How to Conduct an HR Audit

What’s the crux of effective human resource management? You guessed it right—audits!  

Yet, most companies either entirely neglect this process or, worse, conduct it negligently, resulting in faulty audits that do more bad than good. 

So, let’s change that. Read this blog as we guide you on how to conduct an efficient HR audit. 

What Is an HR Audit?

An HR audit is a holistic evaluation of an organization’s HR department, including its policies, procedures, practices, etc. 

This evaluation mainly aims to assess the efficiency of an organization’s HR. For instance, its compliance with laws, alignment with business objectives, and so on. Apart from this, an HR audit also reveals the risks, inefficiencies, and potential areas for improvement in key HR processes like recruitment, compensation, and performance management to ensure maximum effectiveness in each of them.

Consider this example:

XYZ is a steel manufacturing company. Despite having strong safety regulations and protocols, occurrences of accidents and mishaps have alarmingly increased in its plants over the last few months. 

Thus, management decided to conduct an HR audit of its workforce. The audit revealed that the laborers had not received proper training to work with the new machinery. Based on the findings, the company updated its safety protocols, provided mandatory training, and implemented a tracking system to ensure compliance, reduce risks, and promote employee well-being.

What Are the Types of HR Audits?

There are several different types of HR audits, each associated with a specific HR function or process. For example:

1. Compliance Audit

This type of HR audit evaluates whether the organization is compliant with all the laws and regulations crucial to the well-being of its employees, such as labor laws, minimum wage laws, anti-discrimination laws, workplace safety regulations, etc.

2. Strategic Audit

A strategic HR audit focuses on aligning an organization’s HR strategies with its larger goals. It evaluates aspects like HR systems and processes to identify gaps and suggest improvements.

3. Performance Audit

A performance HR audit evaluates the employee performance management system of an organization to ensure it is fair, productive and result-oriented. This includes assessing aspects like goal-setting, feedback, appraisal, etc. 

4. Best Practices Audit

This type of HR audit evaluates recruitment, onboarding, offboarding, and other elemental HR practices of an organization. Its main aim is to examine whether these practices are fair and at par with industry. 

5. Competitive Audit

A competitive HR audit evaluates the compensation and benefits an organization provides to its employees. For instance, its pay structure, packages, reward programs, etc. This helps ensure the organization remains competitive, equitable, and aligned with industry standards.

6. Safety Audit

This HR audit assesses how well an organization’s HR policies adhere to safety laws, regulations, and best practices. For instance, if workplace conditions are safe, employees are trained to handle risky tasks, etc. This helps reduce risks and ensure workforce safety.

7. Policies Audit

A policies HR audit examines the HR policies of an organization, such as termination and paid time-off, to ensure they are relevant and appropriate. 

8. Function-Specific Audit

A function-specific HR audit evaluates a specific HR function, like performance management or payroll, to optimize it for efficiency.  

What Is the Purpose of HR Audit?

HR audits are multipurpose. They fulfill different needs for different organizations. However, the four core objectives of HR audit are:

1. Identifying Gaps

According to data, about 87% of companies either already have or anticipate a skill gap in their workforce. While this may sound trivial, if not addressed promptly, this skill gap can have several repercussions on your team’s efficiency, productivity, and adaptability.

HR audits help prevent this. Regular evaluations not only keep you in check with your team’s skill and knowledge levels but also help discover ways to elevate them.

2. Ensuring Compliance

Maintaining legal compliance is not an easy feat. Statistically speaking, over 60% of companies struggle to stay up to date with every law, regulation, and standard revolving around business and employees. However, the consequences of non-compliance are far more severe. If found guilty, you can be penalized or even sued!

HR audits are an ideal way to avoid this risk. They alert you in advance of any non-compliance so you can take corrective measures, minimizing the chances of legal risks and penalties.

3. Enhancing HR Strategies

Do you know—a whopping 71% of HR leaders miss out on competent candidates due to inefficient hiring processes? As such, many instances of ineffective HR obstruct an organization from building a solid workforce. If you look closely, such negative outcomes stem from poor strategies. 

However, organizations that conduct regular HR audits are not only able to spot these inefficiencies in their strategies. But the data-driven reports also help them align with the organization’s overall goals for better productivity and profitability.  

