The word audit automatically evokes the idea of a long and arduous process undertaken by a large consulting firm tasked with finding problems. In reality, a HR audit is a useful tool that allows companies and internal HR teams to step back from the day-to-day and reconsider how key processes, practices, tools and methods of organisation help or hinder the company as they seek to achieve their goals.
HR teams must embrace continuous improvement just as much as any other department in order to optimise their impact. What does a HR audit look like, and who is involved? What sort of results and outcomes can you expect, and what should you do with the information found during the audit? What are the real benefits for a company conducting a HR audit?
The HR department covers a wide range of topics, including generalist human resources, recruitment, training, skill management, payroll, industrial relations, legal etc. Therefore the scope of a HR audit can be particularly wide.
The backbone of all HR departments is to ensure legal and regulatory compliance, so it makes sense to start here before digging into more value-added human resources topics. Without a strong legal and administrative foundation, it’s impossible to build a high performing HR function. In the context of an audit, for example, we should first verify that the rules regarding work hours are in harmony with local legislation before analysing the process of tracking work hours.
Additionally, we’d verify that the company has everything in order from a legal perspective, given the size and activity of the company.
Once the legal foundation has been established, we then move on to the efficiency and relevance of the HR management in its current state. Does the current HR model suit the organisation? Is there an established and shared company culture? Are the methods of management adapted to the business model, founder vision and the company ambitions?
To better understand these things, we take a look at the HR data available, whether qualitative - like survey responses and interviews, documented annual review conversations etc, or quantitative like the number of employees, their remuneration, demographic data etc. Additionally to round out the analysis, we’d use some information gleaned from informal discussions with some employees and managers and general observation in the company office.
Of course, given the HR function is amongst the most administrative and paperwork-generating functions in a company, document analysis also plays a large part in any HR audit. We also analyse any internal document templates used, contracts and employment agreements, along with any policies and other internal communications.
There are many stakeholders involved in a HR audit, which is why it is preferable to have the audit itself conducted by an external impartial third party. This can avoid any topics linked to a lack of impartiality, given the HR department touches many topics close to employee, manager and leadership’s hearts. Using the services of a fractional HR Director, or a specialised HR audit company generally makes the most sense.
Within the company itself, all of the executive committee and management layer should be involved, and in turn encourage their teams to participate as transparently as possible in the audit as well.
We’d also include a sample of employees from different parts of the business, including any employee union members, and also any regular third party contractors like management or executive coaches, external trainers etc. Gathering feedback from all of these stakeholders is imperative for a successful HR audit.
The idea is to work with the most data possible by speaking to as many stakeholders as possible who have been involved with or affected by the HR management inside the company.
At the end of such a detailed analysis of the HR function, an audit report will be provided to the company. The format may differ depending on the reason for the audit. If it’s destined for use within a due diligence process, the report will be much more formal and detailed. If, however, it is for internal use with a view to optimising the efficiency of the HR department, the report will be more recommendation-focused with a detailed action plan.
HR management can be a touchy subject given it is after all, all about humans. It’s unfortunately not uncommon to see certain HR audit reports ignored in their entirety or filed away in a drawer by company leaders or managers who would rather not face certain facts arising from the HR audit.
The topic of management practices can generate some denial and blame-placing. Managers may be accused of lacking courage or vision, and issuing only vague objectives. Or they may be personally blamed for certain dysfunctions, which is understandably a tough position to be in. However the key thing to keep in mind is that acknowledging past mistakes is an excellent (and sometimes the only) starting point for improvement.
The conclusions in a HR audit report can help:
This can also be an opportunity to bring in new tools, processes or internal documentation, all of which will help the HR function and the company improve their efficiency.
A HR audit may also reveal very positive results: a perfectly aligned company culture, a strong vision from leadership, no legal exposure, a high employer NPS score etc. An audit report isn’t necessarily filled with things that aren’t working.
In one audit, we discovered that a company was using a remuneration method that on the surface, seemed simpler for everybody. Employees who were eligible for a company car were simply provided with a transport allowance on their payslip, rather than the company needing to manage a fleet of vehicles. However, in France, this type of allowance attracts a high marginal tax rate (45%) compared to a much lower rate for a company-issued vehicle. Replacing this allowance by a vehicle not only saved everyone money, it also improved the employee satisfaction rate for those impacted.
In general, it’s never a bad idea to take a step back from the day-to-day and analyse with a little more distance the ways of working. This allows us to see if what we’re doing is still adapted to our needs. This is particularly pertinent for the HR department, who as a support function, must constantly ensure that their work is tightly aligned with what the business needs.
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