How Often Should My Organization Conduct an HR Audit?

Human resources is an essential function in every organization, responsible for managing every employee’s full lifecycle. This starts with sourcing candidates and ends when employees leave. In between, tasks include managing employee onboarding, benefits, payroll, personnel files, performance reviews, training, employee relations, employment law compliance, and workplace culture.

In today’s fast-paced and ever-changing employment landscape, it is important for leaders to regularly evaluate their organization’s HR practices to ensure they are current, legally compliant, and conducive to the culture the organization aspires to create.

In addition to ensuring legal compliance and operational efficiency, HR audits can provide insight into employee engagement and retention.

HR audits typically include a deep dive into all functional areas of HR including:

• Recruitment;
• Onboarding;
• Personnel file management;
• Benefits administration;
• Payroll processes;
• Employment-related policies (typically formalized in an employee handbook);
• Employment law compliance; and
• Employee development (through performance reviews and training programs).

An HR audit may be the impetus for a deeper dive into specific areas of concern, such as talent management or compensation. A deeper dive into talent management can help leaders assess whether they have the right talent in the right positions and identify any skills gaps or areas of talent shortage. This insight informs hiring and promotion and succession plans to ensure the organization has the talent needed to achieve its goals. A deeper dive into compensation may include conducting a compensation analysis to identify any pay equity issues, studying compensation to understand market competitiveness; and building a compensation structure to manage future compensation decisions.

How often should an organization conduct an HR audit? Any time the following come into play:

• Significant change in your workforce;
• Rise in employee complaints;
• High turnover;
• Frequent mistakes or obvious inefficiencies; or
• Change in organization focus or strategy.

A significant change in your workforce is defined as:

• A significant increase in your number of employees due to increased funding, growth strategy, or a merger or acquisition;
• A recent downsizing; or
• A dramatic change to your work environment, such as the change many companies have undergone since March of 2020 (flexible work schedules, hybrid work schedules, fully remote employees, employees living and working in different states, etc.).

Any of these situations require you to revisit your HR policies and practices to ensure they are still current, effective, and legally compliant.

If you see a rise in employee complaints, it could be a sign that your performance management process needs to be reviewed and revised. You may find that you need more supervisor/manager training, or even full-staff training on conflict resolution and/or workplace norms.

High turnover might indicate that your compensation and benefits are not competitive, or it could point to a perceived lack of development and growth opportunities at your organization. It could also indicate an undesirable workplace culture.

If you recognize frequent mistakes in payroll, benefits administration, or policy communications, or if you find redundant or manual processes that could be improved with technology, you may need to conduct a workflow assessment as part of an HR audit or a standalone project.

If your organization’s focus or strategy changes, an HR audit will help you determine if your current HR structure can support the changes your organization is embarking on and what should be done to increase efficiencies (different talent, greater use of technology, more focus on training, etc.).

Lastly, if your organization has never conducted an HR audit, or if you have not revisited HR practices in the past three years, now is a great time to build these steps into your work plan to support your greatest asset: your employees.

Who typically conducts an HR audit? Should you charge your in-house HR team with the task? For a number of reasons, we recommend outsourcing this project. First, your in-house HR team likely has a full plate of responsibilities to manage and no time to adequately perform an audit. Second, an outsourced provider brings an objective eye to the project that your in-house team lacks. Third, an outsourced provider brings an understanding of best practices based on firsthand experience working with many different organizations. Lastly, an outsourced team from a reputable firm will have professionals with a variety of specialties who can perform deeper analyses as desired based on the findings of the initial audit.

If you would like to learn more about how Marcum can support your organization in performing an HR audit, please reach out to Simone Putnam at [email protected].