Human resources (HR) audits help organizations take stock of their HR processes, identify problem areas or potential risks, and make timely changes as needed. They serve as a safeguard, helping your organization catch issues early and avoid damaging HR pitfalls.
After all, HR can be complicated. An extremely wide range of responsibilities falls under the HR umbrella, meaning there is a lot to keep track of. And with the huge potential impacts of neglecting just one aspect of your organization’s human resources—like costly legal non-compliance and lagging employee retention rates—it pays to conduct regular check-ups. This is especially true in today’s rapidly changing labor landscape.
This guide will cover the most frequently asked questions about HR audits as well as the first steps to get started conducting your own.
What is an HR audit?
An HR audit is an analysis of an organization’s policies and procedures that relate to human resources, regulatory compliance, and other aspects of its internal operations. Audits should be as objective as possible, so they are typically conducted by third-party HR consultants or experienced HR departments. The results of an effective HR audit will reveal gaps in your organization’s practices and their impacts, plus areas of potential liability that need to be addressed.
What is the difference between an HR audit and assessment?
As you weigh your organization’s HR options, you may encounter both HR audits and HR assessments. These exercises are similar, but they differ in scope and focus.
HR audits focus on concrete HR policies, compliance, and other internal areas like performance management, job descriptions, and training requirements. They are often more granular in scope than HR assessments.
HR assessments are comprehensive reviews and evaluations of an organization’s complete range of HR activities. While they review concrete policies and compliance like audits, they also take a broader view of the organization’s HR practices as a whole.
Both HR audits and assessments should provide diagnostics and next steps to prioritize, but it is important to remember that they serve somewhat different purposes. While audits point you towards immediate internal and regulatory gaps that need correcting, assessments analyze your structures in a more holistic way to help you better align your HR practices with employees’ needs and organizational goals. It is recommended that audits be conducted every 1-2 years and assessments less frequently.
If you work with an HR consultant to prepare for or conduct an audit, ask about their assessment services. A valuable long-term partner will likely be able to offer support in both areas.
What operational areas do HR audits analyze?
An HR audit will typically cover the following operational areas:
- HR practices, including those related to regulatory compliance and organizational policies reflected in your employee handbook
- Recruitment and hiring practices
- FLSA compliance/exempt/non-exempt classification of employees
- I-9 practices
- Employee onboarding
- Exit interviews
- Job descriptions
- Mandatory training
- Diversity, equity, and inclusion initiatives
- Performance management processes
- Other function-specific areas of your operations
The exact areas that your HR audit examines can vary based on its objectives and your organizational structure. Depending on what they are intended to accomplish, audits typically fall into one of a few general categories:Type of HR AuditObjectivesCompliance AuditsDetermining the organization’s compliance with federal, state, and local labor laws and other regulationsStrategic AuditsAnalyzing the strengths, weaknesses, and gaps in HR systems and policies to determine how well they align with the organization’s strategic plansBest Practices AuditsComparing the organization’s HR policies and practices with those of industry-leading companies or others considered best places to workFunction-Specific AuditsReviewing HR policies, practices, and compliance as they relate to one specific HR function, like job descriptions, pay equity, or benefits review
There may be some overlap between these objectives and the specific areas that an HR audit will review. This is why clearly defining your needs, goals, and the areas you want to learn more about is critical for conducting a successful HR audit.
Why conduct an HR audit?
In addition to conducting HR audits on a regular basis to ensure continued compliance and to evaluate the impact of policy and procedural changes over time, you may also choose to conduct an HR audit in specific situations. For example, an organization may conduct an audit to:
- Perform due diligence reviews for investors, acquisitions or mergers, or other potential stakeholders.
- Instill greater confidence in its management or enhance its reputation in the community.
- Quickly diagnose and correct policy gaps after a noncompliance issue has already arisen.
Simply put, HR audits show you where your HR policies are working well and where they need to be improved or changed. Their ultimate purpose is to help protect your organization from compliance risks and to make strategic improvements at the policy level, whether proactively or in reaction to changing circumstances or challenges.
Who is involved in an HR audit?
An HR audit usually involves a few key individuals or teams, including:
- Organizational or HR departmental leadership
- An HR consultant, if contracted to conduct the audit
- HR staff members, if the audit is conducted in-house
- Leaders or staff from other relevant departments depending on the audit’s focus
HR audits need to be thorough and objective. They can be conducted in-house, but your organization must ensure that your HR team has the experience and skills necessary before diving in. In-house HR audits are more likely for larger or well-established organizations with functional HR departments.
To ensure objectivity and take the guesswork out of the process, many organizations opt to partner with third-party HR experts to conduct audits. Consider that many HR consultants offer specialized services, but since audits can touch on many different aspects of your HR practices, it is often beneficial to look for full-service HR partners who can bring more experience and broader insights to the table.
