Updated 6/2/23
Contents
HR audits are an essential part of any business compliance strategy. By regularly reviewing HR policies, practices, and procedures, organisations can identify and address potential compliance risks.
Auditing the HR process can help to avoid costly legal disputes, protect a business’s reputation, and create a fair and equitable workplace for all employees.
To help you make sure you’re running a tight ship, we’ve outlined below the step-by-step guide to the HR audit process, from planning the audit to implementing improvements. Throughout this article, we speak to a selection of HR experts, auditors and consultants, to find out which HR mistakes are the most common, and how you can fix them.
What is an HR audit?
An HR audit is a comprehensive review of an organisation's human resources policies, practices, and procedures. It is designed to identify areas of compliance risk, as well as opportunities for improvement. HR audits can be conducted internally by the HR department, or externally by a third-party auditor.
The purpose of an HR audit is to help organisations ensure that they are in compliance with all applicable laws and regulations, and that their HR practices are fair and equitable. HR audits can also help organisations to identify areas where they can improve their HR processes and programs.
Why are HR audits important in business?
Overall, HR audits are an important tool that can help businesses to improve their HR practices, mitigate risks, and comply with all applicable laws and regulations. Let’s take a closer look at why they’re so important:
- Compliance: HR audits can help to ensure that businesses are in compliance with all applicable employment laws and regulations, avoiding costly legal disputes and penalties.
- Risk mitigation: HR audits can help to identify and mitigate potential risks, such as discrimination, harassment, and retaliation, helping to protect the reputation and financial health of the business.
- Best practices: HR audits can identify areas for improvement in HR management, helping to improve the efficiency of the HR department, and to create a more positive and productive work environment for employees.
- Employee morale and retention: HR audits can help to identify areas where employee morale and retention are low.
An overview of a typical HR audit
First, let’s clarify exactly what an HR consultant or auditor might be interested in looking at:
- Documentation
- Recruitment
- On boarding & induction
- Training & development
- Performance management
- Compensation & benefits
- Employee relations
- Process efficiency
These eight areas make up the backbone of any strong HR function, which is why they are normally the hot points for HR auditors and consultants. So it’s no surprise that the most common HR mistakes tend to fall into these categories. Let’s take a look at each of these areas in more detail.
1. Documentation: Key documents and contracts are often missing or wrong
One of the most expensive mistakes – in both time and money – is when key HR documents or contracts, such as employee records, are missing from the company’s HR system, according to Nickie Elenor, Managing Director of Your HR Lawyer.
“When we audit their HR system, they are missing key documents like contracts of employment, proof of the right to work in the UK, disciplinary warnings, notes of absence reviews, agreements to pay back training fees and appraisals notes” she says. “And if they do have the documents, they are rarely as good as they could be.”
Elenor suggests that this stems from HR being seen as more of a ‘lip service’ function for some organisations. And this is a dangerous game to play. She says that if employers do not create and store their HR data accurately, then they’ll be on the back foot if a situation arises that requires evidence.
2. Recruitment: Too much bias in the recruitment process
The recruitment process can be filled with unconscious bias, which can lead to a lack of diversity and missed opportunities to hire incredibly qualified candidates who do not fit the typical idea of the ‘ideal candidate’.. Although you think your recruitment process is unbiased, according to ex-recruiter Taylor Dumouchel, you probably do discriminate – whether you realise it or not.
“People are unconsciously drawn towards a certain gender, age, or ethnicity” says Dumouchel, who now works for Peak Sales Recruiting, “but the truth is that none of these factors translate into an exceptional employee.”
Dumouchel says that unconscious bias during recruitment is extremely common and is picked up often during HR audits, but that there’s a simple fix. You need to adopt the blind recruitment method, which means taking out all identifying information from applications.
“Implementing blind CVs helps us to conduct an objective assessment. Comparing blind career profiles allows our clients to conduct a more apple-to-apples comparison, and eliminates bias.”
3. Onboarding: Contracts not issued fast enough during induction
HR audits also consider how employees start their journey at a company too. Ensuring that the process is compliant with UK law is critical, and employers usually get tripped up when it comes to onboarding and induction timings and information.
For both Kevin Smith and Linda Marsh – senior HR consultants at Guardian Support – the biggest issue they face during HR audits with clients, is a failure to promptly issue new starters with employment contracts.
“Often we find that the employer has not carried out a proper induction” says Smith, explaining how necessary employee details are not obtained, no contract of employment is issued, and new employees are not informed of company rules. “Consequences of this are that where there is a later dispute, the employer cannot show the terms on which the employee was employed.”
Marsh advises that companies issue contracts within 8 weeks of commencing employment.
“The Contract of Employment sets out the terms of the employment relationship” she explains. “If this is not clear, then the employer can face difficulties in managing the employment relationship, and potentially leave themselves liable for an award of 2-4 weeks’ pay on top of any successful Employment Tribunal claim.”
ACAS explains that while a verbal contract is still legally binding, you are required by law to provide a ‘written statement of particulars’ once an employee has been with you for two months. Source.
4. Training: Not being taken seriously
Training is another core aspect of a HR audit as it’s vital for employee development, and training programmes ensure employees are up-to-date with relevant laws and regulations such as workplace safety and industry specific regulations.
