02 May HR Audits: The Full Rundown + Free Checklist to Get Started

Managing your organization’s human resources (HR) function is a challenging task. There are many moving parts to keep track of, and the success of your organization largely depends on how engaged, productive, and satisfied your workforce is. Because of these high stakes, it’s important to regularly review your HR policies and practices and make improvements.

That’s where an HR Audit comes into play.

An HR Audit is an indispensable tool for organizations that want to maintain compliance, enhance efficiency, and foster a productive workforce. The audit process enables businesses and nonprofits alike to assess their HR functions, policies, and practices and ensure alignment with legal regulations, industry standards, and strategic objectives.

In this rundown, we’ll walk through everything you need to know about HR Audits and provide a checklist you can use to kickstart the process for your business or nonprofit:

• HR Audits: A Quick Overview
• 7 Steps to Follow For a Thorough Audit
• RealHR Solution’s FREE HR Audit Checklist
• Tips for Getting Started
• RealHR Solutions: Your Ideal Partner in The HR Audit Process

HR Audits: A Quick Overview

Through an HR Audit, organizations can identify areas of improvement, mitigate potential risks, and enhance operational efficiency. Let’s cover the basics so you can determine when your organization needs to conduct its next audit.

What is an HR Audit?

An HR Audit is an analysis of an organization’s policies and procedures that relate to HR, regulatory compliance, and other aspects of its internal operations.

Audits should be as objective as possible, so they are typically conducted by third-party HR consultants or experienced HR departments. The results of an effective HR Audit will reveal the gaps in your organization’s practices and their impacts, plus areas of potential liability that need to be addressed.

What is the difference between an HR Audit and an HR Assessment?

As you weigh your organization’s options for evaluating its HR, you may encounter both HR Audits and HR Assessments. These exercises are similar, but they differ in scope and focus.

• HR Audits focus on concrete HR policies, compliance, and other internal areas like performance management, job descriptions, and training requirements. They are often more granular in scope than HR Assessments.
• HR Assessments are comprehensive reviews and evaluations of an organization’s complete range of HR activities. While they review concrete policies and compliance like audits, they take a holistic view of the organization’s HR practices.

Both HR Audits and Assessments should provide diagnostics and next steps to prioritize, but it is important to remember that they serve somewhat different purposes. It is recommended that audits be conducted every one to two years and assessments less frequently.

If you work with an HR consultant to prepare for or conduct an audit, ask about their assessment services. A valuable long-term partner will likely be able to offer support in both areas.

What operational areas do HR Audits analyze?

An HR Audit will typically cover the following operational areas:

• HR practices, including those related to regulatory compliance and organizational policies reflected in your employee handbook
• Recruitment and hiring practices
• Fair Labor Standards Act (FLSA) compliance/exempt/non-exempt classification of employees
• Form I-9 practices
• Employee onboarding
• Exit interviews
• Job descriptions
• Mandatory training
• Diversity, equity, and inclusion (DEI) initiatives
• Performance management processes
• Other function-specific areas of your operations

The exact areas that your HR Audit examines can vary based on its objectives and your organizational structure. Depending on what they are intended to accomplish, audits typically fall into one of a few general categories:

Determining the organization’s compliance with federal, state, and local labor laws and other regulations

Analyzing the strengths, weaknesses, and gaps in HR systems and policies to determine how well they align with the organization’s strategic plans

Comparing the organization’s HR policies and practices with those of industry-leading companies or others considered best places to work

Reviewing HR policies, practices, and compliance as they relate to one specific HR function, like job descriptions, pay equity, or benefits review

There may be some overlap between these objectives and the specific areas that an HR Audit will review. This is why clearly defining your needs, goals, and the areas you want to learn more about is critical for conducting a successful HR Audit.

Why conduct an HR Audit?

In addition to regularly conducting HR Audits to ensure continued compliance and evaluate the impact of policy and procedural changes over time, you may also conduct an HR Audit in specific situations. For example, an organization could conduct an audit to:

• Quickly diagnose and correct policy gaps after a noncompliance issue has already arisen
• Identify inefficiencies in HR processes, reduce redundancies, and optimize resource allocation
• Perform due diligence reviews for investors, acquisitions or mergers, or other potential stakeholders
• Instill greater confidence in its management or enhance its reputation in the community

Simply put, HR Audits show you where your HR policies are working well and where they need to be improved or changed. Their ultimate purpose is to help protect your organization from compliance risks and to make strategic improvements at the policy level, whether proactively or in reaction to changing circumstances or challenges.

Who is involved in an HR Audit?

An HR Audit usually involves a few key individuals or teams, including:

• Organizational or HR departmental leadership
• An HR consultant, if contracted to conduct the audit
• HR staff members, if the audit is conducted in-house
• Leaders or staff from other relevant departments, depending on the audit’s focus

HR Audits need to be thorough and objective. They can be conducted in-house, but your organization must ensure that your HR team has the experience and skills necessary before diving in. In-house HR Audits are more feasible for larger or well-established organizations with functional HR departments.

To ensure objectivity and take the guesswork out of the process, many organizations opt to partner with third-party HR experts instead. Many HR consultants offer specialized audit services, but since audits can touch on many different aspects of your HR practices, it is wise to look for full-service HR partners who can bring more experience and broader insights to the table.

When should you conduct an HR Audit?

As mentioned above, it is recommended that you conduct an HR Audit every one or two years. This gives you the chance to check in on your HR practices and policies regularly and see the results of changes made as a result of previous audits.

While this is solid general guidance, you can also conduct an HR Audit whenever you recognize gaps in your HR practices or policies. For instance, you may want to prepare for compliance with new legislation by conducting an audit of your policies, or you may want to conduct an audit ahead of your next hiring push.

