Conducting a Human Resources Compliance Audit

Managing and governing human resources (HR) personnel files—regardless of the number of employees—is a big effort and responsibility. And the amount of information that must be contained in these files is growing rapidly. Failing to conform to these ever-increasing compliance requirements can result in costly fines and significant legal expenses.

Author and HR expert Theresa Minton-Eversole strongly urges companies to perform audits, stating: “An HR compliance audit can help ensure that HR practices abide by the multitude of frequently changing laws and regulations. The compliance audit generally has two parts: an evaluation of the organization’s HR policies, practices and processes, and a review of current HR data. Indicators of potential problems include internal grievances filed, pending legal complaints, and turnover and absenteeism rates.”

Minton-Eversole goes on to state that most lawsuits can be traced to issues related to hiring, performance management, employee discipline, or termination. Other high-risk areas include:

• Misclassification of exempt and nonexempt jobs.
• Inadequately maintained personnel files.
• Prohibited attendance policies.
• Inaccurate wage and hour or time records.
• Form I-9 errors.
• Outdated federal and state labor and employment law posters.
• Insufficient record retention.

So what are the steps necessary to both protect your organization and to comply with regulations?

1. Research the requirements for the above-mentioned areas to establish the scope of the audit and to gather the necessary information. Then create action plans to address and/or mitigate the risks.
2. Conduct an internal audit to make certain that your organization is in compliance with regulations. It will also help identify any risks and ensure that you are creating long-term control systems. For an effective process, I recommend that organizations use internal audit checklist templates. These templates serve as a guide for the person conducting the audit, as many companies may not be in a position to have a full-time HR person on staff. These templates can be used to help the appointed person organize their tasks and ensure that all necessary areas of compliance are both up to date and being maintained. Keep in mind that these templates will need to be tailored to your organization’s specific needs based on the size and complexities of the business.
3. Once the critical needs have been focused on and fixed, it is strongly recommended to schedule audits of other HR functions to head off future problems. The beginning of each year is a great time to conduct new audits to ensure both continuing compliance and compliance with any new regulations.

“Define exactly what to audit and then ensure that the organization’s leaders support that process,” said Sarah L. Davis-Temple, SHRM-SCP, talent management business partner for Greenway Health in Tampa, Florida. According to Davis-Temple, the best audits are the ones you control. The worst are those prompted by a dreaded letter from a government agency. And speaking from experience, you never want to be the one to open that letter!

Keep in mind that no company is perfect and there is always room for improvement, regardless of how long a company has been in business. In this case, it is NOT better to be lucky than good!