4. Improving Employee Satisfaction

In today’s cutthroat competition, finding and retaining top talent is crucial for any organization that wants to sustain itself in the market. However, 81% of employees are considering leaving their jobs due to dissatisfaction. This can lead to loss of expertise, disrupted workflows, and knowledge drain from a company.

However, HR audits can prevent this catastrophe from emerging. Identifying and eliminating internal malpractices like workplace bias and discrimination increases employee satisfaction, thereby reducing the risk of resignation.

Steps for Conducting an HR Audit

Now that you know about the benefits and importance of HR audits, follow these steps to conduct them in your organization:

Step 1: Set Clear Goals

The foundation of an effective audit is planning. So, start by planning and defining the goals of your HR audit. Are you conducting this assessment to evaluate compliance? To promote employee satisfaction? Understand and highlight your goal before moving toward execution.

Step 2: Plan and Prepare

Now that you have your objective in place, it’s time to prepare the preliminaries. So, determine the scope of your audit, identify key stakeholders, and gather necessary documents like HR policies, employee records, payroll data, compliance records, etc. Once done, build an audit team and assign responsibilities to every member. 

Step 3: Review HR Policies and Procedures

You cannot delve deep into the root cause of any HR-related inefficiency without familiarizing yourself with your organization’s ongoing HR policies and procedures. So, examine your organization’s existing HR policies, handbooks, and standard operating procedures (SOPs) to gain a fair understanding of its HR standing. Check whether they are aligned with necessary laws and regulations and highlight ones that need amendments. 

Step 4: Conduct Interviews and Surveys

While analyzing documents and procedures is essential, you will need more insights to ensure your audit comprehensively addresses every HR aspect. So, gather feedback from employees, managers, and HR personnel through interviews, surveys, and focus groups. Ask for their opinions on workplace culture, training, support, etc.

Step 5: Analyze HR Data

You cannot conduct an HR audit without accounting for vital HR data, such as employee turnover rate, hiring rate, and employee satisfaction score. These figures provide actionable insights into potential issues and challenges in the organization, so collect and analyze them.  

Step 6: Evaluate Compliance

Next, evaluate the company’s compliance with major HR-related laws and regulations, such as labor laws, wage regulations, and anti-discrimination policies. This will help you identify and eliminate non-compliance risks to prevent legal issues.

Step 7: Assess HR Functions

HR functions like recruitment, onboarding, offboarding, etc., are at the forefront of effective HR. Assess these functions for fairness and efficiency. Underline issues, if any.

Step 8: Identify Strengths and Gaps

Now that you have a comprehensive set of findings compare them against industry standards. Identify areas where the HR department excels and pinpoint areas for improvement. 

Step 9: Prepare the Audit Report

Once done, summarize your findings and prepare a data-driven report. Include key insights, identified risks, and corrective measures to make it actionable. 

Step 10: Develop an Action Plan

Lastly, create a structured action plan based on your audit report to bring your efforts to life. Assign responsibilities, set deadlines, and prioritize actions for maximum efficiency. 

When Should You Conduct an HR Audit?

The efficiency of an HR audit doesn’t entirely lie in its execution. If you do not conduct the audit at the right time, you will not be able to leverage its pros to the best of its ability. So, here are three ideal occasions for conducting an HR audit: 

1. Annually or Bi-Annually

Regular HR audits help in many ways—from maintaining compliance to realigning HR strategies. So, even if there’s no apparent need, try conducting an HR audit at least once or twice a year as a best practice.

2. During Organizational Changes

If your company is preparing to undergo any massive change, like a merger or an acquisition, conducting an HR audit will help you navigate the change more effortlessly. 

3. Before Implementing New HR Policies

Conducting HR audits before implementing new policies is a great way to ensure they are well-structured and equipped to support any existing gaps or inefficiencies in your workforce.

Conclusion

HR audits are essential for ensuring compliance, improving efficiency, and strengthening HR functions. They help organizations identify risks, optimize policies, and enhance employee satisfaction.

However, navigating the steps of a comprehensive HR audit can be overwhelming, especially if you have no prior experience. 

This is where PeopleStrong makes a difference. With a range of HR solutions, our HR Tech 4.0 streamlines HR processes, simplifying audits while making them more effective and manageable. 

So what are you waiting for? Conduct full-fledged HR audits with confidence—get in touch today!

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