The Annual HR Audit

Why You Need It and What You Need to Know

May 24, 2017

The rapidly changing legal and regulatory landscape is a primary motivation for performing a regular HR Audit. With so many rules, regulations, and laws at all levels of government, it’s incredibly difficult to maintain compliance. Before you know it, you’re out of date. So, performing a comprehensive annual HR audit is extremely important.

Seven point checklist to help make sure your audit is complete and effective

1. Job Vacancies: The first order of business
All federal contractors, which includes 25% of all employers, have additional job posting requirements, including the new pay transparency requirement. Employers have to use the stated requirement exactly how the language reads on all vacancy announcements, career sites, career pages, or any other posting location.

Businesses also need to disclose that they are Affirmative Action employers. Job vacancy announcements for all employers must also be ADA compliant and use “gender neutral” language. What about referrals? They’re a big part of finding good candidates but can be risky if organizations are not careful. Record keeping must be properly maintained and all candidates must be treated exactly the same. The rule of thumb is that 25-30 percent of candidates can come from referrals without creating problems, but more than that probably means the company is not getting enough diversity.

Whether employment applications are online or on paper, companies must make sure everything is accurate and current. This includes “ban the box,” meaning any reference to criminal records must be crossed out or removed. Drug test information must be clear to the applicant and candidates need to thoroughly understand the FMLA policy.

2. Make sure to properly vet candidates

  • 53% of all job applications contain inaccurate information
  • 34% of all applications contain outright lies
  • 9% of job applicants falsely claimed they had a college degree, listed false employers, or identified jobs that didn't exist
  • 11% of job applicants misrepresented why they left a former employer
  • Negligent hiring cases have had verdicts costing up to $40 million
  • Employers have lost more than 79% of negligent hiring cases

According to the Workplace Violence Institute, negligent hiring costs U.S. businesses more than $18 billion every year.

Thoroughly interview within the legal limits.
To be safe, ask questions that focus on the job. Talk about the job requirements, but don’t ask about the consequences – only the conditions. For example, don’t assume a woman with children will not be able to work extended hours. Make sure that all candidates understand the requirements of the job.

Asking about actions outside of the job can create trouble. Even something as benign as asking about a hobby can lead to protected information such as religious beliefs.

What about interview questions asked by managers? What if they’re inappropriate?
HR should let candidates know they don’t need to answer, or you can redirect them towards talking about the job. And what about volunteered information that treads on protected information? Politely move on to another topic.

Extreme care needs to be taken on how questions are asked.
For example, if an applicant graduated from the same high school as the interviewer, asking, “What year did you graduate” can identify the applicants age and that can be construed as discriminatory.

When Googling a candidate use caution or just don’t do it at all.
Sometimes vetting goes beyond reference and background checks. Checking a candidate’s social media accounts is where HR could potentially see things that can’t be unseen. Make sure “disqualifying criteria” is firmly established ahead of time to ensure there is no question about rejecting a candidate based on the search. It is recommended that if an organization chooses to social search, only one person within the organization does so.

What about conditional offers of employment?

  • Make sure the drug testing policy is clearly stated. And don’t rely on outside sources to do background checks without HR involvement.
  • If the company requires signed non-compete or non-disclosures, put that in the conditional offer as well.
  • Make sure Fitness Requirements are realistic and specific. For example, if the ability to lift a particular weight has been stated as part of the job description, make sure the weight has been tested and verified.

Reference checks often times provide limited value. References are not going to say bad things about the candidate. Also, be careful doing assessments. If the company is testing, make sure the vendor tests are applicable to the job. Companies have been sued because of faulty tests.

3. Pay attention to what happens after the candidate has been hired.
If your company has created and maintains a respectful workplace, you are miles ahead.

HR must report on new hires, so be sure to take care of:

  • Reporting the size of your organization if it will change any time in the near future
  • Reporting employees to the State Garnishment via the Minnesota New Hire Reporting Center
  • Unemployment
  • Payroll reporting
  • Affirmative Action Plan (VETS 4212, which used to be VETS 100)
  • EEO-1 (Even if the current regulation stays in force, how this is done will change. Specifically pay information to ensure no discrimination of pay level)
  • Harassment training
  • Manager training

Key Weblinks:

4. Be mindful of what goes into the Employee Handbook.
Some employment law attorneys urge companies to limit their handbook to no more than 30 pages. Remember, the employee handbook not only articulates the expectations of the employer and the employee, it can depict your corporate culture.

What should be in the handbook?

  • At-will statement
  • Harassment and discrimination policy
  • Compensation policy
  • Your state’s-specific laws
  • Sick leave
  • OSHA
  • Technology policy: Social media, Data security, Harassment, sexual or otherwise
  • Drug-free workplace
  • FLSA: Exempt & non-exempt, Independent contractors
  • Job Descriptions
  • FMLA

5. Carefully consider how to handle employee discipline
Ideally, employers want to make sure employees never need to be disciplined, but if the situation arises, ask yourself:

  • Does your handbook include standards of conduct and disciplinary measures?
  • Are managers trained to ensure that company standards are being followed prior to disciplining or terminating an employee?
  • Is appropriate documentation being kept?

6. Make sure reviews are standardized and timely.
If you’re going to do reviews, do you have a standard process for measuring and reviewing performance with employees? Reviews need to accurately reflect performance, so HR needs to address performance issues as they arise and the company needs to thank employees when they do good work. Don’t wait for the end of the year. Reward or critique as it occurs.

7. What else should you be doing (as if you had all the time in the world)?

  • Checklists
  • Technology policy
  • Workplace violence policy and training
  • Workplace bullying policy and training
  • Manager training
  • Onboarding
  • Give feedback – formal/informal
  • Mentoring
  • Pay and incentive programs
  • Safety training
  • Emergency training
  • Record keeping
  • Employee survey
  • Track turnover
  • HR metrics
  • Develop HR department mission statement (purpose/values)
  • Does HR have an organization chart that defines the functional responsibilities of each role and who employees can contact for help?
  • Do you have employment practices liability insurance coverage?
  • Checklist of process that lives in your head (so when you’re promoted, it’s all written down for your successor)

Making Sure All of This Gets Done
Use the calendar below to ensure your HR tasks are completed within the year:

  • First quarter:
    • Finalize budgets and staffing plans, including wage changes
    • Review and post compliance posters OSHA Log
    • Review company policies
    • Update the employee handbook
    • Have an attorney review the handbook

  • Second quarter:
    • Decide which trainings will be offered this year
    • Review I-9 forms (spot check a few here and there, don’t try to do them all)

  • Third quarter:
    • ERISA Annual Report (form 5500) and the Summary Annual Report
    • Federal contractors have to submit the VETS-4212 by September 30th.
    • Companies with more than 100 employees or ones who are federal contractors with more than 50 employees must file an Equal Employment Opportunity Report (EEO-1) by September 30th for the current year.

  • Fourth quarter:
    • Medicare Part D reporting is due (Oct 15th) and credible coverage disclosure notices must be sent to Medicare-eligible participants
    • Review time off/PTO and accruals
    • Communicate holiday information and start planning for the upcoming year’s holiday schedule
    • Review and prepare inclement weather policies and remind employees
    • Spot-check personnel files/records to ensure are up-to-date.
    • Prepare ACA 1095-C Reporting forms & 1094-C Transmittal forms for the current tax year
    • Plan for the next year’s budget and staffing needs

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For more information about conducting effective HR Audits, contact a MMA Human Resources Consultant at (800) 444-3033 or visit

This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying assumptions, conditions, information or factors are inaccurate or incomplete or should change.