It’s Not That Kind of Audit!

If you’re the kind of person whose hands get clammy upon hearing the word ‘audit’, relax! HR Audits are a different party altogether.

If you’re the kind of person whose hands get clammy upon hearing the word ‘audit’, relax! HR Audits are a different party altogether. The primary purpose for conducting an HR audit is to identify what you’re already doing well and should maybe strengthen, and what you might be missing that are either required by law or as a general best practice. You are not reporting any issues to the IRS! Instead, going through the process of conducting one, whether through in-house staff or an outside consultant, gives you the opportunity to make all the HR improvements you know your company needs. And, as an international employer, it’s even more important to conduct one from time to time, since it will only help you get better at keeping track of all the different compliance requirements in each country against whether or not you’re actually following those mandates.

While an HR audit may be prompted by either a specific incident that caused internal nervousness or a desire to generally review the department, policies and practices, there are several different approaches, each with their own objectives.

  • Domestic or International Compliance – The basic foundation of any well-functioning HR department is to ensure all policies and practices are in line with local and federal laws. Conducting a soup-to-nuts evaluation of your employee lifecycle will reveal whether or not you’ve structured your recruitment process to be non-discriminatory, your compensation and benefits to adhere to wage regulations for your industry, all the way to ensuring your termination process, documents and benefits are air-tight, fair and comprehensive. This last part is where most employee liability stems from and aligning your internal philosophy and practice with the statutory requirements will help mitigate that risk. As all international employers know, most countries have very strict minimum statutory labor requirements and as a company grows, it’s easy for managers to start taking shortcuts and fall off the compliance bandwagon. Conducting an audit reveals any new gaps in compliance and allows you to fix them before issues arise.
  • Department-specific – Expanding into new countries is often the perfect opportunity to conduct an audit that is function- or department-specific. You might discover that your payroll team needs more help with reporting, or your HR admins need to tighten up their records retention. When each part is functioning smoothly, the whole machine can get the job done better and faster!
  • Competitive and Strategic analysis – To be an attractive employer, it’s always useful to use an internal lens to see how competitive you actually are. An HR audit that collects and analyzes wage and benefits data will allow you to see if you’re still paying people according to your compensation philosophy. It can also be an opportunity to again benchmark the information against the industry standards which would allow you to provide strategic data to management and leadership to keep everyone aligned with the company’s mission.

Conducting a useful HR audit isn’t difficult. You can even do it with your existing HR staff. But if internal capacity is an issue, hiring an outside consultant might be the most efficient way to go about it. Here are some tips if you’re doing it yourself:

  • Determine what level of audit you want (see above list of types) and set the scope of what kinds of and how much information you will be evaluating
  • Create a questionnaire to address all the issues to which you’re seeing answers
  • Put together an audit team – it may be just members of the HR department or you may want other department members, too, to provide an outside perspective
  • Set a timeline and define ‘doneness’. Make sure everyone involved knows.
  • Collect the data, conduct the interviews, benchmark if necessary and report out the findings
  • Create an action plan based on the results

To get your engines started, here are some ideas on what you might want to audit:

  • Employee classification – Whether you are skeptical about the employee vs. independent contractor classification situation in your company, or wondering whether an expat should be converted to a local national, these are topics amongst many that cause HR managers heartburn. The tax implications alone are problematic. An audit will help you nail down any corrective action that may be necessary.
  • Onboarding and immigration records – Whether it’s ensuring the I-9 forms are accurately filled out in the U.S. or analyzing a report of visa/work permit expiration dates for international staff, this is an integral HR responsibility with minimal room for error.
  • Time and attendance records – In addition to being a statutory requirement in many countries (and in the US for non-exempt personnel), having accurate time and attendance records is key for managers to be effective. Anything the HR team can do to ensure that data is kept clean on a regular basis only enhances their value to management.

Hopefully this sets your mind at ease about the how and why of HR audits. It’s nothing to be afraid of and in fact, something you should be seeking out! If you need further guidance on getting started, please reach out to us for help.

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