HR Audit Service

Is Your Business at Risk?

When did you last review your employee handbook or evaluate your HR practices? Are you at risk for non-compliance with current labor laws, which could mean fines or penalties? These questions and more can be answered with an HR audit.

What is an HR Audit?

An HR audit is a comprehensive review of an organization’s human resources policies, practices, procedures, and systems to identify improvement areas and ensure compliance with legal and regulatory requirements. It is an objective examination conducted internally to identify and remedy possible exposure.

When you conduct an HR audit you can look into one or more areas, depending on your concerns, budget, and time frame. Areas can include compliance, best practices, performance, and competitiveness.

HR audits are done as part of a risk management prevention tool. Periodic internal audits, or self-checks, are the most diligent way to protect against Department of Labor findings during a state-conducted audit. Employee records, including time records, employee personnel files, and Form I-9 review, will be reviewed.

An HR audit is one of the only ways to fully assess whether your HR processes and policies comply with federal and state laws. For example, an audit of all your organization’s Form I-9s can identify and correct deficiencies. Similarly, HR records can be audited to identify commingled records, allowing your business to prevent penalties proactively.

Certain high-level areas of human resources may not be included in the essential scope of an audit, including strategic relations and workforce planning; recruitment details, cultural and DEI goals; organizational and workflow charts; and HR metrics.

When Should an HR Audit Be Conducted?

If you don’t have the internal HR staff to stay on top of your HR issues and compliance concerns, when and how often should you have an HR audit performed? There are many reasons to begin the process, including:

Periodic Reviews

Regular HR audits, conducted annually or biennially, can help businesses maintain compliance with evolving laws and regulations, stay updated with industry best practices, and identify areas for improvement in HR processes.

Mergers and Acquisitions

Before or during mergers, acquisitions, or significant organizational changes, conducting an HR audit can help ensure the smooth integration of HR practices, policies, and cultures, and identify any potential liabilities or risks associated with the transition.

Leadership Changes

When there are changes in leadership within the HR department or at the executive level, an HR audit can help new leaders gain insights into the current state of HR practices, identify areas of concern, and set priorities for improvement.

Legal Compliance Concerns

In response to legal challenges, complaints, or concerns regarding HR practices, businesses may conduct targeted HR audits to assess compliance with specific laws and regulations, such as those related to discrimination, harassment, or wage and hour issues.

Organizational Growth or Downsizing

During periods of rapid growth or downsizing, businesses may conduct HR audits to ensure that HR practices are scalable, adaptable, and aligned with changing workforce needs and organizational goals.

Employee Feedback

In response to feedback from employees, such as surveys, exit interviews, or grievances, businesses may conduct HR audits to address specific concerns, improve employee satisfaction, and enhance the overall employee experience.

Cost Reduction Initiatives

As part of cost reduction or efficiency improvement initiatives, businesses may conduct HR audits to identify opportunities to streamline processes, reduce administrative burden, and optimize resource allocation within the HR function.

Strategic Planning

As part of strategic planning processes, businesses may conduct HR audits to assess the organization’s HR capabilities, identify talent gaps, and align HR strategies with overall business objectives and long-term goals.

Performance Evaluation

As part of performance evaluation processes for HR departments or individual HR professionals, businesses may conduct HR audits to assess the effectiveness of HR practices, identify areas of strength and weakness, and provide feedback for improvement.

HR Audit Topics

The scope of a general HR audit may include the following:

Labor Posters

Ensure you have all required federal, state, and local posters in conspicuous locations, and that your remote employees have access.

Job Postings

Make sure your job postings comply with state and local regulations, including any pay transparency requirements in your location.

Recordkeeping

Look at your document retention practices to ensure you are following recommended guidelines. Review your performance review template and your performance action/discipline template.

Hiring

Look at your job applications and interview process; your background check procedures; your new hire training process; your job offer letter template; your job descriptions; your pay rate acknowledgement document; your employee handbook acknowledgment document; and your harassment training acknowledgment document.

Employee Classification

Employee classification audits are a separate service, but during a general HR audit, it can be determined if such an audit is needed.

Personnel Files

Look at the following in your employee files:

Job descriptions
Employment agreements or signed offer letters
Handbook and other new hire documents
Performance reviews
Applicable disciplinary warnings; write ups or PIPs
Attendance records
Direct deposit authorization forms
Employee information including address; ER contact
Position logs/employment history
Compensation adjustments
Payroll status changes
PTO logs (medical/sick time separate)
Wage garnishments, including child support
Contributions authorizations for medical plans, retirement benefits, etc.
Training and certification records including sexual harassment training log (state-specific)
Termination record, including any separation agreements and records of COBRA submission
Properly executed tax withholding forms (W-4s)

Personnel files must not contain any medical records, medical information, or medical benefit enrollment forms. Nor should they contain any ADA or related medical documents.