At RealHR Solutions, we offer a complete range of human resources consulting services, including audits, assessments, HR set-up, workplace investigations, organizational strategy, and more. With a background in employment law, a diverse team of experts, and the flexibility to offer both project-based and ongoing HR support, we can both conduct your organization’s audit and clearly lay out plans for improvement. Check out our complete range of HR offerings to learn more.
What are the steps of an HR audit?
Although the exact scope and focus of HR audits can vary, they follow a few general steps:
- Determine the audit’s type and scope.
- Begin by defining your objectives for the HR audit and the operational areas that it will review. This could mean taking a comprehensive approach or instead focusing on one specific area or policy. Identify the audit’s key stakeholders and other departmental points of contact who will help you gather information.
- Create an HR audit questionnaire.
- Based on the audit’s scope, develop a questionnaire or other document that walks through all the information needed to achieve the inquiry’s objectives. Clearly spell out what information you need and from whom. This document will effectively serve as the audit’s roadmap, so take your time to ensure it is as comprehensive as possible.
- Collect the necessary data.
- Next, follow the questionnaire to begin collecting relevant data and reviewing the specific areas or policies that it covers. Reference the questionnaire as you go to ensure nothing is forgotten or skimmed over along the way.
- Benchmark your audit’s findings.
- Your audit’s findings can be compared and benchmarked against internal data (like turnover or cost per new employee hired) to see changes over time and to identify solutions. You can also benchmark findings against external data of organizations of similar size or that meet other specific criteria in order to provide you with a frame of reference for best practices to help inform your next steps. This is an area where the support of HR experts is particularly helpful since benchmarking can be a challenge for smaller or inexperienced teams.
- Report your audit’s findings.
- After gathering your data and/or using benchmarking data to interpret your findings, summarize your data and report it to departmental and organizational leadership. This report should outline key findings and prioritize them based on various risk or urgency levels.
- Develop a plan of action.
- Building from the HR audit’s final report and prioritized recommendations, lay out a concrete plan of action and get started implementing it. This step is particularly important and requires thorough follow-up. Failing to act on compliance gaps identified by audits can actually increase your risk (for example, by creating a record that an organization was previously aware of FLSA misclassifications but did nothing to address them).
- Emphasize a culture of continuous improvement.
- Conducting HR audits and responding to the information proactively reflects an organization that is interested in responding to not only compliance concerns but also looking toward continuous improvement. Actively track your progress through the audit’s plan of action and the impact of all HR changes made over time. Also, plan ahead to conduct additional HR audits in the future.
How to Get Started
Ready to get started preparing for an HR audit? Here are the steps we recommend to check your organization’s readiness:
- Define your exact needs and your audit’s area of focus. Whether you conduct the audit in-house or work with a consultant, you must have a solid understanding of exactly what you aim to accomplish or learn more about.
- Realistically determine your team’s ability to conduct the HR audit in-house. Consider your HR team’s resources, knowledge, skills, and objectivity.
- Begin researching HR and compliance consulting firms, if you’ve determined that you need objective third-party support.
- Choose a partner who can conduct the audit and provide practical and specific recommendations based on its findings.
Remember, HR policy changes and regulatory compliance can have high stakes for your organization’s health. Think carefully about whether your own team or a third party is best positioned to conduct the audit objectively and then distill it into actionable next steps. For most organizations, the help of an HR consultant will be the best choice. Ideal partners will offer a full range of services, experiences, and insights to ensure you make the most of your audit’s findings over the long run.
The bottom line: Regularly conducting audits of your HR practices not only helps you to quickly identify risks but also to proactively protect your organization’s reputation, time, and resources. Audits can help your HR team foster a stronger culture of continuous improvement, keeping best practices and changing regulations top of mind as your organization grows over time.
It’s certainly possible for some HR teams to conduct effective in-house audits and enact successful action plans based on their findings. However, in most situations, the help of an objective expert will prove the more effective solution.
RealHR Solutions is a leading provider of HR audit services. If you have any questions about HR audits, please contact us to learn more. Or, keep researching to learn more about the importance of solid HR practices with these additional resources:
- HR Assessments: The What, Why, When, and Who. Unsure if your organization needs an HR audit or an assessment? Learn more about HR assessments with this complete breakdown of what they are and what they accomplish.
- What, Why, When, and How to Conduct a Pay Equity Audit. Pay equity is a critically important compliance and reputational consideration for organizations of all sizes. This guide outlines the key information you need to know about this type of audit.
- Response to the Great Resignation. The impact of the COVID-19 pandemic on the labor landscape has been profound. This article digs into job market trends, their implications, and steps employers can take to boost employee retention.