An HR audit or analysis is a way for organizations to review the whole of their human resource activities across the entire human resource function.
“HR audits look to determine if the company is in compliance with the different HR laws, or even following the guidelines they set forth for themselves,” says Robin Throckmorton, Shareholder In Charge at Clark Schaefer Hackett. “It can also help usher in best practices and efficiencies that help the organization improve and be even more successful.”
HR audits look at hiring, compensation, benefits, payroll and record keeping to determine if the organization is being as effective as possible with those activities.
“These audits are often self-initiated and done by a friendly, neutral third party,” says Patti Dunham, Director HR Solutions at Clark Schaefer Hackett. “There are cases where a bank, board of directors or a private equity sponsor might compel an organization to have one, but these are done for self-improvement, not solely as a matter of regulatory compliance.”
Smart Business spoke with Throckmorton and Dunham about HR audits, what they look to accomplish and why.
Why would a company go through an HR audit?
Some organizations don’t have a dedicated HR person, but rather someone who handles HR responsibilities in addition to their core tasks. These organizations are often concerned that they’re overlooking some aspect of HR and are out of compliance, or inefficient.
HR audits can be initiated by an organization’s board, by new ownership, or by an HR department that wants to be proactive and understand if they are using the right tools or have the most effective processes in place.
HR audits are also common after a merger or acquisition to better understand the environment and see what needs improved. Likewise, a new head of HR often initiates an audit to learn what they walked into.
Who performs an HR audit?
A professional human resources firm that’s knowledgeable in all the functional areas of HR typically performs these audits. It’s good to select a firm that has experience not only in HR, but of the organization’s industry — for instance, nonprofits have special rules they’re required to follow.
The person conducting the audit should look at everything from a human resource perspective — the lifecycle of an employee from hiring, onboarding, benefits, record keeping, compensation and employee relations issues. That requires a firm that has that breadth of knowledge of the departmental functions as well as the laws that overlap those functions.
Organizations could perform their own HR audits if the people involved have the necessary breadth of knowledge. But the reason many organizations choose to have it led by an external service provider is because that outside voice is objective, which can make the takeaways easier to implement since the guidance is free of any internal politics.
What should companies understand about an HR audit before going into it?
HR audits take time. They require deep discussions to gather the needed information and determine the desired results. Organizations should understand that there may be feedback regarding areas of weakness that need improvement, and that can sometimes cause people to react defensively.
Because this is not a financial or regulatory audit, there are no penalties. It’s more about peeling back the layers to figure out what’s going on. That requires open, honest and forthright conversations to create a good plan going forward.
After an HR audit, organizations will have a roadmap that outlines what will be done with results, who’s going to do it, and when they are going to do it. It’s also productive to make someone accountable for the changes. That could be an external consultant, or someone internal like a project manager.
The plan also should be escalated to leaders. Present the results not just to the HR group, but to a leader within the organization who can hold the department accountable to ensure changes are made.
HR audits are an incredibly useful tool but they’re only as effective as the organization lets them be. By digging deep and identifying areas that could benefit from improvement, organizations can greatly improve their HR function. ●
INSIGHTS Accounting is brought to you by Clark Schaefer Hackett