Human Resource Audit

In today’s competitive environment, organizations must operate within the confines of a heavily regulated employee environment which requires dealing with a myriad of complex laws and regulations.  Noncompliance problems can be, and frequently are, the basis for significant financial risk.  In addition, ineffective HR practices can result in a higher turnover rate and loss in productivity which greatly affects an organization’s bottom line.

HR audits are a vital part of a comprehensive, proactive, strategy to help a company avoid legal liability.  The cost of conducting a full-scale HR compliance audit will be far less than defending (let alone losing) one lawsuit.  As important, HR audits can identify gaps in practices that can be addressed to help a company achieve and maintain its competitive edge.

Most Likely Problem Areas

Most employment lawsuits can be traced to four distinct stages of the employment relationship:

  1. Hiring (job descriptions, application forms, employment contracts, references).
  2. Employee evaluation (performance appraisals and promotions).
  3. Employee discipline (rule infractions, evidence, poor performance).
  4. Termination (comparison with other similar situations, proper warnings, adherence to the complaint procedures, etc.).
  5. Compliance with various employment regulations, such as FMLA, FLSA, ADA and others

Besides these four stages of the employment relationship that are most likely to create conflict, there are some additional areas where companies seem to be the most vulnerable to making a mistake. These include:

  • Misclassification of exempt and nonexempt jobs—Almost every company has job positions that have been misclassified as exempt from overtime requirements.
  • Inadequate personnel files—A review of sample personnel files often reveals inadequate documentation of performance. For example, disciplinary warnings are frequently informal, vague and/or inconsistent. Medical information is often found in personnel files, despite laws requiring that such data be kept separate. Accurate and detailed records are essential for employers to defend any type of claim brought by an employee, particularly unemployment compensation or wrongful discharge claims.
  • Prohibited absentee policies—Controlling excessive employee absenteeism is a big concern for most employers. However, the complexity of family and medical leave laws has made many formerly acceptable absentee control policies unacceptable. Absences impact worker’s compensation, family and medical leave, disability and pregnancy laws. Companies often have policies that either do not comply with relevant laws and regulations or grant employees more protections than the laws require.
  • Inaccurate payment of overtime.  Documentation of hours worked is critical should your company be faced with an audit from the Department of Labor.
  • Insufficient documentation—Reviews of employer hiring practices often uncover inadequate documentation, such as missing or incomplete I-9 Forms.

Auditing these areas will allow the company to identify weaknesses or vulnerabilities in its systems and help identify issues that need to be updated—either to comply with new laws and regulations or simply to be more comprehensive.