A year-end HR audit reviews and evaluates the efficiency and effectiveness of how a company manages its employees and HR processes. The audit generally includes reports and analysis about human resource data such as:
- recruiting efforts
- candidate selection
- employee performance
A major benefit of an audit is that it can help you proactively recognize areas for improvement and cost savings, such as reducing turnover rates or time-to-hire. Another benefit is that it can help show that you’re in compliance with state and federal employment law in case of a government audit of your records.
Larger companies typically hire professional external auditors, but you can easily audit your own department and see how you stack up against benchmarks set by other businesses in the same industry.
How Do I Conduct an HR Audit?
You should kick off your annual internal audit by gathering as much process and documentation information as possible. To compare data with other businesses in your sector, you can easily find recent industry averages for recruiting, cost-to-hire, turnover rate, employee performance, etc. online (make sure the data are within the last year). To compare apples to apples, you’ll need to pull data from your own company on the same topics. Collect the past year’s employee surveys and performance reviews; company financial records showing improved revenue or loss; involuntary and voluntary turnover data (be sure to note trends in separation reasons); and the specifics of your hiring practices.
Once you gather that information, you can compare your data with the industry averages you found to see if your company is lacking, meets or exceeds the benchmarks. Any gaps you see should be addressed so you can improve your processes.
To give you a head-start, we’ve created this Human Resources Audit Checklist that can help make your annual audit successful.
Annual HR Audit Checklist
- Is HR aligned with company goals?
- How many managers and supervisors work at the company?
- What is the total number of employees?
- How many full-time?
- How many part-time?
- How many hours per week do full-time employees work?
- How many hours per week do part-time employees work?
- Do you have employees correctly categorized as exempt and non-exempt?
- Do you have employees (W-2) and contractors (1099) properly categorized?
- If you have at least 100 employees do you submit an annual EEO-1 Report?
- How do you communicate with your employees (verbally, in writing, online)?
- Do you have a formal mission and vision statement?
- Do you have an employee handbook?
- Do you have harassment, discrimination and other HR compliance policies in place? Do you provide training?
- Who is the head of recruiting? Who are the team members (include roles)?
- What is your candidate recruiting process? What data is captured (e.g., contact date, method of recruiting, reason for rejection)?
- Do you have formal job descriptions?
- Are they ADA compliant?
- Where do you post job openings (e.g., Indeed, LinkedIn, company careers page)?
- Does your job application ask if an applicant needs ADA accommodation?
- Who is the final hiring decision-maker?
- Who initially assesses candidates’ resumes or applications?
- Who gives the go-ahead to schedule an interview?
- Who conducts the interview?
- What is the candidate background and reference check process?
- Where are the files kept?
- Do you have I-9 forms on file for every employee? Do you run all new employees through E-Verify?
- Is personally identifiable information (PII) protected in a secure environment?
- Once a hiring decision has been made, how are candidates offered a job?
- What is your employee onboarding process?
Payroll and Benefits
- Do you have a compensation committee? If so, who is on it?
- Who negotiates compensation and benefits?
- Do you have salary bands for different positions? What does that look like?
- What is the payroll process?
- Is payroll set up to properly take required and requested deductions?
- Do you provide benefits such as health, dental, life and disability insurance? Who are your carriers/providers and what is their contact information? How many employees are in each plan?
- Do you monitor work hours? How?
- Do you offer paid time off? What’s your policy? Is it compliant with state and local laws?
- Is the employee leave policy in line with FMLA guidelines?
- What is your overtime policy for non-exempt employees?
- Do you have a current wage and hour compliance plan?
- Are you compliant with COBRA law to protect employees’ health coverage when they leave the company?
- What is the process for notifying HR in the event an employee has to take a leave of absence?
- When an employee leaves, do you have a formal exit interview process?
- Do your managers provide a supportive working environment?
- What is your attendance policy? Is it clear?
- What is the performance review process? Are managers and employees aware of and on board with it?
- Do you have a clear policy for addressing performance issues?
- Do you have a process for documenting disciplinary actions? Where are these files stored?
- Does the company have a workplace violence policy?
- Have managers been trained to recognize bullying, and emotional, physical and sexual abuse at work? What is the reporting policy?
- Do employees have a confidential process to file formal complaints against managers or coworkers?
- Do you have an anti-retaliation policy?
- Are all workplace accidents properly reported and investigated?
- Do you have a clear drug testing policy? What are your rules for illegal drugs, alcohol, medical and recreational-use marijuana?
- What is your policy for pregnant workers?
- Do you have a response plan in the event of an emergency such as a natural disaster?
- Do you train new employees on OSHA regulations and how to properly report incidents?
- Do you have the appropriate MSDS documents that cover cleaning supplies and other workplace chemicals?
- Do you provide safety training and information for employees whose jobs require it?
Record Keeping and Documentation
- Is your HR system of record password protected? Do you have different levels of authorized users?
- Does your HR system create an audit trail of activities to ensure that changes are made only by authorized users?
- What kind of information do you keep in employee records?
- Are sensitive documents stored in a secure location?
- Who has access to highly sensitive documents?
- Do you have a written record-retention procedure?
This HR audit checklist covers many high-level aspects of HR management, but you may have documents and processes that are unique to your business or industry (e.g., healthcare facilities). Remember, an audit checklist is only useful if you actually follow and implement the process. Documenting your company policies and procedures can help improve efficiency and eliminate duplicate processes. It can also help ensure that you have everything you need right at your fingertips in the event of a government audit.
Related Article: The 5 Main Roles in HR
How Paycor Helps
We’ve found that many HR teams spend nearly 70% of their time on inefficient (sometimes paper-based) administrative tasks. To get out of the weeds, you need to stop spending your time on transactional human resource functions that should be automated. Our HR software helps leaders get work done by automating common workflows, removing the need for rekeying data with our unified database, and enabling you to go paperless with our document and form solutions.