Human Resources / HR Compliance Audit – What to Know, Where to Start

HR Compliance Audit – What to Know, Where to Start

If you’re responsible for human resources in your company, then you know that staying compliant with state and federal laws is a never-ending job. Every day seems to bring new changes or challenges, and it can be hard to keep up. That’s why our team of HR consultants  believes an HR compliance audit is so important. By taking the time to review your policies and procedures against the latest regulations, you can identify any areas of weakness and fix them before they cause trouble. Follow along with our tips on what to include in your HR compliance audit, as well as advice on HR compliance best practices and how to turn that information into actionable steps.

What is an HR Compliance Audit?

An HR compliance audit is a review of your company’s policies and procedures to ensure that they meet all applicable laws. This includes laws governing employee rights under Title VII of the Civil Rights Act, as well as pay and recordkeeping requirements under the Fair Labor Standards Act. 

Every state has its own regulations, too, so when performing an HR compliance audit, you’ll need to make sure your policies are in line with the laws of the state(s) where you operate.

Where Do I Start with my HR Compliance Audit?

The easiest place to start with any HR compliance audit is in the overall HR compliance best practices and core policies that your organization should be following. Some of these are employee-facing and should be clear and correctly communicated, while some are of a more internal nature. Here are some examples of what to review when performing an HR compliance audit:

Employee Handbook

The employee handbook should outline your company’s policies, from attendance to dress code to prohibited harassment. When performing an HR compliance audit, it’s best to ensure you have an employee handbook and that it is up to date. If you don’t have an employee handbook, now is the time to create one. Not only will it help you stay compliant, but it will also give your employees a clear understanding of what is expected of them.

Once you have your employee handbook, review it annually to make sure all of the policies are up-to-date. Have any new laws been passed that you need to add? Are there any old policies that no longer make sense? This is also a good time to assess whether your handbook is easy to understand and follow. If it’s full of legalese, consider rewriting it in plain English.

Core Policies and Procedures

All businesses are required to display certain federal and state labor law posters in a conspicuous place where all employees can see them. These posters cover topics like minimum wage, overtime pay, and employee rights. Remote workers must receive these notices as well.

Additionally, you should have a formal plan in place for training employees on HR compliance topics. This might include an annual refresher on sexual harassment prevention or regular updates on changes to laws. 

Making sure HR policies are applied consistently and fairly across the organization is a core principle of HR, and should be a focus of any HR compliance audit. Discrimination, harassment, and retaliation are prohibited by law. You need to have clear policies in place that explain what behavior is not tolerated in your workplace. These policies should be enforced consistently and fairly, regardless of an employee’s position or status in the company. If you don’t, your employees–and the government–will notice. 

Recruitment and Hiring Practices

Your recruitment and hiring practices should be in line with all applicable laws, including those governing equal employment opportunity. Make sure you’re not inadvertently discriminating against any protected groups in your job postings or during the interview process. For example, avoid asking questions about an applicant’s age, religion, or marital status.

Employee onboarding is another key area to focus on during an HR compliance audit. You’ll need to make sure all new hires are completing required paperwork and receive information about your company’s policies and procedures.

To avoid any issues down the road, it’s important to keep accurate records of your hiring process. This includes maintaining job descriptions, conducting background checks, and documenting the interview process.

Payroll Practices

When conducting an HR compliance audit, you’ll need to ensure payroll practices comply with all relevant laws, including those governing minimum wage, overtime pay, and employee classification. Are you adequately tracking which employees are exempt and which employees are nonexempt? Are you accurately recording independent contractors as such and not as employees? Also, you should make sure your organization is paying its employees at the frequency required by state law, that nonexempt employees are paid according to their timekeeping records, and that incentive pay, and promotion programs are developed in an equitable manner.

Employee Benefits

If you offer employee benefits, such as health insurance or a retirement plan, there are compliance requirements you need to be aware of. For example, the Affordable Care Act imposes certain rules on employers with 50 or more full-time equivalent employees. And if you have a 401(k) plan, you’ll need to follow the rules set forth by the Department of Labor. 

Other factors to consider are to make certain your business is offering benefits required by law, like workers’ compensation and FMLA.  You’ll also want to make sure you’re complying with COBRA rules if they apply in your case.

Performance Reviews

The way you conduct performance reviews can have legal implications, so it’s important to do them right. Be sure to document the process and keep records of each review. When writing performance evaluations, avoid making any statements that could be construed as discriminatory.

Employee Termination

It’s inevitable that some employees will part ways with your organization, and it is incumbent upon you to conduct those terminations based on the established company policy and any applicable laws. Your HR compliance audit should include your policies for collecting company property, filing the appropriate documentation like written warnings and resignation letters, adequate written notice to separated employees that explain their post-termination benefits, and final paychecks delivered by the state-mandated deadline. 

How to Turn an HR Compliance Audit Into Action

Now that you know what to include in your HR compliance audit, it’s time to put that information into action. The first step is to create an HR compliance audit checklist of all the items you need to review, including benefits and payroll processing. Once you’ve reviewed all the items on your list, it’s time to take action.

By following these tips, you can ensure that your HR compliance audit is successful and that your organization is compliant with all relevant laws.

If you’re still unclear, or would like a little extra help, get in touch with Bluestone Services today. We have professionals who can save you time by performing the audit for you and/or work with you to update your employee handbook, payroll system or other policy documents as needed. 

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