Contrary to popular belief, even though it forms an integral part of it, an HR audit does not simply serve to ensure compliance with the ever-changing regulatory and legal landscape. An HR audit enables you to identify problems and find solutions before they become unmanageable. More importantly, they present an opportunity to investigate which of your business processes can be done differently, more efficiently and at a reduced cost so that you can operate optimally. This is also why it should become a regular exercise with all your other strategic business reviews.
This article is the first in a series that serves to revisit fundamentals and gain additional insights on how to derive more business value from HR audits.
What does an HR audit consist of?
An HR audit generally consists of two key components: an evaluation of the “Ps” and an analysis of the “Is”. In our assessment of the Ps, we interrogate whether our policies, practices, protocol and processes provide clear and sufficient guidelines for all the critical HR delivery areas in the business (internally and externally).
This includes the likes of recruitment, employee benefits, compensation and retention, training and development, performance management and, of course, employee relations. An analysis of the Is aims to gauge the efficacy of the key HR functions of the business. This includes the number of vacant positions, staff attrition rates, key performance indicators (KPIs), number of internal grievances and legal complaints, absenteeism rates, general employee satisfaction levels, and so on.
#HRaudit101: Do we have sound policies, protocols and processes (the Ps) in place to govern our HR functions, and can we measure (the Is) how effective they are?
There are many different types of audits, depending on the nature of the business and the industry it operates within, and each of these types of audits has different objectives. Here are the four most common types that apply across most industries:
#HRaudit101: Top HR audit objectives: i). Does the business comply with the relevant laws and regulations; ii. Do the HR functions compare with best practices to retain a competitive edge; iii. Do the human resources suffice to achieve the business goals; and iv. Does each HR function contribute to optimal efficiency and productivity?
What to audit
Naturally, what to audit also depends on what type of HR audit it is and how much time and resources are available. Keeping a log or register of issues that have arisen and that are not covered in any of the organisation’s Ps is a sensible way to identify areas in which the business may potentially be exposed, so they can at least be reviewed during the next audit. Generally, most businesses are primarily exposed in the following areas:
- Inadequate personnel files
A review of sample personnel files often reveals inadequate documentation of performance, such as, for example, informal, vague or inconsistent disciplinary warnings. Performance evaluations may need to be more transparent, accurate or updated. Personal health information is also often found in personnel files, despite laws stipulating that such data be kept separate. Accurate and detailed records are essential for employers to defend any employee claim, particularly unemployment compensation or wrongful termination claims.
- Prohibited attendance policies
Controlling excessive absenteeism is a big concern for most employers. However, the complexity of leave laws in South Africa, including maternity leave, special leave and family responsibility leave, has rendered many formerly acceptable absence control policies unacceptable. Even though absences affect workers’ compensation, many businesses’ attendance policies do not comply with relevant laws and regulations or grant employees more protection than the employer.
- Inaccurate timesheets
Employers typically require non-exempt employees to punch a time clock or complete timesheets reflecting their time worked each week. The records generated by these systems generally are the employer’s primary defence against wage and hour claims, so time-keeping policies and practices must be clearly communicated and consistently administered.
- Insufficient employee records
By law, employers in South Africa must keep certain records for their employees. This includes the employee’s personal details, their dependents, their position, starting date of employment, salary, bank details, leave days taken, disciplinary records, performance reviews and training courses completed, and changes to any of this information. These records must be kept for at least three years after the employee’s employment has ended, and failure to do so could result in hefty fines. Regardless, many employers still need to fulfil this basic requirement.
When to audit
When to audit will depend on the time and resources available, as well as the type of HR audit that needs to be conducted. It is recommended that employers conduct at least one comprehensive audit of all Ps and Is per year, and function-specific audits at regular intervals, especially when the log or register of issues highlights reoccurring issues that place the business at risk. If you need clarification on when and which type of HR audit to conduct, please reach out to your organiser to start systematically approaching this, starting with key priority areas where your business is most exposed to risk. Have a lookout for the next edition of Heads-Up, in which we will specifically discuss a best practice model to guide your HR audit processes.
#HRaudit101: Keep a log of HR issues that emerge throughout the year so that these issues can be reviewed in your next HR audit or systematically address issues that keep reoccurring and expose you to risk.