Should you choose to partner with an HR consultant for the auditing process, you can seek out their advice on when to schedule your next audit. And, when you build a strong relationship with your consultant, you can turn to them in the future for your next audit. This provides a great advantage to your organization; your consultant will already know your history and what your priorities are the next time they are called in to audit your HR function.

7 Steps to Follow For a Thorough Audit

In this section, we’ll walk through the general steps that make up the audit process. Remember that the exact scope and focus of your own HR Audit may look a little different.

1. Determine the audit’s type and scope.

• Begin by defining your objectives for the HR Audit and the operational areas that it will review. This could mean taking a more comprehensive approach or focusing on one specific area or policy. Identify the audit’s key stakeholders and other departmental points of contact who will help you gather information.

2. Create an HR audit questionnaire.

• Based on the audit’s scope, develop a questionnaire or other document that walks through all the information needed to achieve the inquiry’s objectives. Clearly spell out what information you need and from whom. This document will effectively serve as the audit’s roadmap, so take your time to ensure it is as comprehensive as possible.

3. Collect the necessary data.

• Next, use the questionnaire to collect relevant data and review the specific areas or policies it covers. Reference the questionnaire as you go to ensure nothing is forgotten along the way.

4. Benchmark your audit’s findings.

• Your audit’s findings can be compared and benchmarked against internal data (like turnover or cost per new employee hired) to see changes over time and to identify solutions. You can also benchmark findings against external data of organizations of similar size or that meet other specific criteria to provide you with a frame of reference for best practices to help inform your next steps. This is an area where the support of HR experts is particularly helpful since benchmarking can be a challenge for smaller or inexperienced teams.

5. Report your audit’s findings.

• After gathering your data and/or using benchmarking data to interpret your findings, summarize your data and report it to departmental and organizational leadership. This report should outline key findings and prioritize them based on various risk or urgency levels.

6. Develop a plan of action.

• Building from the HR Audit’s final report and prioritized recommendations, lay out a concrete action plan and implement it. This step is particularly important and requires thorough follow-up. Failing to act on the compliance gaps identified by audits can actually increase your risk (for example, by creating a record that an organization was previously aware of FLSA misclassifications but did nothing to address them).

7. Emphasize a culture of continuous improvement.

• Conducting HR Audits and responding to the information proactively reflects an organization that is interested in responding to not only compliance concerns but also looking toward continuous improvement. Actively track your progress through the audit’s plan of action and the impact of all HR changes made over time. Also, plan ahead to conduct additional HR Audits in the future.

RealHR Solution’s FREE HR Audit Checklist

Whether you plan to conduct your own HR Audit in-house or to partner with an HR consultant, you should be familiar with the general process and be prepared to supply the information needed for the audit and make improvements after learning from your audit’s findings.

Use this free checklist to guide your audit experience and ensure you’re hitting all the right steps:

Tips for Getting Started

Getting ready for your own HR Audit? Follow these tips to get a strong start to the process:

1. Define your exact needs and your audit’s area of focus.Whether you conduct the audit in-house or work with a consultant, you must have a solid understanding of what you aim to accomplish or learn more about to ensure the audit is efficient and effective.
2. Realistically determine your team’s ability to conduct the HR Audit in-house. Consider your team’s resources, knowledge, skills, experience, and objectivity. It may be best to rely on an outside expert to ensure the audit is as thorough and successful as possible.
3. Begin researching HR and compliance consulting firms. If you determine you need third-party support, start researching potential HR consulting firms to partner with. Start with internet searches and reading through directories of top providers, and don’t forget to get recommendations from trusted colleagues in your industry. As you narrow down your options, consider each firm’s specialties, specific services, and years of experience.
4. Choose a partner you can rely on. As you make your final decision, ensure your consultant can conduct the audit and provide practical and specific recommendations based on their findings.
5. Ensure your team is prepared to collaborate with your HR consultant. The success of your audit will largely depend on your team’s cooperation with your HR consultant. Ensure that relevant team members are prepared to provide any documentation or general information your consultant needs to succeed and that they’re willing to be prompt in any communications with the consultant.
6. Keep an open mind as you prepare to receive your audit findings. Your HR Audit will only benefit your organization if you’re willing to go into the process with eyes wide open and prepare to make real and lasting changes, no matter the findings.

Remember, HR policy changes and regulatory compliance can have high stakes for your organization’s health. Think carefully about whether your own team or a third party is best positioned to conduct the audit objectively and then distill it into actionable next steps. For most organizations, the help of an HR consultant will be the best choice. Ideal partners will offer a full range of services, experiences, and insights to ensure you make the most of your audit findings over the long run.

RealHR Solutions: Your Ideal Partner in The HR Audit Process

RealHR Solutions is a full-service HR consulting firm and a leading provider of HR Audit services. We can take the audit process off your team’s plate and analyze your HR policies and practices with a critical eye.

We also offer a variety of other services, including:

• HR Assessments
• Executive search
• HR set-up
• Organizational strategy
• Coaching and training for staff members
• And more!

With our expertise in these other areas and our background in employment law, we can help you develop tailor-made plans for improvement based on your audit findings and support you as you implement positive changes and strengthen your organization.

Consistently performing audits on your HR practices (or partnering with an outside expert to do so) offers a dual advantage: the swift detection of potential risks and the proactive safeguarding of your organization’s time, reputation, and resources. These audits act as a catalyst for your HR team to nurture a culture of ongoing enhancement, ensuring that evolving best practices and dynamic regulations remain central to your organization’s HR function.

Want to keep learning about solid HR practices? We recommend these additional resources:

• HR Assessments: A Key Element of Your Org’s HR Success
• Employee Retention: A Handy Playbook for Savvy Organizations
• Performance Reviews: Overview & Tips from HR Experts