HR Audit: Definition, Importance, Types, Process & Benefits

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HR Audit
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We all may have heard about the term HR audit but what is an HR audit? What do we do in the process of HR audit? Why do we need to conduct an HR audit? Read on to get answers to all the queries related to the human resource audit.


What is an HR Audit?

An HR audit is a process of accessing the effectiveness of the human resource department. It includes an evaluation of the human resource policies, processes, compliance and more. The motive of an HR audit is an analysis to identify the scope of improvement to benefit the business.


HR audit checklist can be helpful for HR to conduct the internal audit. While is seen as best to hire a third-party entity for the human resource audit.


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Why Should You Conduct an HR Audit?

The objectives and goals of an HR audit may vary depending on the organization’s goals and priorities, but some common objectives of an HR audit are listed below.


Evaluate the Effectiveness

An HR audit can help evaluate the effectiveness of HR processes and policies in meeting the organization’s goals, ensuring legal compliance, and supporting employee satisfaction and engagement.


Optimize Resources Utilisation

The purpose of HR audits can be to help optimize the use of resources, such as human resources, technology, and budget. This can involve identifying inefficiencies and streamlining processes to improve productivity and reduce costs.


Improve Engagement

It can help identify areas where you can improve your employee experience, such as providing more training and development opportunities and improving communication, which helps in increasing the level of employee engagement.


Support Organizational Goals

You have to align HR practices with the organization’s objectives and strategies. This can involve identifying areas where HR can better support the achievement of organizational goals, such as talent acquisition, retention, and development.


Identifying Areas for Improvement

Human resource management can identify flaws in the HR processes, such as inconsistency in policies, the need for employee training, or compliance issues.


By identifying these areas, the HR department can take steps to address them and improve the overall effectiveness of the HR function.


Ensuring Compliance

You have to ensure that the organization is complying with all applicable laws and regulations related to employment, such as wage and hour laws, anti-discrimination laws, and workplace safety regulations. An HR audit can help human resource management to avoid costly fines or lawsuits.


Improving Employer Branding

With an HR audit, the organization can improve its employer branding by identifying areas for improvement in recruitment, and retention. The employee-oriented policies and benefits improve employee engagement and satisfaction.


That ultimately makes the organization as a preferred employer in the industry helping to attract top talent.


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When Should You Conduct an HR Audit?

You should conduct HR audits frequently in the company to ensure that the HR department and all the policies are working effectively. Here are a few instances where it’s particularly important to conduct an audit.


Leadership Changes

HR audits should be one of the first things that companies do when it comes to high-impact changes such as leadership or organizational structure.


By conducting the audit you can be assured that all your policies are aligned with the new organizational structure and employee engagement as well as the work processes won’t be hampered.


You also need to go through your HR audit checklist when it comes to the changes in leadership. Everyone has their own values and vision. So when there is a new person in the leadership you want to ensure that the values and vision of the organisation are aligned with the leader’s vision.


That can facilitate your company to operate without major hurdles and productivity won’t suffer even though the organization went through major changes.


Changes in the Compliance

Your HR department is responsible for compliance and keeping the company out of trouble. The regulations and rules keep on changing. That makes it important to make the legal compliance audit an essential part of HR audit whenever there is any change in the labour rules, tax laws and more. You can also do the same for the laws concerning cyber security or industry standards.


Changes in Business Processes

When there are significant changes in the workforce or business processes, it may be necessary to conduct an HR audit to ensure that the HR function is able to support these changes. This can include mergers and acquisitions, reorganizations, or changes in technology or business models.


In simple words, an HR audit should be conducted whenever you have to implement major changes in the company. It is best though to conduct the audits regularly. The frequency of the audit may depend on the organization’s size, complexity, and business objectives.


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Types of HR Audit

There are several types of HR audits. You have a choice to conduct the HR audit that is suitable for the improvement of your HR department and your employees.


Here are types of HR audits to help you decide which HR audit you want to conduct in a company. That will also help you make an HR audit checklist according to the needs.


➔ Time Span

The human resources department of the organization usually decides the interval for the HR audit. It is best for your company to audit your HR processes frequently after a fixed timespan while some companies still conduct HR audits irregularly.


➔ Conduct

There are two types of HR audits depending on who is carrying out the process.


• Internal Audits

The internal audit is conducted by the higher management or HR department to check the effectiveness of compliance with the regulations. It also checks the impact on the growth of a company and employee engagement. Internal audits can be biased sometimes.


• External Audits

External audits are conducted by the professional hired by the organization specially for the purpose of audit. If you really want to know the success of human resources and their policies for the productivity of the organization you should go for external audits and they are unbiased in nature.


➔ Objective

The type of HR audit also has to change according to the purpose you are conducting the HR audit.


