What is HR Audit? Definition, Objective, Process, Benefits

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What is HR Audit?

HR audit is defined as a systematic, independent, and documented process for obtaining evidence and evaluating it objectively to determine the extent to which HR activities comply with planned arrangements, legal requirements, and other applicable requirements.

HR Audit
HR Audit

HR Audit is the systematic verification of job analysis and design, recruitment and selection, orientation and placement, training and development, performance appraisal and job evaluation, employee and executive remuneration, motivation and morale, participative management, communication, welfare and social security, safety and health, industrial relations, trade unionism, and disputes and their resolution.

It is very useful for the organization to achieve the organizational goals and also a vital tool which helps in assessing the efficiency of HR functions in the organization.

HR Audit is like an annual health check-up, it plays a vital role in encouraging the sense of confidence in the Management and the HR functions of an organization.

It is a comprehensive evaluation of existing HRD strategies, systems, styles, skills, and culture, and their appropriateness to achieve the short term and long term goals of the organization.

HR Audits help the organization in the following ways:

  1. It helps to find out the proper contribution of the HR department towards the organization.
  2. Development of the professional image of the HR department of the organization.
  3. Reduces the HR cost.
  4. Motivates HR personnel.
  5. Find out the problems pertaining to HR functions and solve them smoothly.
  6. Helps in developing sound performance appraisal systems.

HR Audit Definition

HR audits are structured reviews of an organization’s human resources policies, procedures, documentation, systems, and practices with the objective of assessing compliance with legal requirements and identifying opportunities for improvement. – Society for Human Resource Management (SHRM)

HR audit is defined as “an objective, systematic review of an organization’s HR policies, practices, procedures, and strategies to protect the organization, establish best practices, and identify opportunities for improvement. – Shawn Smith and Rebecca Mazin “The HR Answer Book”

Benefits of HR Audit

Several benefits that result from an HR audit are:

  • Identification of the contributions of HR department to the organization.
  • Improvement of the professional image of the HR department.
  • Encouragement of greater responsibility and professionalism among members of the HR department.
  • Clarification of the HR department’s duties and responsibilities.
  • Stimulation of uniformity of HR policies and practices.
  • Finding critical personnel problems.
  • Ensuring timely compliance with legal requirements.
  • Reduction of HR costs through more effective personnel procedures.
  • Creation of increased acceptance of the necessary changes in the HR department, and
  • A thorough review of the department’s information system.

Objectives of HR Audit

What is HR Audit Objectives? HR audits may accomplish a variety of objectives.

Some of the major objectives of HR Audit are mentioned below:

  1. To Review the Organizational System
  2. Examine the Implementation of Policies and Procedures
  3. Measure the Effectiveness of Policies and Procedures
  4. Review Personnel System in Comparison to Other Organizations
Objectives of HR Audit
Objectives of HR Audit

To Review the Organizational System

It is very important to review the organization system time to time. Every organization must keep a review on recruitment, selection, orientation, placement, training and performance appraisal on a yearly, half-yearly or quarterly basis.

  • HR audit helps the organizations to review their systems on a timely basis.

  • This helps in keeping a check on the performance of an employee; to see whether he or she is working with his full potential or not.

  • Appropriateness of selection procedure, training and development will determine the quality of the workforce.

Examine the Implementation of Policies and Procedures

HR audit is used to check that the policies and procedures of an organization are properly implemented and followed by the organization and its employees.

For this reason, the organization lay certain rules that act as a standard for the organization. If for some reason the implementation of the rules is not properly monitored by the organization then in such a case organization cannot blame its employees.

Measure the Effectiveness of Policies and Procedures

Once the policies and procedure are successfully implemented then comes the role of management to ensure the efficiency and effectiveness of the policies.

For any reason, if the current policies are not as per the expectation of the management or not contributing towards the growth of the organization, then the management can modify the policies at any time for the betterment of the organization and its employees. But the policies must match with a previously laid down standard.

Review Personnel System in Comparison to Other Organizations

The personnel system of an organization should be strong enough to sustain in this competitive world, it is very important to keep reviewing the personal system of an organization to other organizations in the industry so as to be able to meet the challenges posed by them.

HR Audit Process

An HR audit is a process to review the implementation and effectiveness of the policies and procedures of the company to ensure compliance with employment law.

It also examines that whether management is implementing best practices or not, and it educates the managers in this regard HR Audit refers to an examination and evaluation of human resource policies, procedures and practices to determine the effectiveness of human resource management.

No organization can work on its own, various laws and regulations are formulated by the Government that is to be followed by an organization. An HR audit process review that the policies and procedures implemented by the company are in compliance with Government law.

HR audit also evaluates the effectiveness of personnel management.

HR Audit Process

  1. Identify Indicators
  2. Examine the Variations
  3. Comparing and Examining Variations between Departments
  4. Drawing Trend Lines
  5. Preparing a Detailed Report
HR Audit Process
HR Audit Process

Identify Indicators

The first step in HR audit is to identify the indicators. This is the preparatory step in auditing process. Here particular issues regarding the skills, styles, systems, strategies and structures of the organization are discussed.

Necessary data is also collected for the audit purpose; the various indices, statistical ratios and gross numbers are identified as per the requirement.

Examine the Variations

This is the next step after identifying the indicators. Under this step scrutiny of all available information pertaining to personnel will be taken into account.

A similar previous corresponding period is taken into account, the performance is judged on the basis of the indicators decided and any variation between the results in the two time frames is examined.

Comparing and Examining Variations between Departments

After examining the deviations a comparison is made. These deviations are compared between different departments and between similar units in the other industries. These deviation will help the organization to correct the process of auditing if the need arises.

Drawing Trend Lines

After the measurement and comparison with the other departments the organization is able to derive a trend that exists and would analyze and depict it in the form of trend lines, frequency distributions and statistical correlations.

Preparing a Detailed Report

The last step involves the finalization of report. This final report contains the detailed information about the audit of the organization. This report is submitted to the top management and to the managers at suitable levels for information . Necessary action is taken thereafter.

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