Voted Best Sexual Harassment Training Solution in 2021 by The Balance SMB

HR Compliance Audit-- Why Your Business Needs It And How To Conduct It

An HR compliance audit is an important tool for all businesses to ensure the company's practices are in alignment with employment laws. As it lets you accurately evaluate your business' leave structure, disability structure, health and safety, HR policies, payroll, etc. Put simply, finding out how to keep up with current rules and regulations for compliance will help your company build an HR operations roadmap for its future. But if you want to successfully audit HR, you need to know how it works, what key areas to look at, and what you need to pay attention to.

Why Are HR Compliance Audits Necessary?

Whether you're starting up or managing a 100-year-old company, as long as you have employees,  the benefits and need for an occasional thorough human resource compliance audit remain the same. Not only do proper HR policies help you avoid compliance penalties, Fair Labor Standard Act OSHA fines and violations, the right HR policies also give you a competitive advantage, by keeping your employees protected as well as motivated, boosting the overall performance of your business. While it sounds great in theory, the big question is this: how do you actually identify which HR policies and procedures are contributing to your overall business goals, which ones are ineffective, and which ones need to be updated. The first step to successfully auditing your human resources compliance is to fully understand how the process works.

If your State requires harassment training, try EasyLLama's sexual harassment prevention training to help get your company educated and compliant with regulations.

How To Do A HR Compliance Audit

The general process of conducting an audit includes seven key steps, each of which is discussed in greater detail below:

Compliance Checklist

An HR compliance audit is a complicated process and without the right tools and a clearly defined process, it's impossible to evaluate the data and translate it into an actionable plan. Your best and easiest solution is to use an HR Compliance checklist. Some of the key points on the checklist are:

  • Is the onboarding of the new employees compliant with federal and state regulations?
  • Do you have policies about discrimination equal employment opportunities in place?
  • What policies do you have in place regarding sexual harassment, and bullying in the workplace?
  • Are you storing personal information in compliance with the US Privacy Law?
  • Are exempt and non-exempt jobs classified correctly?
  • Do you have an open-door policy and a process for employees to report any issues they might be experiencing?
  • Are you compliant with the current laws and regulations?
Once you have worked through the checklist and interviewed the right people, you will get a clear picture of what practices and procedures are already working. The data from the answers will allow you to see what specific areas to work on that will improve your company's performance and get you compliant with the current regulations.

Steps For Human Resources To Conduct A Compliance Audit

There are many stages to a compliance audit for HR compliance training and see if you adhere to applicable regulations or laws. In order to make sure we give the most accurate, objective, and reliable results, follow these steps. 

Inform Your Company

Before you begin auditing your company for compliance, be sure to notify your entire team in an email or letter to inform them when the audit will take place. In the message, you'd want to include the exact dates and times of the audit meetings, a list of documents an auditor will want to examine as well as telling your employees ahead of time they could be interviewed. 

Planning The Audit

After you tell your company about the audit, the next step is planning for it. This is where you will clearly define the goal and strategy of the audit. You'll go over your key concerns and specific information you'll want to evaluate. By doing this, your business will be able to gather the necessary documents for the audit.

Meeting To Kickstart The Audit

After you've set your goals for the audit, call together all of the top management and auditors to discuss the execution of the process. This collaborative meeting is to ensure that management makes the audit go as smoothly as possible. Here is where management can address any problems or concerns they may have for the operation. 

Interview Employees & Document Collection

The next part of the compliance audit is for the auditor to interview employees, collect required documents and really hone in on if the business practices are compliant. It is vitally important that the management team should be in constant contact with the compliance auditor in order to determine if the legal procedures are followed and ensure proper access to needed documents.

Audit Draft

After all the documents and procedures are looked at, the auditor will prepare a draft audit report. This rough document will go over the purpose of the audit, the strategies or procedures used, a comprehensive list of the documents reviewed, and the insights from the audit. 

Audit Report

The auditor will make a detailed report about if the organization is carefully following external laws or rules, regulations or internal guidelines, controls, policies, and procedures. The final report will be given to management for approval or critique of the audit's findings.

When Is The Best Time For An HR Audit?

The best time for an HR audit depends on your business and how you operate. When considering the resources needed for an audit, the best solution is to schedule full-scale audits annually and conduct smaller audits throughout the year. That's what the majority of companies opt for. If your business goes through slower seasons, those will be the best times to conduct the audits, as it allows you to utilize your resources in the best way possible. Another strategy is to conduct HR compliance audits at the end of the fiscal year, to better track year-over-year performance and get a better picture of how your HR initiatives benefit your company.

When your company goes through changes in management or direction, it is advised to audit human resources, to ensure the changes 

Reduce The Risks Of Penalties

Every year, laws and regulations regarding workers' rights, compensation, and safety get updated, meaning what was legal 10 years ago, can result in severe penalties today. The most common penalties are due to tax violations, safety, OSHA violations, wage & hour violations, and incorrect employee classifications. The penalties range anywhere from $1000 per employee to a percentage of your revenue, and the expenses are severe, so the compliance fines could have a detrimental impact on your company. 

Therefore,  to mitigate the risk of legal issues, and catch potential problems before it is crucial to stay on top of the legal side of things and review your HR policies regularly to ensure everything is up to date and compliant with your local, state, and federal regulations.

A Competetive Advantage

Conducting HR compliance audits gives you a competitive advantage. After all, a detailed look into all your current practices and processes would help your business determine if they are legal as well as effective. 

On top of steering clear of any potential legal issues, after an HR compliance audit, you'll be able to pinpoint holes or areas where your business can be more reliable and complete. For example, as you are auditing for compliance, if find out your company has a really hard time with tracking required documentation for your employees, you may want to invest in software or a system to manage all of that. 

Or perhaps you see different ways you could attract and retain top talent by building out better HR hiring processes as well as compensation packages. This is why frequent human resources compliance audits are necessary for businesses.

Here's To More HR Compliance Audits

As important as HR compliance audits are, many companies fail to conduct them on a regular basis, and occasionally end up in the news and risk costly lawsuits in the future because of it. This happens to SMBs as well as some of the biggest companies out there today. 

They are also great indicators of how employee satisfaction is, and whether your HR policies and procedures or helping or hindering your company from reaching its business goals.
to be