need to be answered must be included, goal identification, assembling the audit team and forming a timeline for completing the audit must be made.

STEP 3: Collection and analysis of data

Collection of all the applicable documents and forms outlined under the scope, review and analyze them to gather insights about the current HR practices in the company.

STEP 4: Formation of the report

The next step after analyzing all the information collected is documenting all the findings in the form of a report of the audit. This report must include all the strengths and the weaknesses found during conducting the audit and the recommendations on how the weaknesses can be converted to strong suits.

STEP 5: Creation of an action plan

After the completion of the audit, all the executives should meet with the audit team to discuss in detail how the shortcomings found can be addressed and improved. Some of the action plans include changes in the policies, training practices, correcting non-compliance issues. The audit process must be kept confidential.

STEP 6: Evaluate the progress after the audit

The audit team must continuously monitor the corrective actions taken by the firm to improve its shortcomings and create review checks periodically so that all the practices in the firms stay compliant.

An HR audit can be thought of as periodic checks that the form must undertake to make sure that they are on the right track. The audit must be kept confidential and must not be subjected to unnecessary disclosures. Every firm must undertake an HR audit once a year so that the performance of the HR department can be regulated.