What is HR Audit & Does it Boost the Bottom Line

An entity is made up of parts that combine to produce a synergically operative system whether it is to produce goods or service; for profit or non-profit. To make sure the corporation works like an efficient machine, each part must be well-oiled and work smoothly to support the whole effort.

The Human Resource (HR) function of the organization is no different. Which is why auditing of HR has gathered so much traction in modern times and why it will continue to dominate the agenda of top-tier corporations.

What is Human Resource audit all about?

Cultivating a workforce that is honest, dedicated and whose personnel values align with the organizations own is the success story behind many a renowned organization.

The human element is what sets the company apart in a saturated industry and it is the human resource whose creativity and competence drives the company ahead of the pack in niche markets (think Apple). A robust and active HR function can do wonders in hiring and retaining talent that is the ideal fit to your organization.

Going with the axiom ‘There’s always room for improvement’ you may continually be spending on training HR managers and supervisors in fresh techniques and methodologies but without adequate review and feedback you won’t be able to recognize the benefits.

Some kind of enquiry into the state of affairs of the HR department on a periodic basis would serve to highlight pitfalls and areas that need course correction. An investigation by the department managers or an independent legal or audit professional into the system and processes in place in different aspects of the HR function is known as an HR audit.

Having understood what auditing of HR is about, let’s explore how this can aid in boosting the bottom-line aka the profits of your company. Imagine a company that has employee health records within personnel files.

It sounds logical and innocent enough but according to regulations in certain places, medical records are confidential and should be stored separately from other records. Placing the health records in open access could lead to fines by regulator and lawsuits, if a related case is brought up by any employee against the company. A compliance audit or record and files audit would flag this issue instantly.

In another example, a company with a problem retaining good talent has to endure cost of time and money when they advertise for new positions, conduct interviews and short listing, spend time with training and then have to go through exit formalities.

 A review of Hiring, On-boarding and Exit procedures as well as a Salary & Benefits competitiveness audit could cut through these costs and save everyone time, money and a lot of headaches. Additionally, succession planning is much easier with a stable employee base.

Types of HR audit

  1. Payroll audit

This kind of audit is a function audit that only considers the efforts of the payroll area within the HR department. Things to consider include but are not limited to:

  • Method for employee inclusion in the register with proper approvals
  • Appropriate segregation of duties
  • Disbursement of payroll through proper means and deduction of taxes
  • Issuance of salary slips and proper acknowledgements
  • Records and Files

Maintenance of necessary personnel documents limits any future liabilities the company may have to face. Investigation will include areas such as:

  • Proper information relating to employee including employability data at time of induction
  • Documented disciplinary warnings, performance evaluations
  • Time limit observed for keeping records
  • Confidentiality requirements
  • Work safety

Employee health and safety is a major area of concern, humanitarianly and from a legal perspective because a dangerous environment could lead to court proceedings requiring payouts to grieved employees. Included within work safety auditing of HR, is provision of safety apparel, safety equipment around the premises, documentation of harmful incidents and maintenance of adequate insurance cover.

  • Hiring, On-boarding & Exit

This type of investigation could reveal a lot of opportunities for improvement, especially concerning employee turnover and productivity of the company. Checklist may oversee things like:

  • Legally required forms are properly filled out
  • Background checks are actually carried out smartly
  • Process for communique regarding new recruits Job Description, benefits and obligations
  • Comprehensive trainings, both on the job and separately (if required)
  • Exit formalities review
  • Reasons for termination
  • Salary & Benefits competitiveness

To attract and retain top talent a company need not be offering the best salary. Rather it could compete with bigger corporations by including benefits that entice good workers. A review would encompass:

  •  Looking at competitors to reveal how the company fares and what it could improve
  • Minimum wage compliance and bifurcation of workforce into contractual, part time, wage worker or full time
  • Under-utilized perks and those that could be implemented with more value for money
  • Regulatory compliance

Adherence to laws is investigated to ensure nothing comes out that could subject company to disciplinary action and damage its reputation in the market. If a malpractice is suspected, company may opt to hire legal counsel to audit the case to avail confidentiality of findings.

  • Policies audit

The auditing of HR policies revolves around maintenance of proper handbook or guide of policies available to staff, update to those policies in line with applicable regulations and staff awareness of the handbook.

  • Best practices

When overseeing a Best Practices audit of HR, the procedures will involve the whole function and will comprehensively measure current practices against global standards so areas where company can build upon can be brought to light.

  • Strategic audit

Like the one before, this audit also takes an overall view of the department but it focuses more internally then externally and measures the HR efforts to those of the organization to validate that they are in sync. This could mean that the changing strategy of the company might call for a flatter organization structure whereas the HR still clings to the traditional multi-tiered structure.

Not all these are fit for every corporation. And with the time and money involved, it may be a better idea to have different areas audited in turn rather than as a whole so that problem areas can be better managed. Whatever the needs of your company, carrying out auditing of HR at least annually will narrow the gap between the goals HR aims to achieve and expectations of top management.

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