How to Conduct a Successful HR Compliance Audit

By Team Writer - Last Updated on August 18, 2020
HR Compliance Audit

In order to make sure that a business is correctly adhering to federal law, including establishing company rules and guidelines to ensure that workers comprehend and act in accordance to them, the HR department has to complete a compliance audit.

What is an HR Compliance Audit?

While conducting an HR Compliance Audit, the HR department goes into an investigation and break down of a business’ operations to figure out if it is in line with federal mandates and guidelines while at the same time adhering the needs of the workers.

A good example of an HR Compliance Audit is a review of a business’ incentives, rules, guidelines, health/safety, and work packages such as:

  • Employee Incentives, Income, Relations, & Safety
  • Compliance
  • Business Handbook & HR Rules
  • Fair Labor and Standards Act
  • Workers’ Attendance (Lateness & No Shows)
  • Income Distribution
  • Vetting, Hiring, Terminating, & Teaching Practices & Guidelines

An HR Compliance Audit consists of conducting vetting sessions with important people of a business’ workforce to acquire more knowledge about its environment and operations, inquire about business documents, look at files, forms, and other paperwork that are inscribed within business protocol handbooks, and make a report looking into the way that HR operates then finding weaknesses that are not in line with federal mandates nor meets the needs of workers in order to give solutions for an enhanced workplace environment.

The last audit reports would frequently have these at the completion of the study:

  • Executive Suite Overview
  • Audit Conclusion and Advice
  • Future Solution Plans

(Also Read: HR Compliance | Ultimate Guide for Beginners)

Why Do We Need a HR Compliance Audit?

Initially, conducting a HR Compliance Audit will seem like an enormous amount of data to a analyze. So, why do it? One incentive for a business to go through with conducting an HR Compliance Audit is to prevent lawsuits, complaints, & violations from workers and federal punishment from the government.

If several expectations are not met within a business’ benefit, rules, guidelines, safety/health, and/or work ethic packages, this could lead to workers turning in complaints and lawsuits for not being a part of a healthy workplace. Consequently, a business could be punished by government lawmakers for not following the rules and regulations.

An HR Compliance Audit also provides a platform for a business to have a “look in the mirror moment” and figure out if its operational procedures have had a good, bad, or so-so impact on the reputation of a business. Audits also assists in visualizing and quantifying the effects of company procedure to discover previously unseen gaps or weaknesses to make a pathway for answers to absolve the main issue.

(Also Read: HR and Employment Law Compliance Guide)

Importance of HR Compliance Audits in 2020

Doing an HR Compliance Audit is important for a company that wants to stay in the know of the ever-changing government policies and expectations. A behavior that was o.k. for a business to do a decade ago can be illegal today thanks to the growth of conducting business online, the rise in diversity, and the evolution (both slow and rapid) of social behaviors (especially due to extreme circumstances like the Covid-19 pandemic).

HR Compliance Audit Checklist

No matter if it is a small company is attempting to hire their first employee or a 100-year-old company trying to prevent getting complaints from workers, an HR Compliance Audit Checklist helps to keep tabs on whether a company has met or is attempting to meet federal standards in how they operate.

  1. Visual Aids

    The educational visual guides that are often put on the walls of a company, most often in the breakroom, that shows crucial tips about workplace guidelines, safety rules, workers’ health, etc. Implemented by the Department of Labor.

  1. Private Documents

    Classified files about employees that contains sensitive information (where they live, how to contact them, tax records, next of kin, etc.) that are stored in a private area. Implemented by a number of agencies.

  1. Appropriate Workplace Behavior

    Rules and regulations (of how to dress, how to handle sexual misconduct, dealing with workplace bullying, mobile phone & online usage, etc.) that are in the company handbook, and is mandatory to be memorized by workers when first hired and on a annual basis. Implemented by a number of agencies.

  1. Human Resources Compliance

    Verify the operational rules and regulations of the company with the federal government to discover possible weaknesses and fix said problems.

  1. Searching & Vetting

    The practice of posting new job opportunities on job hunting sites, vetting potential candidates, and picking the most skilled worker for the job.

    It is documented to make sure that it is fair (based on disability, gender, race, sexual orientation, etc.), to ensure valid reasons for why a potential candidate was not given a position, and to make sure that the searching and vetting process was finished on time. Implemented ADA (Americans with Disabilities Act), EEOC (Equal Employment Opportunity Commission) and a variety of other federal agencies.

  1. Distributing Income, Employee Incentives, & Going Up the Corporate Ladder

    Reviewing the company budget to make sure that no over budget monetary transactions, that workers receive accurate pay for the amount of hours they were on the clock, and to ensure that income (both paychecks and direct deposits) are delivered on time weekly or biweekly.

    Get incentives like government regulated healthcare packages for workers based on the amount of workers on the payroll so that all full-time workers receive all the coverage that they need.

