To Audit or Not to Audit, That is the Question!

December 04, 2018 / by Kellee Perez


As an HR professional, business owner, or executive that has been designated an HR role, I’m sure at some point you’ve asked yourself the question of whether you should conduct an HR audit Hamlet-style “to be, or not to be” -on more than one occasion! With HR having so many different components that are integral to the success of a company, there’s good reason to ask yourself this question in such a dramatic fashion! 

From compliance, to health & safety, training & development, recruiting & retention, compensation & benefits, there’s a ton to stay on top of! “Given that many HR departments are both understaffed and overworked, only in retrospect do many organizations become aware of the monetary costs of ignoring HR-related legal hot buttons. Noncompliance with applicable laws and regulations involves significant financial risk. To minimize the risk, many organizations purchase employment practices liability insurance. Though this is a sound strategy, organizations can take other proactive measures. Chief among these is a voluntary HR compliance audit.” (SHRM 2016) In this article we’ll explore when HR audits should be conducted, what to audit, and how they can positively affect the organization overall!

When to Audit

“Given the resources required for a full-scale audit, most organizations will not want to go through this process more than once a year; however, mini-audits that allow for some course correction can be accomplished without too much departmental pain approximately every six months. Scheduling annual checkups to maintain the discipline of a regular review is preferable to only occasional or panic audits (e.g., those that take place only when a potential problem is brewing). Another strategy is to conduct an audit following any significant event (e.g., new plans, management changes).” (SHRM 2016)

What to Audit

“Deciding what to audit depends largely on the perceived weaknesses in the organization's HR environment, the type of audit decided on and the available resources. Keeping a log of issues that have arisen but are not covered in the organization's procedures or policies helps identify areas of potential exposure that HR can address during the annual review process (if they do not need to be addressed immediately).

However, organizations are particularly vulnerable in certain areas. Most lawsuits can be traced to issues related to hiring, performance management, discipline or termination. Some additional risk areas that employers should carefully review in an audit include:

  • Misclassification of exempt and nonexempt jobs. Almost every organization has job positions that have been misclassified as exempt from overtime eligibility. The complexity of wage and hour laws and regulations makes it easy to err in classifying a job as exempt, thereby exposing the employer to liability for past overtime. See: Ask Cheryl #1: Top 5 HR questions for Small & Medium Sized Businesses
  • Inadequate personnel files. A review of sample personnel files often reveals inadequate documentation of performance—for example, informal, vague or inconsistent disciplinary warnings. Performance evaluations may be ambiguous, inaccurate or outdated. Personal health information is often found in personnel files, despite medical privacy laws requiring such data to be kept separate. Accurate and detailed records are essential for employers to defend any type of employee claim, particularly unemployment compensation or wrongful termination claims.
  • Prohibited attendance policies. Controlling excessive absenteeism is a big concern for most employers. However, the complexity of family and medical leave laws, with sometimes conflicting state and federal protections, has made many formerly acceptable absence control policies unacceptable. Absences affect workers' compensation, family and medical leave, disability accommodations, and pregnancy laws. Organizations often have attendance policies that do not comply with relevant laws and regulations or that grant employees more protections than required. Inaccurate time records. Employers typically require nonexempt employees to punch a time clock or complete time sheets reflecting their time worked each week. The records generated by these systems typically are the employer's primary means of defense against wage and hour claims, so time-keeping policies and practices must be clearly communicated and consistently administered. 
  • Form I-9 errors. Reviews of employer hiring practices often uncover inadequate documentation, such as missing or incomplete Forms I-9. Employers can be fined between $100 and $1,000 for each failure to accurately complete a Form I-9. Fines for these violations can easily add up, with reported cases of repayment totaling over $100,000. (SHRM 2016) See: I-9s, Audits, and ICE, Oh My!

How Audits Can Help

“An audit helps an organization understand whether its HR practices help, hinder or have little impact on its business goals. The audit also helps quantify the results of the department's initiatives and provides a road map for necessary changes. Audits can also help the organization achieve and maintain world-class HR practices.” (SHRM 2016)


I hope that this article provided some clarity and direction on how, when, and why you should employ HR audits for your organization. BIG-HR has helped many organization’s just like yours effectively complete audits, we’d love to provide you with the same support and assistance. Generally, there are 4 types of audits: Compliance Audit, Best Practices Audit, Function-Specific Audit, or a Strategic Audit, BIG-HR offers all four!  Click here to review what our audits entail!  Let us take the stress and heavy lifting of HR auditing off your plate today! Click here to contact us for more information!


Works Cited

SHRM. 2016. "" June 16. Accessed December 4, 2018.


Topics: HR Consulting, Business Planning, Removing the Stress of It All

Kellee Perez

Written by Kellee Perez

Kellee Perez is an account Executive at Benefit Innovations Group specializing in analyzing and implementing HR services within small & large businesses.