In recent times, human resources has been identified as a critical component for improving an organization’s overall strategy. HR practices aligned with the business’ objectives help the organization to become competitive in terms of acquiring talent as well as customers.
Amidst this strategizing and aligning, an HR audit helps identify information regarding the competitiveness of the HR strategies by comparing the HR strategy with that of the best practices of the other employers in the industry. Apart from helping achieve strategic HRM, an HR audit helps identify regulatory risks and avoid legal liabilities.
In essence, conducting an HR audit helps identify issues and risks and rectify them before these problems become unmanageable. It helps assess the activities that are being done right and identify the activities that could be done differently, at a reduced cost, or more effectively.
An HR audit is a process that examines the objectives of a business’s HR policies, procedures, and practices. It helps assess whether these policies and practices are in line with the industry standards and how they contribute to the firm’s overall performance. The goal of the HR audit is to look for risks and issues and identify ways in which the company can improve its effectiveness and reduce the risks for the firm.
An HR audit can benefit the organization in many ways. This is because the objective of the audit is not only identifying non-compliance but also gauging the effectiveness of the policies and HR practices. It also identifies the policy development and implementation gaps, which can be a problem for the organization if not resolved.
Here is a list of benefits of conducting an HR audit:
HR Compliance and Legal Risk Audit
In today’s heavily regulated environment, organizations deal with a myriad of complex laws. The scope of the HR function is to assure that policies and practices are in line with the regulatory environment and an HR audit helps assess the policies that might be violating regulations and laws, posing a risk of financial damage.
Apart from the direct financial costs associated with the non-compliance of HR policies, other costs may negatively impact the profitability and productivity of the organization. This means that the non-compliance with legal standards and best practices in the industry may give rise to dissatisfaction amongst the employees, which can harm the company’s performance.
Organizations invest in employment practices liability insurance to minimize the risk associated with any non-compliance and negligence issues. While this is also a sound strategy, it may be costlier than taking proactive measures, and an HR audit can help with that.
An HR compliance audit includes evaluating the operational HR practices, policies, and processes. It focuses on the key delivery areas of the HR department, including:
- Employee Retention
- Employee Relations
- Compensation and Benefits
- Training and Management
- Performance Management
Once an evaluation of these areas is conducted, it assesses the HR indicators, including:
- Unfilled positions
- Employee satisfaction
- Potential legal pitfalls and risk
- Reasons for employee turnover
- Insufficient personnel files
- Incomplete payroll records
- Form I-9 errors
- Filed grievances
The HR audit assesses the practice areas through questionnaires, interviews, or feedback. The HR audit identifies the gap by assessing whether the organization’s policies are understood, accepted, and practiced by department managers.
Function-Specific HR Audit
A mini-audit that examines just one area of the policies or practices of HR is a function-specific HR audit. It may choose a broad area like leave management to specific areas like record-keeping efficiency, payroll management, and performance review policies.
The organization can choose the function based on the experts identifying the company’s problem areas receiving consistent feedback regarding specific HR processes. One or multiple legal complaints might also result in conducting a function-specific HR audit.
A function-specific HR can be compliance and performance-related that helps the organization improve its specific functions to reduce the legal risks and improve the efficiency of the chosen HR function.
One of the most important results of an HR audit is gauging the competitiveness of the HR policies and processes. Employee Value Proposition (EVP) is an exchange for the services and performance of the employee, and HR policies and practices are an important component of the EVP.
Therefore, policies like time-out and leave benefits, flexible work schedules, compensation, anti-harassment, etc., should be assessed based on the industry standards and the best practices of competitor firms.
Furthermore, it helps improve the overall EVP to attract qualified and talented employees. This can help improve the firm’s competitiveness in case of attracting the best employees, enabling the company to deliver the best performance.
An HR audit can also help assess the performance management of the existing employees. It includes the following:
- Assessing performance appraisal practices
- Employee-management relations
- Training and development opportunities
- Mentorship programs
The assessment of these areas can help improve the effectiveness of these practices if they are already in place and make sure that the necessary policies and processes are in place to develop a company culture that instigates employee performance and motivation.
An HR Audit can help the company in many ways. An HR compliance audit can help assess and address the legal and compliance-related risks that the company faces. While strategies like employment practices liability insurance can protect the financial risk that a company faces because of non-compliance with HR practices and processes, it has a lot of spillovers that can leave the employees demotivated.
An HR audit can also help with function-specific assessment. In many cases, legal complaints of employee grievances related to a specific function or process like leave management indicate problems with a specific function. While a full HR Audit can be quite beneficial for the company, a function-specific audit can be conducted quickly and address issues a few months after a complete HR audit.
Furthermore, with HR being a critical function in the organizational strategy, an HR audit can also help develop competitiveness. This may include determining the best mix of Employee Value Proposition (EVP) which can attract the best talent and help improve the overall performance and profitability of the organization.
The HR audit can also help motivate and improve the performance of existing employees, which helps develop a healthy organizational culture.