➔ Compliance Audit

A compliance audit is an essential process for every organization. If you ask what is an HR audit that ensures that a company stays out of legal trouble? you looking for a compliance audit.


In simple words, this process analyses the organization’s compliance with the related authorities as well as legal and state laws.


➔ Best Practices Audit

The best practice audit is conducted to ensure that the organization adapt the policies and process that are exceptional in the industry. These practices can help a firm to gain a competitive advantage in the market.


➔ Strategic Audit

It is an initiative of human resources team where you can ensure that HR processes and policies align with the strategic goals of the organization and various departments functional in the company.


➔ Job Specific Audit

This type of HR audit but this audit is conducted to analyse the HR processes of your company. You can have a job-specific HR audit for functions such as recruitment, performance management or training management for your employees.



7 Steps for an Effective HR Audit Process

Here are the seven steps for an effective HR audit process.


1. Define the Scope and Objectives

The first step in an HR audit process is to define the scope and objectives of the audit. This includes determining which areas of the HR function will be audited and what are the expected outcomes.


2. Collect Data

The next step is to collect data on the HR function. This includes reviewing HR policies and procedures, employee files, and HR metrics such as turnover, employee satisfaction and absenteeism.


3. Analyze the Data

Once the data has been collected, it needs to be analyzed to identify areas of strength and weakness in the HR function. This analysis should consider legal compliance, best practices, and alignment with organizational goals.


4. Identify Areas for Improvement

Based on the data analysis, the next step is to identify areas for improvement in the HR function. This can include developing new policies and procedures, updating existing ones, and implementing new HR programs and initiatives.


5. Develop an Action Plan

After identifying areas for improvement, an action plan should be developed to address them. The action plan should include specific recommendations, timelines, and responsibilities for implementation.


6. Implement the Action Plan

Once the action plan has been developed, it needs to be implemented. This may involve training HR staff, communicating changes to employees, and updating HR policies and procedures.


7. Monitor and Evaluate

The final step in an HR audit process is to monitor and evaluate the effectiveness of the action plan. This includes tracking HR metrics, soliciting feedback from employees, and making adjustments as necessary to ensure that the HR function is meeting organizational goals and legal requirements.



Benefits of HR Audit

➔ Strengthen the Compliance

There are various rules and regulations by the states and the central governments as well as different regulatory authorities. Failure to follow all the compliance often leads to heavy penalties and even legal actions.


Legal batttle is not just expensive but also is a threat to the brand image, which often takes years to build and repair. In addition to that various labour laws and regulations keep on changing which makes it difficult to keep up with.


Regular HR audits help the firm to identify the compliances that the company might fail to keep or miss altogether. Safeguarding the brand image as well as saving unnecessary expenses.


➔ Increase Profits

By understanding the various drawbacks of the HR process and policies in the company you can quickly make the necessary changes. That helps you to optimise the process to bring down the time required and increase the returns on investments.


That way you can bring transformation to the entire organization right from communication to talent management. As human resources are responsible to handle the most important resource in the organization. When you improve employee management, employee engagement and productivity also improve significantly.


➔ Optimizes Resource Utilization

Every organization need certain resources to function and expand their businesses over time. But not all the companies with the same resources achieve a similar level of success. HR audit on the other hand helps you to optimize the human resources in the company.


That improves all the related functions and processes for the firm. A business can use the skill and experiences of its employees to the fullest. In addition to that, it also nurtures the attitude of flexibility to regularly identify shortcomings.


That leads to regular adoption of new technology and upskilling to ensure acceleration in productivity. Over time optimizing the use of resources can significantly reduce the cost.


➔ Data Security

An HR audit can help identify gaps in data collection, analysis, and reporting. It can reveal if HR departments are collecting and storing the right information about employees and their activities. By understanding the gaps in the data collected, an organization can take steps to fill those gaps.


HR audit helps ensure that data is accurate and up-to-date. This can help in the analysis of trends and patterns in the data. It also helps identify areas where data security is at risk. The audit can review data management policies and procedures to ensure that data is protected from unauthorized access, modification, or destruction.


Furthermore, an HR audit provides a basis for improvement in data management practices. The audit can identify areas of weakness and provide recommendations for improvement. It can help organizations improve their data management practices over time and you can make more informed decisions based on accurate and up-to-date data.


➔ Retain the Best

The HR audit helps to do the comparative analysis of companies’ processes with the industry standards. That way you not only identify the weakness for improvement but also improve on your strengths.


When a company identify their strengths they are to work on the same to achieve the best in the industry. That way a firm not only ensures sustainability but also gets to dominate the industry.




An HR audit is a process that checks the effectiveness of your HR department. If you want to conduct an HR audit, you have to follow a seven-step process and enjoy the various benefits of conducting HR audits in the company.


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