The HR Audit: A Smart Employer’s Secret Weapon
When a California employer faces allegations of unlawful employment practices, a strong defense makes for a strong offense. Having an up-to-date, fully compliant HR infrastructure is a highly effective and efficient way for employers to guard against employment risk. At many workplaces, a compliant infrastructure begins with an HR audit.
What an HR Audit Entails
An HR audit is a comprehensive review of an employer’s policies, practices, agreements, and systems for managing its workforce. The purpose of an audit is to evaluate existing HR procedures, identify compliance gaps, and establish a roadmap for reducing legal exposure while improving employee management.
When we conduct an HR audit for a client, we begin with a deep dive into how the business operates. We look at the workforce’s composition, from full-time and part-time employees to exempt and non-exempt workers, as well as whether the company engages independent contractors. We evaluate payroll systems, timekeeping practices, wage statements, compensation structures, employee benefits, performance management, leave administration, and protections for confidential and proprietary information. We also review employment agreements, handbooks, and other HR documents for legal compliance and practical effectiveness.
The goal is to uncover vulnerabilities, correct deficiencies, and establish procedures that help prevent future violations and employment claims.
How Audit Results Are Used
Audit findings guide revisions to or the creation of employee handbooks, specific workplace policies, and various documents, such as offer letters, employment agreements, independent contractor agreements, confidentiality and intellectual property agreements, and performance evaluation templates.
Proper implementation of the newly compliant policies and procedures is critical to their success. Employers must distribute updated documents, communicate policy changes, and ensure managers and employees understand their responsibilities. Legal counsel can guide this process and help HR teams maintain compliance as laws and business needs evolve.
By going through the audit process, employers and HR teams gain practical guidance on complying with employment laws, including properly maintaining personnel records, correctly classifying workers, calculating overtime and paid sick leave, and meeting meal and rest period requirements. They also learn how to address disability accommodations through the interactive process and to apply best practices for employee discipline, retention, and termination.
Overall, the audit provides employers and their HR teams with critical knowledge for managing their workforce consistently and minimizing their risk of disputes and lawsuits in the future.
Why an HR Audit Is Legally Protective in California
California’s complex web of constantly evolving employment laws creates significant risks for employers. Outdated policies and common pitfalls like improper worker classifications, wage-and-hour errors, inconsistent leave practices, and inadequate harassment prevention procedures can expose businesses to employee claims, agency investigations, penalties, and lawsuits. Even compliant written policies offer limited protection if they do not correspond to actual workplace practices.
An HR audit helps identify these problems before they escalate into a claim. For example, an employer may discover that its timekeeping system fails to capture all the hours worked by employees, that its meal and rest period practices do not comply with California law, or that its independent contractors are functioning more like employees. Finding and correcting these issues early can limit potential liability.
Documentation is another essential safeguard. In case of an agency investigation or lawsuit, having accurate payroll records, properly maintained personnel files, current policies, and consistent performance and disciplinary records can help employers demonstrate that they established and followed appropriate procedures. Of course, employers must also ensure managers apply policies consistently and that workplace practices align with legal requirements.
Although an audit cannot eliminate all risk, it gives an employer the opportunity to address deficiencies before they lead to claims. It also strengthens the employer’s ability to respond to allegations by establishing clear policies, consistent practices, and proper documentation.
The Takeaway
An HR audit provides an employer with a secret weapon against employment risk. By identifying weaknesses, strengthening policies, and educating the team members responsible for implementing them, California employers can build an HR infrastructure that protects the business while supporting a more consistent and productive workplace.
Jeffrey S. Sloan is the Managing Shareholder of Workplace Legal, APLC, an employment law firm with offices in San Francisco, Oakland, and New York. For over 30 years, Jeffrey has represented businesses of all sizes, as well as high-level executives and professionals, in complex labor, employment, and HR matters.
