Time for a HR Audit? Top tips for why, when and how to do it

As a “People Planning” consultant, I've had the privilege of working with several small to medium-sized businesses over the past 12 months on a range of varied coaching and consultancy projects. My work is driven by business owners, HR managers or in-house recruitment teams who want to overcome specific challenges, deliver ambitious plans for change and ultimately put strategic HR practices in place that improve efficiency and drive business growth.

But… whilst most have clear ideas on the changes they want to implement or come armed with ideas they’ve heard their competitors are racing ahead with, often they haven’t paused to consider why these changes were necessary in the first place. Across the board, there was a lack of understanding of where they were now, how close/far they were from achieving current goals (sometimes from having HR goals at all!) and what they wanted the proposed changes to bring to the business.

That’s why most of my consultancy work starts with a phase of discovery – a comprehensive HR audit to understand the current workforce performance and ambitions. It’s an incredibly insightful exercise for HR and business leaders to undertake, so if you’re considering change for your business, here’s my recommendations for why, when and how to complete one..

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Why an HR Audit is Essential

There’s often a range of drivers for completing a HR audit. The top 3 I encounter are:

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#1 Compliance (and Peace of Mind!):

One of my clients, a renewable energy business, was increasingly concerned about compliance with updated employment legislation - particularly around their school-leaver apprentices covering safeguarding and workplace safety, plus flexible working practices and time-off allowance for their shift staff.

Their growth had been so rapid that keeping up with legislation became a challenge and their policies, procedures and Employee Handbook hadn’t been reviewed since they started up. Conducting an HR audit uncovered several compliance gaps, which we addressed quickly, giving them peace of mind and protecting them from potential legal repercussions.

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#2 Efficiency (Streamlining or Automating Operations):

Another client, an engineering company, struggled with HR processes that took up too much of the directors’ time, making them feel constantly on the back-foot and causing delays with servicing new clients they’d won.

Through a detailed HR audit, we identified a number of bottlenecks in their recruitment processes, missed deadlines for training and appraisals that caused both retention issues and challenges to hiring new recruits. By streamlining these operations (including implementing a new HR System to automate some of the operational tasks), we saved them valuable time (and stress!), significantly improving their employer brand and employee engagement. Over a six-month period, this reduced their time to hire, improved the candidate onboarding experience and helped retain key personnel within the business.

#3 Strategic Growth (and alignment with business goals):

A family-owned software business I worked with had ambitious plans to scale and needed to succession plan for senior family members exiting the business. The HR audit (including a colleague satisfaction survey) revealed that non-performance within the sales team had been overlooked for some time, targets were being repeatedly missed and performance reviews not taking place or being acted upon. This led to conflict within the team and risked a loss of key talent to the business.

Following a detailed skills audit and compensation review, we were able to put in place a more transparent and motivating performance framework and reward strategy that aligned their HR practices with the strategic business plan and sales goals. We created career pathways and training plans to add a layer of sales managers, reduce reliance on the MD for day-to-day leadership, increasing both individual and team performance to drive overall sales outcomes.

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Scope of an HR Audit

So, is these drivers resonate with your business and a HR audit may be on the cards, what exactly should it include? Well, it depends on the reason for the review, the time/resources you have available and what you hope to achieve. Whilst an all-out HR systems and processes review may feel beneficial (to clean your house), you may find it more manageable to focus on a single aspect at a time. Here’s what’s typically covered in the HR audits I undertake:

• Legal Compliance: Ensuring all practices comply with relevant laws and regulations.
• HR Documentation: Reviewing the completeness and accuracy of employee files and contracts.
• Recruitment and Selection: Evaluating the fairness and effectiveness of hiring processes.
• Employee Relations: Assessing policies related to communication, grievance handling, and discipline.
• Compensation and Benefits: Reviewing pay structures and benefits packages for compliance and competitiveness.
• Training and Development: Assessing opportunities for employee growth and skill development.
• Performance Management: Examining appraisal systems and career progression frameworks.
• Workplace Safety: Assessing adherence to occupational health and safety standards.

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How to complete a HR Audit

Once the scope of the audit has been identified, here’s how I'd recommend you carry out the audit itself:

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1. Define Objectives: The first step is to understand your specific objectives. Are you looking to ensure compliance, streamline processes, or align with strategic goals? Defining these objectives provides a clear direction for your audit.
2. Assemble an Audit Team: Involve key personnel within your business (and bring in experts if you need to) – HR team, senior leaders, legal advisors, and sometimes representatives for different teams or departments.
3. Develop an Audit Plan: Create a detailed plan outlining the scope, timeline, and methodology you’ll follow – including what information you’re going to inspect and how you’ll gather it from a range of sources.
4. Collect Data: This may include surveys, interviews, document reviews, HR data/statistics, software or process reviews, and direct observation (remember, it’s no good if you have great HR policies on paper, but that’s not how things work in practice!).
5. Review Data: Take time to review the data - including identifying gaps, inefficiencies, and areas of non-compliance. Again, if you're too close to it, get an impartial, external advisor to assist at this stage.
6. Report Findings: Compile your findings into a comprehensive report, highlighting key issues and recommendations.
7. Develop an Action Plan: Based on the findings, act quickly to create a strategic action plan to address identified issues and implement improvements and maintain momentum. Make sure the plan is achievable and set clear goals, timescales and budget to deliver it.
8. Implement Changes: Deliver the action plan involved making necessary adjustments to HR policies, procedures, practices and personnel.

Finally, put mechanisms in place for ongoing monitoring and review to ensure continuous improvement and delivery of your initial goals.

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My Final Thoughts... Don't put it off!

For ambitious SMEs and MMEs, an HR audit is more than just a regulatory checking exercise but should be seen as a strategic tool for enhancing overall business performance. If you've not done one in some time, or you have changes planned and exciting ideas in mind... what are you waiting for?!

Through my experience with various clients, I've seen first-hand the cost-saving and productivity-boosting improvements a well-planned and delivered HR audit can bring to the business.

Once completed, be sure to move forward with implementing the identified recommendations - aligning HR initiatives with your strategic goals and using HR as more than just a BAU activity but as a driver for a high-performing business.

Good luck!

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