Michele Harmon
The best HR audits are the ones you control. The worst are those prompted by a letter from a government agency. Clean up one issue at a time while there is still time.
All organizations need a major HR audit every few years and an annual review to ensure that the policies and procedures comply with current laws, rules, and legislation. Every organization needs to conduct a compensation study annually to ensure it is competitive regarding all pay and benefits.
There are four types of HR audits. A legal compliance audit is most imperative to the operation of your HR processes. The other three are a strategic audit focusing on whether HR goals align with and support the organization, a best practices audit to compare HR practices against other organizations, and a function-specific audit concentrating on only one HR area, such as payroll.
This article will focus on a two-phase model. In phase one, HR policies, practices, and processes are reviewed. My recipe for success is borrowed from research and experience. Tackle one thing at a time and move on to the next audit topic, knowing that audits are about continuous improvement and thus are ongoing and never put to bed forever.
My recipe starts by hiring an outside, independent consulting group to conduct the audit—one that understands the Permian Basin. It is difficult when you are on the inside trying to find the flaws knowing that some may be your own.
Outsiders can create fear and suspicion, but your employees will get past those feelings if the firm you hire has a good reputation that demonstrates confidentiality and transparency with your employees whenever possible. Great auditors will provide leadership with a step-by-step audit model that can be customized for each client’s needs.
The firm will need the complete organizational chart, 1099 contractors, employee job description, the employee handbook, access to your payroll and benefit files, access to your I9 files, the past five years’ pay history data and unemployment taxes, your benefits package for health insurance and retirement, and a current job application, as well as all pertinent information on the hiring process, onboarding (including process steps and forms), and exiting employee steps and conditions. Additionally, the audit group will need access to your code of ethics, progressive discipline process, Paid Time Off (PTO) policies, ADAAA policies, OSHA recordable, Worker Compensation (WC) policies, record retention policies, and posting of state and federal employee posters.
The audit firm will take a deep dive into classifying your employees as exempt/salaried or nonexempt/hourly. They will review salary histories, pay equity, and transparency. You are incorrect if you think employees cannot talk to each other about their compensation. Telling them that salaries cannot be discussed is a fast way to get a visit from the Equal Employment Opportunity Commission (EEOC).
The firm will review how your payroll functions, how well it integrates with the retirement plans, and how soon the company allows new hires to receive benefits. The firm will also check whether the benefits are competitive in your industry and the Permian Basin. A good audit group knows what your competition is doing. Comparing total compensation is key to retaining your good employees.
The audit group will review your current employee handbook to see if it complies with federal and state laws. How many of you only operate in Texas? I have said it before: New Mexico is on its way to California HR laws.
In the second phase, all your contract agreements will be reviewed. Is your non-compete still legal? Do you have a well-structured agreement with your 1099 contractors? Are you documenting all the employees’ training—not just what you did in safety training for OSHA?
What is your turnover rate, and for what job types, departments, and supervisors? If you outsource recruiting for some or all vacant positions, how well did it work? How long after you paid the search firm did the employee stay? Were they a great fit for your organization or another pain in the derriere?
How many internal grievances have you had over the past five years, and how many employee complaints ended with legal bills and government intervention? Does the organization survey employees’ satisfaction with work?
After Phase Two, it is time for the stuff your overworked HR lady never has time for, which means examining the organization’s overall HR best and worst practices. If technology can do something a human does, move to the cloud. You are already behind the curve if you have not. Go ahead and leave on that jet plane. If the HR lady does not move to technology for fear of whatever, move your HR lady to the beach.
Now that you may have changed your HR department, allow the new progressive HR lady to be part of the strategic planning and management of the organization. Never plan for growth—or the opposite, decline of staff and operations—without her in the room with a seat at the table. By the way, ensure that the new HR lady you hire does not go to happy hour with the troops.
Loose Lips Sink Ships
Last, if HR is running at 100 percent, pat yourself on the back. If so, keep auditing by taking one function, such as payroll. Anywhere I have consulted in the Permian, planning and implementing change to keep up with the speed businesses must adjust is ongoing. Organizations cannot sit still, and neither can your HR practices. Remember, HR and your organization have survived because of constant planning and adjusting to what cannot be controlled. HR practices are a continuous product.
Last but not least, what is the organization doing to manage leadership succession? Are you cross-training at the middle and upper levels? Have you identified your linchpin positions? Linchpin positions are critical to the health and future of the organization. The positions are challenging to fill and are generally not individual contributors but are the most crucial person in an identified role. A well-trained supply chain manager comes to mind.
In December, I will discuss Succession Planning in-depth, or Succession Management. Herb Kelleher believed in Succession Planning. What about you?
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“Your employees are the heart of your organization.” Dr. Michele Harmon is a Human Resource professional, supporting clients in Texas and New Mexico that range in size from five to more than 3,000 employees. Email: micheleharmon1@gmail.com