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What is an HR Audit? | Meaning & Definition

Human Resources is an integral part of any organization as it plays an important role in running an organization. It is the department that is ultimately responsible for maintaining a healthy relationship between employees and the employer. 

However, sometimes, inefficiencies in this department itself can lead to serious problems. Yes, these problems can be really hard to get away from. That’s why it’s important to keep the HR department of the organization running smoothly with no errors in its functions and policies. Here comes the role of HR audits. So, let’s know everything about HR audits in this blog. 

Understanding HR Audits

As the name suggests, an HR audit refers to the auditing of an organization’s HR department. It is a type of investigation that helps the organization find gaps and improvements in core HR processes, practices, and policies. In simple words, it is a way to keep your HR department healthy as it deals directly with the employee on behalf of a company. 

There are two possible categories of an HR audit, namely risk mitigation and value creation. Suppose risk mitigation is the area to focus on. In that case, it primarily focuses on the processes and policies of the HR department to know if the operation is legal and ethical or not. It is an important area of investigation as legal negligence can lead to lawsuits getting filed against the organization, which is not good for the company from a capital and image point of view. 

Value creation, however, is about investigating potential gaps that can lead to adding value to the employees. It may include steps like changes in HR policies, implementation of new rules, and many more. It ultimately focuses on the betterment of the HR policy and the employees. However, the individual purpose of HR audits can be different. So now let’s look at these purposes in detail. 

What do HR Audits do?

What exactly can be the purposes of HR audits? To answer this question, let’s look at what an HR audit can do. 

1) Makes Sure Everything is Legal

To run a company legally, one must make sure that every operation happening in the company is legal by law. While many people may look at legality as not doing something that is prohibited in law, they may not know everything that’s prohibited. The HR department has a similar case. Many organizations do something unethical that comes under the HR department due to a lack of knowledge. Now, even though that thing may not be very harmful by law, it remains unlawful. So, getting a lawsuit and having to pay the legal fees is the bare minimum. That’s where the HR audits have the potential to save you. These audits are done by experts, which is why they can highlight and correct any that’s illegal in the company’s current HR policy and operations. Hence, it helps organizations keep themselves away from unwanted lawsuits. 

2) Find Ways to Improve

Now, even when you are running your organization and HR department 100% legally, it doesn’t guarantee that you are 100% efficient. That’s why finding the gaps and improving them is important to become better than yesterday and the best of today. HR audits help you to do that with your HR department as they look for the gaps that are present in the processes and policies. Moreover, it suggests how to eliminate those gaps and make your HR department better, which is good for the employees. 

3) Matching HR with Company Goals

HR is a department where it’s said that a balance between its policies for employees and employers is important. If it leans more toward the employees, then it may not be good for the organization, and if it leans more toward the organization’s benefits, it may not be good for the employees. With HR audits, you can maintain this balance, which lets the HR company achieve goals that are beneficial for the employer and the overall organization. 

These are the three main purposes of why an HR audit takes place. Additionally, it also helps you out of future problems with continuous auditing. So, now, let’s move on to the types of HR audits.  

What are the types of HR Audits?

Based on multiple factors, there can be many types of HR audits. However, one of the most important factors is the type of conduct. There can be two types of HR audit conduct, namely internal conduct and external conduct. Here’s what they mean.

1) Internal Conduct

Internal conduct is when you do an HR audit within your organization. This means that the HR department itself audits its operations and policies to check if everything is fine and perfect.

2) External Conduct

External Conduct, on the other hand, is when the company chooses an outsider to do the audit, which is mostly an HR consultant organization. It is beneficial for companies to do an external audit to decrease the chances of biases in the report and get fair results. However, if an organization lacks the resources to do an internal HR audit, then it can also choose external conduct.

However, apart from this, the HR audits can also be partial and comprehensive. 

3) Partial Audit

A partial audit means that only a few things are being checked in the audit. Such audits are done, and there is a need to identify gaps and make changes in particular HR processes. For example, a partial audit can be done for the hiring process only to improve it. 

4) Comprehensive Audit

On the other hand, a comprehensive audit is when every aspect of the HR department is examined to get a detailed report of the department. 

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How to do an HR Audit: Step-by-Step Guide

Doing an HR audit is like checking all the parts of a car to make sure it’s working properly. Here’s how it’s done:

1) Prepare for the Audit

Before starting the audit, gather all the information you’ll need. It includes HR policies, employee handbooks, and records like payroll and performance reviews. This will serve as the data to study for the audit and understand how the HR things are being done till now. 

2) Review Policies and Procedures

Look at all the rules and procedures the company has for HR. Check if they’re up-to-date and if they follow the law. Moreover, look at the files for each employee. Make sure they have all the necessary documents, like job applications, tax forms, and performance evaluations.

3) Assess Legal Compliance

Now, one of the most important steps is there. Check if the company is following all the laws and regulations related to employment. It includes things like minimum wage laws, safety regulations, and anti-discrimination laws. Many times, a company may be found following something common in the industry but unlawful. For example, not paying minimum wages to the employees. So, this step confirms all such legal compliances. 

4) Evaluate HR Processes and Analyze Employee Relations

Look at how HR tasks are done, like hiring, training, retraining, and performance reviews. See if there are any ways to make these processes better and more efficient. Also, check how employees get along and if there are any issues. This might involve looking at things like employee surveys or records of complaints.

5) Examine Benefits and Compensation

Review the company’s benefits and pay practices for the employees. Make sure they’re fair and competitive compared to other companies. It makes the organization a place for employees where they feel valued and try to be better. 

6) Document Findings and Make Recommendations

Write down everything you find during the audit. This helps keep track of what needs to be fixed or improved. Based on the audit findings, suggest changes or improvements to HR policies and practices. These recommendations should help the company run HR better and avoid problems in the future.

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Wrapping Up

In conclusion, HR audits are extremely important for any organization to make sure that they are running legally and efficiently. With HR audits, you can focus on multiple areas, which, if not examined for a long time, can affect the effectiveness of the HR department. For example, the hiring process in any organization must be up to date and follow the latest trends, which one can make sure of with HR audits. Similarly, there are many other things as well which HR audits solve for the betterment of the organization and employees.