What’s it: A human resources audit or workforce audit refers to a formal and comprehensive examination of how human resource management is running in your company. It aims to measure how effectively your company utilizes your human resources. It evaluates not only the skills and qualifications of your employees but also related activities, policies, programs, and practices.
Auditing your resources is important to identify areas for improvement. It becomes an input in developing a human resource plan. It may focus on a specific function or be comprehensive, depending on your needs, budget, and time frame.
Why is human resource audit important?
A human resource audit is an important part of managing your employees to optimize their contribution. It provides a comprehensive perspective on how you manage them and evaluate their effectiveness. In addition, it reveals your current practices and policies and how they can meet your company’s long-term goals.
Through the audit, you can find problems and areas for improvement. You understand whether existing human resource management has hindered and significantly impacted your business goals in any area where it occurred. You then take the necessary corrective action.
For example, audit results recommend recruitment and training policies and programs improvements. Ineffectiveness in both areas has made your employees less productive over time after you changed the company’s goals and strategies. So, you then take the appropriate action.
So, by improving these two areas, your human resources are flexible enough to adapt to changing business demands and align with your company’s strategic planning. In addition, the program you run can run effectively and efficiently.
Finally, you can also ensure compliance with various laws and regulations. So, you can avoid adverse lawsuits.
How does human resource audit work?
The audit process begins by determining the scope and area of your audit. For example, your staff in the human resources department may have a comprehensive review to check the effectiveness of human resource management. Or, they examine specific areas such as hiring and training processes and policies. Of course, it all depends on your targets, budget, and time frame.
After deciding what they will audit, your staff develops the means to collect relevant information and data. For example, they may create a questionnaire or conduct interviews with the relevant department.
The next stage is to collect data and information such as employee profiles, salaries, number of employees who leave, working hours, overtime hours, and training costs. Then, the audit staff breaks it down into relevant metrics such as:
- Turnover rate
- Cost per employee
- Absence rate
- Overtime expense
- Training fee per employee
- Income per employee
It is important to quantify the pertinent information to provide an objective assessment in this step. It may also require your staff to compare it against benchmarks.
Your staff then summarizes their findings and develops recommendations on necessary corrective actions from the several metrics obtained. They then submit the audit report to senior management and you for follow-up.
The audit results and their recommendations are important inputs in human resource planning. Next, you develop an action plan for improvement. For example, it requires you to make decisions about new training and development policies and programs.
What is audited?
The audit examines every aspect of human resource management within your company in detail. It’s not just about the administrative aspects or activities within the human resources department. But, it also includes related systems, policies and practices, and financial impact. It checks for aspects like:
- How many employees do you currently have? How much do you really need to support your company’s goals? Do you need to recruit new employees?
- How good are your employees? How skilled are they? Are they flexible and competent enough to adapt to changes in your business and company strategy?
- What efforts have you made to develop and improve the competence of your human resources? What training programs do your employees participate in? What budget do you provide?
- How obedient are your employees to company policies and rules? How strictly do you enforce these policies and rules? How does it impact their satisfaction and productivity?
- How does the career development system work in the company? Do you have a clear career development program and path? Has it been effective? Does it motivate your employees to do better?
- How do you develop a performance appraisal system and motivation among your employees? Is it through the reward and punishment system? If so, is it effective?
- How does the policy on termination and retirement work in your company? Has it complied with government regulations?
- How is your company’s strategy implemented into individual targets? Do your employees understand what they should achieve to support the corporate strategy?
- How does human resource management impact your finances? How much do you spend to support the human resources program? Does it result in higher returns, such as through increased productivity?
- How compliant is your company with applicable laws and regulations? Is your company flexible enough to adapt to their changes?
What are you will audit? It can vary depending on your needs. For example, it may focus on a specific function such as employee appraisal, promotion, training, or recruitment.
Or, you choose to examine areas such as employee productivity, competitiveness, and their happiness working in the company. It might also check whether your company’s compensation is competitive compared to other companies.
Another area is compliance. In this case, you review how well your company complies with applicable laws and regulations, which may relate to wages, occupational health and safety, equality, and industrial relations. It is important to ensure your company complies, reducing the risk to your business.