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How is Your HR Department Doing?

Is it time to audit your HR function? The answer is...yes!

If you are taking over the HR function for a new employer, setting up the HR department for a start-up, reviewing the HR function during an acquisition or merger, or just want to know where you stand, it is time. Performing an annual departmental review is a solid best practice. It is also wise to review selected processes as things change throughout the year. Regardless of when you choose to audit, it is important to know the health of your HR operation. This is best accomplished by periodically auditing the entire HR function in a systematic way. Using a structured audit helps you consider not only how you are complying with federal, state and local law, but also how you compare to business requirements and HR best practices. Look closely at your current compliance, resource effectiveness, and functional competence. Use the initial results as a baseline and then make a plan for improvement. Use what you learn each time as another step toward operational excellence. Be strategic. Be intentional. Be consistent. Auditing your entire HR function requires a significant time commitment and subject matter expertise. It often includes partnering with a consultant who can guide you through the process and recommend solutions to problems identified during the audit. You may also need an outside advisor who is knowledgeable of the complex legal requirements affecting your operations. Legal obligations change frequently due to changing regulations and evolving case law.

Cindy Doty - Human Resources with PassionHR
Cindy Doty - Human Resources with PassionHR

In addition, your organization’s requirements can change when you cross a size threshold, move into a new area of business or make other changes. Failure to comply with laws covering your labor, benefits, immigration, safety and other HR functions can be costly, not only in terms of legal penalties, but also in terms of your organization’s reputation. Therefore, it is important to regularly audit your legal compliance. Regardless of the scope of an HR audit, you can generally expect it to include the following steps.

1. Determine scope and relevant benchmarks.

2. Develop a comprehensive questionnaire.

3. Gather information.

4. Evaluate information for effectiveness of each function.

5. Analyze results for strengths and weaknesses verses benchmarks.

6. Share results.

7. Create action plans for improvement.

When determining the scope, consider the following: hiring, on-boarding, benefits, compensation, performance, termination processes, forms, personnel files, notices and postings, policies, procedures and handbooks. Also look at strategic HR management, training and development, labor relations, safety and security, human resource information systems, diversity and equal opportunity, organizational effectiveness, and metrics. Look closely at the structure, accountability and effectiveness of your HR team and its members, as well. Once you decide to audit your HR function, where do you start? There are excellent resources available through the Society for Human Resource Management and the American Management Association. In addition, experienced HR consulting professionals who specialize in performing HR audits are available to partner with you. You can reach out to your HR professional network for ideas and additional resources. It is a major project, but resources are available. Consider an audit of your company’s HR function as an investment in the excellence of your business operations. As problems are identified, implement solutions to guard precious financial resources and introduce best practices. Penalties can be avoided from improved compliance. Dollars and time can be recovered from improved efficiencies. And there are valuable lessons to be learned, as illustrated by the following.

A recent (February 2018) article in HR Magazine titled, “Rookie Mistakes,” explores some of the biggest mistakes made by new HR practitioners. Author Christina Volz shared the admission of a young practitioner named Chris from New Jersey who stated, “I think the biggest mistake was not knowing to do a full audit of what the payroll department has accomplished prior to HR starting.” He added, “Paired with that was not knowing which forms the government required for ACA purposes and assuming it was all in order.” Had he audited his processes from the start, he would have identified those things not in order and corrected them early. HR consultant Mike Bean audited a young business who described its value. “For a small business that is growing rapidly, we needed guidance to ensure that our policies, procedures and other various HR essentials were current with today’s laws and regulations.” They said it helps having a partner who is “knowledgeable about what we need to do today to plan for the future tomorrow.”

It is not just rookie practitioners who benefit from audits. Audits help identify non-compliance with requirements of which even experienced HR professionals may not be aware. HR consultant Angela Dunaway sees this often. She sites a mature information technology company whose HR team was not aware of employees’ rights to discuss pay under the National Labor Relations Act. Before the audit, company policy included disciplinary action for employees who discussed their compensation. As part of the audit, the entire employee handbook was reviewed and corrected for this and other prohibited practices. Angela also states it is common for HR staff to assume their invoices for employee benefits are in order without reviewing them. While auditing an Aerospace and Defense company, she discovered the employer was paying significant premium for employees who are no longer with the company, and COBRA notices were not compliant. After the audit, HR reviewed bills monthly and notified their insurers and COBRA administrator of new coverage and terminations in a timely manner.

Performing an annual departmental review is a solid best practice. So is reviewing processes as things change throughout the year. As these instances demonstrate, there is much to be learned from auditing the HR function in a systematic way. No one can know everything, and no system will be perfect. But know where you stand and improve upon it. Is it time to audit your HR function? The answer is...yes!

About Cindy Doty: She is a human resources consultant with experience in human resource (HR) management and employee benefits compliance. She especially enjoys helping small businesses build their HR systems from the ground up. Cindy states, “It is an honor be part of the highly collaborative team of experts at PassionHR. How exciting to join the company during this time of significant growth.” Cindy has over 30 years of HR management experience, including 7 years as an HR and employee benefits consultant where she advised large and small client companies in diverse industries. Email: Tel. 256-829-8366


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