Audit is a dreaded word. Businesses, irrespective of their size cringe at the mention of an audit. While an audit performed by a recognized body can be stressful, an internal audit can lay a solid base for business operations. Finances are not the only aspect that needs to be audited annually. Human resource (HR) audit is as crucial as a financial audit for successful business operations. 

An HR audit is an important process that judges the effectiveness of an organization’s HR management and overall performance. As stated by Dale Yoder, “Personnel audit refers to evaluation and examination of policies, procedures, and practices to determine the effectiveness of personnel management.” 

With that said, the HR audit is an analytical & comparative process that determines the efficiency of human resource management (HRM), provides a quality check on HR activities and offers feedback on the same. 

The objectives of the HR audit include:

• Measure mission, policies, strategies, etc. of HR management
• Seek explanation in respect to the success or failure of HR policies
• Assess the performance of the employees
• Identify future strategies in response to the measured results 

This process is segregated into two parts:

1. Assessment of organizational practices, HR policies & practices (employee retention, employee benefits, training, and development, etc.)
2. Review of present HR indicators ( absenteeism rates, employee satisfaction, turnover, number of vacancies, etc.)

An HR audit can be structured according to the constraints such as time and budget. Typically, HR audits are of several types, each designed to enact a specific objective. 

1. Compliance audit – This is a systematic approach of comparing HR practices against the organization’s policies and/or legal laws. 
2. Functional audit – In this type of audit looks for specific operations such as payroll & performance management are evaluated and ensured it is functioning as intended. 
3. Hiring process audit – This type of HR audit checks for inefficient, inconsistent and discriminatory practices in the hiring process.  
4. Exemption audit – Here, the audit checks if all the employees classified as exempt are qualified to receive the exemption.  
5. Handbook/policy audit – This kind of audit looks for the need for policy changes to make them consistent and ensure the policies are legally permissible. It also makes sure that all the employees have copies of the HR policies.  
6. I-9 audit – Here, the I-9 audit firms of the workforce are reviewed and ensured that correctly filled. It also checks for additional or follow-up documentation needs. 
7. Wage audit – Hour practice and wage audit uncover the potential issues with wage practices. 
8. Strategic audit – Here, the strength and weaknesses of the processes are analyzed and determined if they align with the company objectives.

HR auditing process may vary from one organization to another. However, the general and standard steps involved in this process are:

1. Briefing & orientation – The initial step includes discussing significant issues, developing a structured audit plan and charting out audit procedures.
2. Scanning information – Scrutinize information such as appraisal forms, manuals/guides, and other personnel information. 
3. Surveying workforce – This step involves interviewing functional executives, top functionaries, and other employees. If required, point out strengths and HR-related issues. 
4. Collecting feedback – Gather feedback from the workforce pertaining to HRM practices. 
5. Data synthesizing – Once the data is collected, synthesize the information to present the issues identified, current situation, and company priorities. 
6. Reporting – Discuss the outcomes of the auditing and take up necessary measures to resolve issues (if any) and improve the efficiency of HR practices. 

A periodic HR audit can take your human resource management practices to the next level while aligning with the company goals. 

A glimpse at how HR auditing adds value to your organization

• Ensures compliance with the law

Staying pace with law or regulations is critical for organizations. HR audit will help you avoid potential penalties by checking if you are complying with ACA-related laws or are offering appropriate overtime compensation. 

• Reduces employee turnover 

With a booming economy, retaining talented & skilled workforce has become more intense and essential than ever. Leveraging HR audit, you can analyze the reasons for employee turnover and retain the start players. 

• Improves organizational structure 

Expanding business without improving the major factors is not advisable. An HR audit can assist you in assessing the talent, procedure & processes and work on the key areas to run your business successfully. 

• Enables precise employee classification

An HR audit can help you determine the type of hiring and how the employees should be classified. That is, it enables you to classify freelancers, independent contractors, and full-time employees accordingly.

• Lets you to stay updated with employment trends

The business world and the regulations governing human resources is changing rapidly. By deploying HR auditing, you can make sure you are adapting the latest employment trends and are in pace with the changing business scenario. 

• Reduces challenges pertaining to the employee benefit package

HR audit answers questions pertaining to annual appraisal, enrollment process and healthcare benefits. It lets you make sure that the benefit package is legally permissible and competitive. 

Due to the multitude of laws affect the employment process, it is inevitable for businesses to analyze their HR practices. Take a proactive approach, identify loopholes in your human resource policies and reduce the risk of HR noncompliances.