Audit HR for Compliance
While a Strategic Alignment Audit focuses on the ability of an HR function to continuously update and innovate itself for a company’s culture and competitiveness, the firm bedrock of a comprehensive HR audit will forever be compliance, policies, and regulatory adherence. HR compliance audits in targeted HR department areas have been proven to be effective at sniffing out risks. So we’ll quickly highlight some key areas that we tend to see poorly audited.
Employee Records
An easy place to start is the employee records.
- Are the forms correctly filled out?
- Are there documents related to an employee’s medical condition?
- Is the data in personnel files accurate and free from manipulation and attempts to erase data?
- Do termination records contain a reason code?
- Are documents which could possibly be included as evidence in a legal action attached to the employee record, such as termination notices and employment agreements?
- Are employees’ W4 payroll tax information updated?
- Do you maintain record of employee work authorization, and are all forms of I-9 identification unexpired?
- Do all employees have access to the employee self service portal to update their own employee data?
- Does it show potential signs of discrimination or retaliation?
- Does your application ask for information that is confidential or protected, such as medical status, number of children, race, religion, etc?
These are all valid questions and your digging may uncover potential legal ramifications or problem areas.
Payroll Procedures
Payroll errors are usually not very significant and can be speedily resolved. However, unlawful procedures in a payroll process can create many legal problems which may take a long time and many resources to fix. Intentionally (or knowingly) manipulating the payroll can result in fines or lawsuits. Since employees may perceive persistent mistakes as payroll fraud, ignorance is never excusable when dealing with payroll. An exhaustive payroll audit will ask:
- Are employees correctly classified as exempt, non-exempt, or contractors?
- Does the company pay at or above minimum wage?
- How are deductions impacting wages?
- Does the company understand overtime?
- Are people paid at or around equal for similarly classified jobs, and are wages established objectively?
- Do experience, skill, and education tie to wages?
- How is time tracked?
- Are hours worked, overtime, and wage deductions maintained on record for the required duration?
- Do you have standard and consistent pay periods?
- What is the break policy?
- How frequently are salary surveys and compensation modeling conducted?
- Are pay rates structured, and if so, by grades, bands, or levels/steps?
These are just a few of many areas to explore and a comprehensive audit would tie payroll procedural audit with financial strategy, total compensation (benefits, equity, bonuses, gifts, etc.), and software review.
Hiring and Interview Practices
More than half of the companies we have audited routinely made mistakes when it comes to application and interview questions. Although asking the wrong questions does not automatically prove a basis for discrimination, it can raise serious and costly doubts and show discriminatory impact (albeit unintentionally). Questions asked during the interview and application process that are not job-related can land a company in serious trouble.
Here are some audit questions to consider when evaluating hiring and interview practices:
- Is there a gap in the talent acquisition system which repeatedly hires underqualified candidates?
- Do hiring managers select cheaper candidates over more qualified candidates, all else constant?
- Does the recruitment process screen for behaviors which support the company mission and values?
- Are job descriptions accurate and up-to-date, and do they clearly identify the essential functions of the job?
- Are application forms and interview questions job-related and focused on the essential functions of the job?
- Are interviewers trained on proper interview techniques and prohibited interview questions?
- Is there a standardized process for evaluating candidates, and are evaluations based solely on job-related factors?
- Are interview notes and feedback properly documented and kept confidential?
- Are accommodations provided to applicants with disabilities or other needs?
- Are recruitment efforts designed to attract a diverse pool of qualified candidates?
- Are background checks and reference checks conducted consistently and in compliance with laws such as the FCRA?
- Are job offers and employment terms offered fairly and without regard to protected characteristics?
- Are you able to prove “bona fide” occupational qualifications (BFOQ) if there are any?
- Is there a system in place to track and analyze hiring data, and are any trends or patterns identified and addressed?
Employee Handbooks
The employee handbook is the most important document you can create in an employment setting, as it establishes the relationship expectations between the employer and employee, as well as sets boundaries for conduct for both parties. A poorly written handbook can be costly and dangerous. Why? Because what you put in a handbook can be as important as what you exclude.
Not only do your policies need to conform with employment laws, but they need to apply equally and fairly to all and tailored to your industry, state, business strategy, business size, and culture.
Handbooks are routinely out of date or sync in relation that actual business practices, communications to the workforce, or latest laws. And in most cases we’ve seen, handbook templates downloaded from the internet (that were created for companies twice your size in another state in 2010) set you up for liability.
The questions you can use to evaluate employee handbooks can fill a book, but it all boils down to a dozen:
- Is the handbook up-to-date with current laws and regulations at the federal, state, and local levels?
- Are you treating your handbook like a guideline or policy book, and not a contract?
- Have you included brand elements and org culture as components in your handbook?
- Are all policies clearly written and easy to understand, and are they consistently applied throughout the organization?
- Is the handbook tailored to the unique needs of the organization, as well as your industry?
- Are policies and procedures communicated effectively to employees, and is there a system in place to ensure that employees have received and understand the information?
- Are policies and procedures reviewed and updated on a regular basis, and are any changes communicated to employees in a timely manner?
- Does the handbook include provisions for confidentiality, non-discrimination, harassment prevention, and other legally required policies?
- Does the handbook include information on employee benefits, leave policies, and other compensation-related policies?
- Are any disclaimers or other legal notices included in the handbook to protect the company from liability?
- Does the handbook provide guidance on the use of company property, including computers, phones, and other devices?
- Is there a system in place for handling complaints or grievances related to the handbook or company policies?
Corrective Procedures
Having to correct or discipline employees may be a supervisor’s least favorite task, albeit a necessary one. And it is much easier when the focus is on helping the employee instead of disciplinary action. An audit of a company’s corrective procedures may not only help increase morale and improve attitudes, but can also reduce a company’s liability.
Untrained supervisors may put a company at risk by allowing personal opinions and emotion to control the corrective procedure. This, in turn, can result in EEOC violations and accusations of unfairness, bias, and discrimination. It can also increase voluntary turnover and the candidate drop-out rate as word gets out about the chaotic inner workings of the business.
Ask these questions as a kick-off point for any investigations into corrective procedures, as well as for improvement projects in this area.
- Is the company culture rewarding behaviors that lead to disciplinary action?
- Are disciplinary policies and procedures clearly defined and communicated to employees?
- Are disciplinary actions consistently and fairly applied across the organization?
- Are disciplinary actions documented well, including the reasons for the action and any evidence relied upon?
- Are investigations conducted in a timely and thorough manner, and are the findings documented?
- Are employees given the opportunity to respond to allegations of misconduct or poor performance before disciplinary action is taken?
- Are disciplinary actions appropriate and proportional to the offense?
- Are employees provided with adequate training and resources to avoid repeating the behavior that led to the disciplinary action?
- Are corrective procedures and follow-up actions designed to prevent future misconduct or performance issues?
- Are managers and supervisors properly trained on disciplinary policies and procedures, including their role in the process?
- Is there a system in place to track and analyze disciplinary actions and their outcomes, and are any trends or patterns identified and addressed?
Efficiency and Effectiveness Through Conducting HR Audits
A comprehensive audit will help small businesses evaluate their policies, identify areas of improvement, and take proactive steps to ensure that their HR function remains compliant and effective. By prioritizing these key areas of HR compliance, companies can create a more efficient and productive workplace while minimizing legal and financial risks.
Get Compliant and Stress-Free with Our HR Compliance Services
Are you tired of worrying about compliance regulations and labor laws? Let us take care of it for you. Our HR compliance services allow you to focus on what you do best: growing your business. Contact us today to learn more about our HR compliance services and how we can help your business stay compliant and stress-free.
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