    Revise summary plan details to reveal any changes and give them to new participants. Make sure elections are accurately included with plan holders. Investigate any elections requiring confirmation of insurability.

(Download Whitepaper: 5 Tips for Payroll Compliance)

  1. Worker Concerns

    A company platform must have a space where its workers can give their complaints about indiscretions within a workplace environment without the possibility of losing their job or hindering their ability to advance from their current position.

  1. Safety & Health Guidelines

    Make sure that OSHA’s (Occupational Safety & Health Act) mandates are being met, find possible safety issues within the workplace, and find solutions with federally approved steps, especially if a business deals with dangerous chemical properties. Add on private tours on company property for inspectors for clarity and honesty to employees & consumers, and to showcase that safety is of high importance.

  1. Evaluation of HR Rules & Procedures

    Look over and analyze workers’ roles and make sure they are compliant according to the Fair Labor and Standards Act for correctly hourly income rates, re-evaluate company guideline documents to make sure they are compliant with state and federal employee statutes, and to ensure programs (rehabilitation services & voluntary incentive programs) that are given by a business also are compliant with federal laws.

What practices and policies should be audited?

A company’s audit guidelines are based on its needs. Something to think about are how a business handles tasks and duties, what policies and procedures might a company have to follow, and if a company has an excellent record monitoring process in place. Here are some inquiries to consider:

  • Does the organization know about unrecorded or irrelevant guidelines or procedures?
  • Is the handbook for workers thorough and up to date?
  • Do workers and higher-ups know all the HR rules and guidelines?
  • In what ways is hiring done in-house and from outside of the company?
  • Are hiring practices formed and are those in charge of the hiring process trained to be fair?
  • Is the income give-out program monitored by managers?
  • Are positions classified accurately as liable vs. non-liable(1)?
  • Are workers benefits compliant with federal mandates?
  • Is the required conduct of workers outlined in the guidelines of the rules and regulations handbook?
  • Are workers looked upon impartially on a frequent basis in terms of earnings, penalizing, advancement in the company, etc.?

Are plans having to do with intolerance and persecution clarified?

Who is an HR Compliance Audit For?

  • Up and coming businesses
  • Mom and pop shops (with no more than 15 workers on the payroll)
  • Businesses on the rise (with no more than 50 workers on the payroll)
  • Big corporation (with over 50 workers on the payroll)

HR Compliance Costs when performing an audit

Next are a few of the spectrum of prices:

  • Protection

    A few insurance companies will allow access to aids to helps businesses in examining their HR policies. This is done to minimize the opportunity of possibly receiving OSHA infractions and EEO complaints. Get in touch with an insurance representative to decide if this service is an option. It could possibly be of no cost to you.

  • For You by You

    Based on how big or small your business is, this is usually a low priced alternative. A business should be able to finish an audit within a minimum period; letting you know about problems as you move forward in the process.

  • Bringing on a Human Resources Advisor

    Bringing on an advisor to help in the auditing process will be a capped one-time fee or will be hourly based, according on prices given. No matter what, you will receive well-rounded advice about problems with compliance within the company.

    The fee is based on both the size of the report and how big the company is.

  • Bring on an Auditing Company or Lawyer

    Bringing on a lawyer, according to the hourly rates, it is most likely an expensive alternative. However, it is helpful to have judicial expertise. If they see a serious mistake, like documents not being secure, a business can acknowledge and handle the problem without possibly jeopardizing the company’s reputation.

  • Sitting on your Hands

    Either pay up now or pay even more later.

HR Compliant Audit Providers

With the usage of SaaS (Software-as-a-service) tools for time-tracking workers and keeping files on their private information, there is no surprise that there are HR Compliance properties.

  • HR Digital Tools

    A tool that uses information kept in the cloud that helps businesses to manage workers by their job role and where they are located. This finds important labor laws that deal with the welfare of the workers. It can let you know about issues, like a misplaced I-9 work authorization file, or a worker who lives in a zip code that taxes based on the location in which they work and is deducted from the income that they make.

    It also handles employee files online, plus guidelines and requirements for workers, review of files, job opportunities, and penalization files. A few have recruitment properties like lawful compliant application documents and vetting checklists to curb incompliance.

    For a cheaper HR software alternative, choose Zoho People(2). Zoho People is of no cost to you, if a business has up to five workers or less. After installing the software to your device, it Zoho People has a fee of only $1/month per worker and lets you add on services like searching for potential employees as the company grows.

  • Payment Delivery Platforms

    Plenty of mom and pop business owners do not have knowledge about their income provider having HR compliance tools. However, a lot of income providers have HR compliance established into their worker payroll data archives. For instance, these platforms will let you know about workforce mandate visual aids that are a must have and may give them to you.

    Providers will ensure that data on workers, like federal and state tax files are kept. They will also create a payment delivery structure in compliance with state mandates overtime regulations. A lot of platforms also have workers compensation protections and time monitoring services for different circumstances of leave, like health/medical, sick, or maternity leave.

