Take time to conduct an HR audit

In today's competitive climate, companies must operate within the confines of a heavily regulated employment environment.

This includes dealing with a myriad of complex laws, regulations and terms including:

• ERISA (Employee Retirement Income Security Act)
• COBRA (Consolidated Omnibus Budget Reconciliation Act)
• EEOC (Equal Employment Opportunity Commission)
• OSHA (Occupational Safety and Health Act)
• FMLA (Family and Medical Leave Act)

Also, exempt and nonexempt compensation, sexual harassment, right to privacy and workers' compensation ... the list goes on.

Other HR responsibilities and functions, such as employee documentation, workplace violence, stress management, substance abuse, interviewing and hiring, job descriptions, problem resolution, performance evaluation, termination, team building, payroll and a burgeoning number of employee benefit administration issues are also equally important.

Given the fact that most small businesses do not have a full-time HR person and that a business owner is trying to focus on growing their business, it is understandable that these issues go largely unnoticed until they rise to the surface.

Conduct an audit

To help protect your business against these types of problems, perform a voluntary HR compliance audit.

Just the term "audit" makes most people uncomfortable. While many organizations see the value of auditing their financial or compliance areas, most do not consider the risks associated with noncompliance in human resources related areas.

In a recent five-year litigation report released by the U.S. Equal Employment Opportunity Commission, the study showed that:

• 1,963 lawsuits were filed by the EEOC in the past five years.
• 570 cases were filed on behalf of a class and another 1,212 were filed on behalf of individuals.
• Of the suits filed, 30 percent were for sex discrimination, 22 percent were for retaliation, 13.5 percent were for race discrimination, 12.8 percent were disability discrimination and 8.2 percent were for age discrimination.
• Age and disability discrimination account for the fastest-growing segments of the cases because of the growth of the aging population.
• The EEOC obtained $409.7 million in monetary benefits through litigation, with an average monetary benefit of $263,945.

What is an audit?

What exactly is an HR audit? It really is a matter of taking time out of busy schedules to take an objective look at the company's HR policies and practices.

The objective review of the company's current state can help evaluate whether or not specific practice areas are adequate, legal and/or effective.

The results obtained from this focused and intense review can provide decision-makers with the information necessary to decide what policies or practices need to be revised and/or improved.

An HR compliance audit generally consists of two main parts:

1. An evaluation of the company's operational HR policies, practices and processes, with a focus on key HR department delivery areas (e.g. recruiting and selection, employee retention, compensation, employee benefits, performance management, etc.) and

2. A review of current HR indicators (e.g. number of unfilled positions, number of days to fill a new position, turnover, internal grievances, absenteeism rates, etc.).

Formal exam

Technically speaking, an audit is a formal examination of an organization's accounts or situation.

To determine what type of audit would be most appropriate for an organization, one must consider what information is sought.

There are several types of HR audits and all of them focus on different processes or outcomes. They are:

1. Compliance -- risk-based with a focus on legally required aspects of HR such as Family Medical Leave Act, at-will employment, immigration, Fair Credit Reporting Act, discrimination, harassment, COBRA, etc.

2. Best-Practices -- focuses on court decisions that are being used to determine law or administrative systems that reduce errors and omissions, such as hiring and termination processes, performance evaluation processes, disciplinary process and documentation and litigation or investigation issues.

3. Strategic -- focuses on systems and processes to determine if they are in line with the strategic plan and whether or not they are helping, hindering or having little impact. Areas audited might include organizational effectiveness as measured by turnover, length of time to fill an open position, number of employee complaints, number or cost of unemployment claims lost. It can also uncover ineffective pay practices, pending litigation risks, ineffective training programs, ineffective hiring processes and poorly administered benefit programs.

4. Function specific -- focuses on a particular area of HR such as wage and hour, immigration, affirmative action, payroll, benefits, etc.

Lawsuit causes

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

1. Hiring (job descriptions, application forms, employment contracts and 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).

Other areas of concern

Besides these four stages, 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. Due to the complexity of wage and hour laws and regulations, it is not difficult to characterize a job as exempt, thereby exposing the company to liability for lost overtime.

Inadequate personnel files: Personnel evaluations are inaccurate or outdated. 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 absenteeism is a big concern for most employers. However, the complexity of family medical leave laws, with sometimes conflicting state and federal protections, has made many formerly acceptable absentee control policies unacceptable.

Absences impact workers' 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 time records: Many employers allow employees to fill out time sheets that indicate they have worked a certain number of hours each week.

Most employee records would reflect a full week of work; however, such entries are rarely completely accurate since employees often leave early or come in late.

If an issue was to arise about whether or not an employee had worked more time than reflected on the time sheet, the Department of Labor would likely discount the time sheets and give credence to the employee's account of hours actually worked.

Insufficient documentation: Reviews of employer hiring practices often uncover inadequate documentation, such as missing or incomplete I-9 forms. Employers can be fined between $100 and $1,000 for each failure to accurately complete an I-9 form.

Time-consuming project

An audit is not a one-day project. It is a time-consuming and intensely focused review of a company's HR policies and practices, and it generally touches all areas of HR.

It may require the review of numerous documents and policies, as well as interviewing HR staff, selected employees and managers from other areas of the company.

Some have referred to an HR audit as listening outside the box. Whatever the definition, an HR audit really boils down to identifying problems and finding solutions in an attempt to address problems before they become unmanageable.

It is an opportunity to assess what your organization is doing right, as well as how things might be done differently, more efficiently or with reduced costs.

Mila Stahl is vice president and principal of the Human Resources Group, a Madison human resources consulting and recruiting firm.