How to Make Sure Your HR Compliance Audits Are Done Right

The United States Congress has put many labor laws in place to protect employees from harm. As an employer doing business in the US, you must comply with these laws or face harsh penalties, fines, and possibly even lawsuits. Because noncompliance is a business risk, it’s critical for business owners and HR professionals to take steps to ensure it doesn’t happen on their watch.

This is where an HR compliance audit can help. Learn what HR compliance audits can do for your company and how to conduct them so your HR team can operate at its best.

What Is the Purpose and Scope of an HR Compliance Audit?

An HR compliance audit ensures that your HR department is operating in accordance with the most current labor laws and regulatory requirements and following industry best practices. It’s a tool that business owners and HR professionals can use to manage compliance, decrease legal risks, and avoid the negative impact that comes with non-compliance.

The scope of your HR compliance audit will depend on several factors, including the type of audit you conduct, how often you do it, and your goals for the compliance audit.

In general, you can use a compliance audit to analyze your policies and procedures at a general level or to look at just about any HR function at a more granular level, including payroll, benefits administration, leave policies, and ADA compliance.

Types of Compliance Audits

Compliance audits don’t take just one form. Your department may engage in several types:

• Regulatory: examines whether you’re in compliance with laws at every level of government
• Strategic: analyzes your HR processes and procedures to determine whether you’re operating as efficiently as possible
• Specific: inspects different HR functions (such as payroll or recordkeeping) to see what needs improvement in each area
• Comparative: investigates your HR practices to align them with best practices from industry leaders

No one audit will tell you everything you need to know about how to improve your HR department. You’ll likely need to perform all of these audit types at different points to get a full picture of what’s going on with your team.

9 Essential Steps in an Effective HR Compliance Audit

The results of an HR compliance audit can help ensure that your department is following the law and operating properly. If you’re ready to transform your HR practices for the better, follow this HR compliance audit checklist to conduct an effective audit that produces meaningful and actionable insights.

1. Prep Stakeholders and Compile Resources

You should inform your entire team that the HR audit will be taking place and tell them what it entails. Employees must be prepared for the possibility of being interviewed. Additionally, you must assemble and meet with the team (or teams) that will be directly involved.

During this meeting, decide on the type and scope of the audit. This will determine the type of data the team needs access to. Your team should also develop a questionnaire and checklist to ensure they solicit the right information and nothing gets missed in the process.

2. Identify Laws or Regulations That Will Impact Your Work

You’ll want to go into the audit with an understanding of labor, employment tax, anti-discrimination, data privacy, and other laws that the HR department must follow. This will ensure you can properly audit your policies and practices to align with these regulations.

Additionally, you’ll need to understand what questions you can and cannot ask employees and who can and cannot access sensitive employee data. For example, if you’re auditing your compliance with the Americans with Disabilities Act, you need to know which questions are off-limits regarding an individual employee’s disability disclosure.

3. Assess Company Policies and Procedures

Once you have an understanding of the laws you should be following, you’ll need to obtain written copies of all of your policies and procedures. These can include anything from hiring and onboarding policies to sexual harassment, acceptable network use, and employee leave policies. Comb through these documents to ensure that every requirement complies with applicable laws.

4. Review All HR Processes and Practices

During your compliance audit, go through your processes and practices to ensure that what you’re doing lines up with the law. Some critical processes to evaluate thoroughly include payroll, performance management, disciplinary procedures (including termination), and ADA accommodations.

Make sure your processes and procedures are enacted fairly and that all employees are subject to the same rules and expectations.

5. Evaluate Potential Compliance Vulnerabilities

Make sure you conduct your evaluation with both the law and standard HR benchmarks in mind. Comparing your findings to national or industry-wide benchmarks will help you get a sense of how well your HR department is doing with implementing best practices. It also helps you understand exactly what you need to adjust to bring your departmental policies, procedures, processes, and practices up to standard.

6. Update Best Practices for Recordkeeping

Good recordkeeping is a matter of compliance because it's required by law. Know the state and federal regulations on what records you need to keep and how long you need to keep them. Then design a system that will help you maintain files and access them without hassle.

7. Take Corrective Action When Necessary

Use the data you’ve collected to draft an action plan to correct the issues you have identified. It helps if you can prioritize your actions so you’re not trying to change everything at once.

Ensure that any problems that are causing you to fall out of legal compliance are at the top of the list, as remaining noncompliant has the potential to put the business at risk.

8. Communicate Your Findings and Recommendations

Draft a summary of your findings and make recommendations based on them. It can be helpful to create charts and graphs when presenting to senior leadership to help them visualize and understand the data. If leadership agrees with the findings, develop a timeline for corrective action and obtain any necessary approvals for moving forward.

9. Long-Term Monitoring and Follow Ups

An HR compliance audit is never a one-and-done event. You should conduct them regularly to ensure that compliance remains a high priority. This is especially important as external regulations and internal personnel, culture, and attitudes shift over time.

Seeking Expert Guidance and Support for HR Compliance Audits

Even with a solid HR compliance checklist in hand, it might be helpful to get advice from an expert before conducting your audit. They can help you determine your goals and craft a plan to ensure your audit is as effective as possible. They can also help you analyze the data and decide on a plan of action once you’ve spotted any issues.

One good reason to seek out this type of support is that it can help you avoid bias. You may be too up close and personal with your own department to see existing flaws. You also might be hesitant to look critically at policies and procedures you’ve worked hard to implement. An outside voice can help ensure you’re interpreting your findings objectively.

Getting expert guidance also allows you to leverage other people’s knowledge to benefit your company and HR department. For example, you may be able to work with an outside source who has extensive knowledge about industry-wide HR practices. Consulting with this type of professional can give your company a competitive edge when it comes to understanding and implementing best practices.

Whether you choose to conduct the audit on your own or get support from a third party is entirely up to you. What’s important is that you conduct the audit effectively so you can ensure your department keeps compliance risk down and keeps efficiency, productivity, and employee satisfaction as high as possible.