Medical Files

Review of your employee medical records, which can include but are not limited to:

Benefit enrollment forms
Doctors’ notes for absences
ADA medical authorization and requests
Forms related to leave of absence
Medical release to return from work
Appropriate COVID test results
GINA Statement

An audit can also look at your HIPAA Policy, as applicable.

Federal Form I-9

Federal Form I-9 is required for all employees, separated into two files: active and terminated employees. It does not apply to independent contractors. Employees are requested to complete an I-9 only after an employee has officially accepted a job offer. The deadline to complete the Form I-9 is day 1 by the employee and day 3 by the employer. Terminated employee Form I-9s must be kept for 7 years.

An audit will verify the following:

Proper Form I-9 version in use
Every employee has a completed and properly executed an I-9
Any errors or omissions

Employee Benefits

An HR audit will look at the following employee benefits that you offer:

Medical – annual compliance regarding how notices are distributed and how enrollment is tracked
Dental and vision
Ancillary plans – documents for FSAs, DCAs, HSAs
Election/waiver forms – look at your open enrollment process and check if waiver forms are properly executed
Disability and workers’ compensation
Paid Family Leave
EPLI and Unemployment Insurance – verify the existence, not establish coverage threshold
401(k) – we will confirm your broker and the existence of fidelity bond; annual compliance on how notices are distributed and enrollment is tracked

Employee Handbook

An HR audit will check your employee handbook to make sure it includes (but is not limited to):

At-will employment policy
Fair treatment and complaint procedure
Workplace conduct
Sick time policy (state-specific)
PTO policy with specific note to accrual, carryover, and payout language
Electronic monitoring and IT policies
Any state-specific COVID-19 policies, as applicable
Applicable leave policies including FMLA, DBL, and any other state benefits

Workplace Safety

An HR audit may include a review of your specific policies drafted, including evacuation, workplace safety, and workplace safety manuals, if applicable.

Required Complaint Forms

The audit may ensure you have the following documents:

Sexual and other harassment complaint procedures and forms, with locations noted in the employee handbook
Retaliation reporting measures
Whistleblower complaint forms
HEROS Act complaint forms, or other state-specific COVID complaint forms

Termination Process

An HR audit will review your termination process checklist, and check your termination letter template to ensure it properly includes information on final pay, COBRA, and PTO.

The COBRA enrollment process will also be reviewed, including your notification and enrollment packet.

Any exit interview templates or materials may also be reviewed.

Benefits of an HR Audit

Identify and mitigate risks

The last thing your business needs is a state labor department audit that reveals numerous compliance violations. An HR audit can pinpoint potential areas of risk within your HR processes, such as discrimination, harassment, or wrongful termination, and allows for proactive measures to mitigate these risks before they escalate, eliminating the exposure of non-compliant practices.

Improve efficiency

An audit can streamline your HR processes and procedures to improve operational efficiency, reducing administrative burden and costs associated with HR functions, while reducing redundancy and human error, which can save time and money. An audit can also assess the effectiveness of your HR practices, identifying areas for improvement and implementing best practices to enhance overall HR performance.

Ensure compliance

An HR audit can ensure that HR policies, procedures, and practices are in compliance with federal, state, and local employment laws and regulations, reducing legal risks and potential penalties, costly legal disputes, and reputational damage.

Identify training and talent needs

An HR audit can improve employee skills and knowledge by identifying gaps in talent acquisition, development, and retention strategies, allowing your organization to address skills shortages and plan for future workforce needs.

Enhance organizational effectiveness

By addressing any issues related to compensation, benefits, or workplace culture, an HR audit can enhance employee morale and satisfaction, leading to higher levels of productivity and retention.

HR Audits Through GTM

When you hire GTM to conduct an HR audit, our HR consultants gather information from your internal HR point of contact, and various brokers or vendors used for insurance and retirement plans. On-site records are physically reviewed, issues are identified, and presented in memo form with a worksheet. Clients are copied on requests for information and kept apprised of the audit status. The timeframe for an audit varies based on your business demands and the time available for audit fact gathering. Findings can be remedied with the assistance of our team.

HR services are offered through GTM HR Consulting Inc.