Lack of compliance can result in major penalties for companies, and conducting an internal compliance audit can prevent problems down the road. HR leaders should learn what to include on an HR compliance audit checklist to ensure that employees cover all important areas during their organization’s internal HR audit.
Keeping track of certain documents and storing them in the proper manner are imperative for HR compliance. Creating a compliance audit checklist helps ensure that a company is ready at any time for an audit by the government.
Learn more about what to include on an HR compliance audit checklist.
What is an HR compliance audit?
An HR compliance audit is a process that helps HR leaders confirm that their organization is following all the procedures required by government regulations.
Failure to comply can incur significant financial penalties, so conducting an HR compliance audit is considered a best practice for companies of any size and is particularly necessary for large ones.
An HR team, or an internal team in a department other than HR, can proactively carry out an HR compliance audit to ensure the organization is following all required practices.
Why would the government conduct an audit?
An audit by a government agency may be routine or may occur because someone alerted the government agency to noncompliant practices.
During a routine HR compliance audit conducted by a state’s Department of Labor, auditors assess whether or not the HR department has correctly maintained the company’s federally mandated I-9 forms. U.S. Citizenship and Immigration Services requires that companies store the forms separately from employee files and make them accessible to government auditors. Fines can exceed $2,000 per violation if a government auditor discovers that the forms are improperly stored or lacking in some way.
Misclassifying employees is another serious violation of government regulations. Two common forms of misclassification are classifying a nonexempt employee as exempt and classifying a full-time employee as a contractor. HR staff can consult guidance from the IRS and the Fair Labor Standards Act to ensure they are properly classifying employees.
6 items to include on an HR compliance audit checklist
HR leaders can ensure their company is properly maintaining all its records and following all required practices by creating a checklist of items for their internal audit team. Here are some of the items and practices to add to the list.
1. Document retention
A company’s I-9 forms should include all required documentation, and HR staff should store them in separate files so government agents can easily access them at any time.
In addition, all employees who have access to these files should receive the proper training, including learning how long the company must retain an I-9 form after an employee leaves the organization.
2. Recruitment
The internal audit team should review open job postings to ensure that the listings are free of any discriminatory language and confirm that all job posting language is compliant with the Americans with Disabilities Act.
The internal audit team should also confirm that the correct interviewing training protocols are in place so interviewers are aware of acceptable and unacceptable job interview questions.
3. Compensation and benefits
Internal audit team members should confirm that compensation and benefits plans are compliant, which involves checking that the organization’s compensation and benefits meet local and state regulations for each location where the company does business. These laws may include the Family and Medical Leave Act and COBRA. The internal audit team should also review employee classifications to ensure that the company is paying its payroll taxes correctly.
The company should provide benefits uniformly across each employee category and apply the company’s compensation structure uniformly as well to avoid noncompliance with federal laws that are enforced by the U.S. Equal Employment Opportunity Commission.
4. Employee relations
As part of the compliance audit, the internal audit team should evaluate the disciplinary processes for employees who violate company policies. The team should also confirm that managers are receiving training about how to handle conflicts between employees.
The internal audit team should also review procedures for employees’ professional development.
5. Workplace safety
As part of the HR compliance audit, the internal audit team should confirm that Occupational Safety and Health Administration’s and worker’s compensation information is posted in visible places in each company office and that the organization is adhering to OSHA regulations.
The audit team should also confirm that the company is continually conducting training to combat sexual harassment and bullying and that all employees are attending the trainings.
6. Employee handbook
The internal audit team should evaluate the employee handbook to confirm that its policies and procedures are up to date. The team should pay particular attention to policies discussing rules for social media, sexual harassment, bullying and drug use.
Lynda Spiegel is a freelance writer and former global HR executive for financial services, telecommunications and SaaS companies.