For Chere Taylor, President of Fulcrum HR Consulting, the biggest bugbear by far is training. Or rather, the lack thereof.
“The lack of training is by far the most negligent and short-sighted way that companies fail not only their employees, but themselves as well” explains Taylor. “Everything from initial new hire on-boarding to harassment and manager training are generally viewed as a nice-to-have… but not really necessary.”
Taylor is quick to remind us that nothing could be further from the truth. Employee turnover is much higher in companies that don’t provide training. And Taylor adds that companies get sued all the time because they didn’t provide a basic level of attention to making sure their people know what they are doing!
5. Performance management: Long-standing performance issues get ignored
Performance is closely linked to overall effectiveness and efficiency of an organisation, including its HR department. Performance management systems will certainly be considered in an HR audit as it directly affects company key targets. Additionally, the way that performance issues are communicated and fed back to employees is considered.
For trusted CIPD partner Bradfield HR, the biggest mistake they often find themselves working the hardest to fix, is a failure to appropriately communicate and deal with long-standing performance issues.
“Many employers have let performance problems fester, sometimes for years” reveals Caroline Griffiths, Managing Director. “The impact on company performance is great, and this permeates further through the organisation as high performing staff see underperforming colleagues ‘getting away with it’.”
The solution, Griffiths advises, is to tackle performance issues as soon as they arise, making sure to apply sound investigative skills, and best-practice processes.
Martine Robins – an expert with 25+ years’ practical HR experience
So what about the other areas an HR consultant might investigate? To help you with the rest of the HR audit checklist, we asked for a bit of advice from experienced HR expert Martine Robins. Robins runs the HR Dept Woking branch, and is a Chartered Fellow with the CIPD. Her experience covers all angles of HR, including:
- Employment law
- People management
- Disciplinary and grievance
- Training and development
- Policy writing
Robins’s HR wisdom is often shared by media platforms such as The Telegraph. So we decided to ask if she could help me understand the biggest mistakes that are coming up in HR audits, in terms of compensation, employee relations, and process efficiency.
6. Compensation & benefits: Employers are failing to pay at least the minimum wage
One of the biggest compensation stumbling blocks, according to Robins, is basic compliance. In particular, compliance in making sure you’re paying the minimum/living wage.
“This mistake is often due to a lack of knowledge or awareness” explains Robins, adding she speaks to many employers who think “it does not apply or can be avoided.”
At the time of publishing this article, the National Living Wage (also called the National Minimum Wage) was set at £10.42 per hour, for employees aged 23 and over. You can keep up with current rates on the government’s website here. Also, try not to confuse this with the ‘Real Living Wage’ – also called the ‘Voluntary Living Wage’ – which is not a legal requirement, but aims to set a more realistic rate of pay based on what people really need to live.
7. Employee relations: Managers need to follow processes and document conversations
When it comes to employee relations, too many managers fail to follow appropriate processes. They also fail to document important conversations, such as disciplinary hearings.
“Typically, there are clearly stated legislative frameworks for such areas that companies are legally obliged to adopt” Robins explains. “Unfortunately, there are occasions when these processes are not properly followed, and this is when companies put themselves at risk of legal action.”
Robins remarks that the simple act of documenting these kinds of conversations often stops the issue going further. And when it does go further, it is the absence of this documentation that often leads to claims being awarded in the employee’s favour.
8. Process efficiency: HR departments tend to stick to what they know
When it comes to running an efficient HR department, the biggest hurdle is the tendency to ‘stick with what we know’ rather than adopt new HR processes. There a number of reasons why companies often keep whatever feels comfortable:
- Big companies find change tortuous, because of the need to convince stakeholders
- Smaller companies may find it’s a question of affordability
- For some companies, it’s simply an emotive decision – they don’t like to feel they’re leaving something behind
“Continuous improvement has to be a constant process in any department, in all businesses, regardless of size” she advises. “The investment made in good change initiatives – such as HR automation technology, or new payment methods – is often recouped very quickly, because it stabilises and de-risks your processes.”
What you can do to prepare for a HR audit
There are a few things you can do right now to get your company’s HR function into top shape. This won’t solve every problem you’ve ever encountered but it’ll certainly help improve your HR function:.
- Check that every single existing employee has a contract of employment.
- Ask your recruiters to consider a blind CV test the next time they hire somebody.
- Design a quick automatic process that issues an employment contract each time you add a new starter to your HR system.
- Revisit a handful of employee records, and check for training gaps – if you find any, start a more thorough review.
- Check your performance review process, and make sure it contains regular follow-ups – not just an annual interview.
- Make sure every single employee is receiving at least the National Living Wage.
- Find out when your last HR-employee interaction was. Can you find the documentation that accompanies it? If not, re-consider your protocol.
HR audits are crucial in helping organisations ensure that they are in compliance with all applicable laws and regulations, so it’s important that your HR processes are up to date and compliant.
One of the best ways to keep your HR department running smoothly and complying with UK laws is with HR software. It does this by automating the management and updating of legal and regulatory requirements, as well as improving the efficiency of overall HR department processes.
Try our HR software free trial today and see all the different ways your HR department can improve.