    For a cheaper payroll provider that serves favorably to mom and pop shops, choose Gusto(3). Gusto gives HR workforce law compliance for a low fee of $6/month per worker in addition to a $39 monthly service cost. They also have insurance and can give health incentives and 401(k) savings options for workers.

  • PEO

    A lot of mom and pop shops with a restricted spending budget choose to use a PEO(4) (Professional Employer Organization). As a co-business, a PEO collaborates with other businesses to make sure that they are HR compliant. That curbs their work risk and helps the business in giving legit HR services on the level of larger corporations.

    PEO typically offers advising and legal tips as an extension of services provided. In some cases, collaborating with a PEO can lessen your worker’s compensation fees by collecting your workers with other company’s employees.

  • Anytime Access to HR Staff

    Bringing a full-time human resources manager to your workforce is another way to get HR compliance. But, as stated earlier, most mom and pop shops operate on a small budget and possibly cannot afford another set of staff to work for them. According to the findings compiled by Indeed(5), a full-time HR manager can cost up to $55,000 on an annual basis. Which means that a lot of businesses hold back until they attain 50 to over 100+ workers prior to hiring a full-time HR manager.

Pros & Cons of Conducting an HR Compliance Audit

Providing insight to your company by utilizing an HR Compliance Audit can be a great learning experience. But, like with everything else there is always the bad side of a good thing.

Pros of an HR Compliance Audit

  • Curbs Mishaps and Fees – Assists in learning and coming up with answers to problems before they are exposed publicly due to lawsuits, sanctions, or fees
  • Greater Legal Results – Greaten your chance of winning in the legal system if you are put on the spot by a dissatisfied former worker
  • Increased Satisfaction Among Workers – Healthier workplaces increases the happiness of workers

Cons of HR Compliance Audit

  • Auto-Auditing– Self-reflection of a business through its owner can lead to a lack of full insight to the flaws of their business operations
  • Recording of HR Issues – A chance that criticisms and legal cases of reported problems are not fixed quickly once discovered
  • Bringing on a Lawyer – Lawyers bring on high fees and can surpass expected costs of service

Alternatives to HR Compliance Audit

Without workers, there is no reason to comply to HR Compliance mandates. This could be a good alternative if a business works with a temp agency, a free-lance contract worker, or look outside of the country for staffing.

  • Temp Agency

    Instead of going through the steps of hunting and vetting, temp and staffing businesses bring workers to the company. Since the workers are brought on by the agency, the business provides compensation for utilizing the worker offered. The fee is usually 30% to 50 % more than if you paid the employee an hourly income. But you do not have to go through the often difficult HR compliance audits.

  • Free-Lance Workers

    Free-lance workers are often self-employed, self-reliant contractors or gig employees. These workers are paid through 1099, instead of W-2(6) tax forms. But, the Department of Labor gives particular restrictions on what kind of work is categorized under a worker vs. free-lancer. While bringing on a gig worker will not curb an HR compliance issue, the amount of a business’ HR workload, like going through workers’ income taxes to giving out healthcare/insurance incentives, is largely reduced.

    (Also Read: Top 30 HR Compliance Software in 2020)

Frequently Asked Questions about HR Compliance Audit

Q. Can you do an HR compliance audit yourself without third-party oversight?

A. HR compliance audits gives an opportunity to look inward into possible issues and problems in the company. If outside observers are not given the opportunity to look at how a business really works instead of how it is believed to work, it can lead to a lack of honesty.

Q. Are there fines involved if an HR audit misses critical pieces of information?

A. The cost of not acknowledging issues within a business’ guidelines can lead to a price heftier than using a high-end HR auditing service. Lawsuits from workers and federal sanctions can not only be very expensive, but it can also derail your company’s reputation in the eyes of the public too.

Final Thoughts

Overall, the benefits of doing an HR compliance audit definitely outweigh the consequences of what could potentially happen if one is not done at all. Even if completing an HR audit service is not possible in the current moment, think about utilizing a PEO before doing a self-audit. The process as a whole might cost your business a pretty penny, but in the end it is worth it.

***

Kierra Benson is an alumnus of the University of North Texas at Dallas with a Bachelor’s degree in Communication and Technology. She previously completed an internship at a local newspaper and worked as a content creator for a small online business. Her goal is to work in the media industry in writing/editing and advertising. She has always been fascinated by how messages are marketed in the media to influence the masses and sell products. Connect with her on LinkedIn.

Team Writer

Team Writer | TechFunnel.com is an ambitious publication dedicated to the evolving landscape of marketing and technology in business and in life. We are dedicated to sharing unbiased information, research, and expert commentary that helps executives and professionals stay on top of the rapidly evolving marketplace, leverage technology for productivity, and add value to their knowledge base.

Team Writer

Team Writer | TechFunnel.com is an ambitious publication dedicated to the evolving landscape of marketing and technology in business and in life. We are dedicate...

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