A Vital Means of Avoiding Legal & Regulatory Liability

HR Audit


A HR Audit can help to identify whether specific practice areas or process are adequate, legal, and effective.

Today's businesses operate within the confines of a heavily regulated employee environment.

This challenge includes dealing with myriad complex laws and regulations. A company needs to  establish and administer a host of policies and practices—many of which involve compliance implications—that significantly influence the productivity and profitability of a company.

Noncompliance = Risk

Given that many business owners and/or HR departments are both understaffed and overworked, only in retrospect do many companies become aware of the monetary costs of ignoring HR-related legal hot buttons. Noncompliance with applicable laws and regulations involves significant financial risk. To minimize the risk, many companies purchase employment practices liability insurance. Though this is a sound strategy, organizations can take other proactive measures. Chief among these is a voluntary HR audit.

HR Audit

An HR audit involves an intensely objective look at the company's HR policies, practices, procedures and strategies to protect the company, establish best practices and identify opportunities for improvement. An objective review of the employer's current state can help evaluate whether specific practice areas are adequate, legal and effective. The results can provide decision-makers with the information necessary to decide which areas need improvement.                                                                                

An HR audit generally consists of two main parts:                                        

  • An evaluation of the company's operational HR policies, practices and processes (e.g., recruiting—both internal and external, employee retention, compensation, employee benefits, performance management, employee relations, training and development).
  • A review of current HR indicators (e.g., number of unfilled positions, the time it takes to fill a new position, turnover, employee satisfaction, internal grievances filed, number of legal complaints, absenteeism rates).

Types of Audits

An HR audit can be structured to be either comprehensive or specifically focused, within the constraints of time and budget. There are several types of audits, and each is designed to accomplish different objectives.           

Some of the more common types are:                                                             

  • Compliance. Focuses on how well the company is complying with current federal, state, and local laws and regulations.
  • Best practices. Helps the organization maintain or improve a competitive advantage by comparing its practices with those of companies identified as having exceptional HR practices.
  • Strategic. Focuses on strengths and weaknesses of systems and processes to determine whether they align with the company's strategic plan.
  • Function-specific. Focuses on a specific area (e.g., payroll, performance management, records retention).

What to Audit

Companies are particularly vulnerable in certain areas. Most lawsuits can be traced to issues related to hiring, performance management, discipline or termination.                                                                                                                 

Some additional risk areas that employers should carefully review in            

an audit include:                                                                                                         

  • Inadequate personnel files
  • Prohibited attendance policies
  • Inaccurate time records
  • Form I-9 errors 
  • Misclassification of exempt and nonexempt jobs


The cost of an HR audit depends on the scope of the review, the number of people interviewed and the size of the company. Consequently, the expense varies greatly from one situation to another. Although, the cost of conducting any full-scale HR audit will be far less than defending (let alone losing) even one lawsuit. Some insurance carriers even provide audits, as a part of their compliance programs, so the audit could actually be free.                                

Contact us today to learn more or to schedule your HR Audit.