Human Resources Audits: What, When & Why

Business owners hear the word “Audit” and almost instantly feelings of anxiety wash over them.  Not to worry! Human Resources audits are nothing like other audits you are used to; they are completely painless and designed to help your business run smoother. Audits can identify areas for improvement related to Compliance, Best Practices, and Strategy, and in turn, help keep your company out of trouble. In their own right, audits can be time consuming, so it is best to audit one of these three areas at a time, beginning with Compliance. Non-compliance with the numerous and usually complex laws related to employment is the leading cause of litigation in today’s workplace. The most recent EEOC Report (2010) shows the following alarming statistics:

  • The highest number of discrimination charges (99,922) in its history, since its founding in 1964.
  • Class-action investigations/suits related to systematic discrimination have doubled over the previous year.
  • The agency recovered $319.3 million in damages for injured parties, a 9.2 percent increase over 2009

And this is only from one agency. Other agencies which govern laws related to compensation, immigration reform and control, and employee benefits have reported similar increases. For example suits under the Fair Labor Standards Act (FLSA) have cost some very large and well known corporations millions of dollars in highly publicized cases. The financial cost incurred does not only come from litigation, but also damage to the companies’ reputation which inherently results in lowered profits.

The most effective way to protect yourself is to conduct periodic audits of all of your Human Resources functions as soon as you have your FIRST employee. Thereafter, it is a good idea to, at the very least, conduct an audit whenever one of the following occurs:

  • Significant process changes or reorganization
  • Changes in federal or state law
  • Significant increase in hiring

This way, you can ensure you are in compliance with all applicable federal, state, and local employment laws and can start off on the right foot in regards to best practices and strategies governing your human capital. We all learned from our first blog “What is Human Resources” that a company’s human capital is not only their largest investment, but also their driving force.

Our Human Resources Audit is a systematic, comprehensive analysis of an organization’s human resources activities. The audit includes a review of your company’s policies, practices and documents to identify areas of potential exposure and offers numerous practical recommendations for improving overall human resources effectiveness. In doing so, we can assist in determining how to strategically align HR practices with business objectives.