HR Compliance: Be Prepared for the Surprise Audit with an HR Compliance Audit Plan

By Chris Pisarkiewicz

Depending on how prepared you are, an HR compliance audit can be a minor pain or a major pain. This article will help you prepare so your next human resources compliance audit is nothing more than a minor pain.

Why Preparedness Matters

HR compliance audits occur frequently. It’s probably an understatement to suggest that these audits can be a tiny bit stressful. Depending upon your level of preparedness, a surprise compliance audit could certainly ruin your week and potentially cost your company big bucks in regulatory fines.

These audits can occur every few years as part of a federal or state review process, or they can be triggered by a complaint. These audits can materialize at any time, so it’s important to stay prepared.

In this case, an ounce of prevention really is worth a pound of cure.

HR Compliance Audits: As if Tax Audits Weren’t Enough

Federal and state HR-related regulations governing the employer/employee relationship create extensive legal risks for companies of all sizes. Failing to comply with applicable laws and regulations could irrevocably damage your business. But you know that. The goal is to avoid the issues.

Some of the more common mistakes captured during an HR compliance audit include:

  • Data non-compliance for failing to keep sensitive employee records secure
  • Misclassifying exempt and non-exempt jobs. We expect there will be an upsurge in mistakes in this category; the law governing overtime and exempt versus non-exempt employees has changed recently. The pressure is on for changes in this area, though, so clean documentation is critical
  • Inadequately documenting employee performance. This is especially critical in the area of undocumented employee terminations that are based on inadequate performance. Protect your company and your clients by having clear-cut employee conduct rules and distinct workflows for documenting conduct violations
  • Non-compliance in attendance policies. For the same reason, having written policies that conform to regulations will help you avoid non-compliance in attendance policies
  • OSHA violations as high as $10,000 for failure to post safety notices in an office
  • I-9 form errors that can cost a company up to $1,000 per incident for failing to complete these forms properly
  • COBRA non-compliance

If you’ve started hearing the incessant ringing of a cash register drawer related to these regulations, you won’t be alone: 2015 saw U.S. employers shelling out in excess of $400 million in compliance fines.

Preparing for the (Eventual) Human Resources Compliance Audit

Here are some concrete steps for staying one step ahead of the next compliance audit:

  1. Hire an external consultant to run an independent audit of your HR practices, including payroll and benefits. Correct any red-flag issues
  2. Regularly conduct your own internal HR compliance audits, looking not only at compliance, but evaluating best practices and function-specific workflows
  3. Create an HR Compliance Audit Plan Checklist across all human resource functions
  4. Every quarter, check for any relevant legal updates, then revise and implement the new plan. Watch for industry-specific changes that could really throw a monkey wrench into your standard operating procedures and adapt accordingly
  5. Lessen risk by using comprehensive human resources software that includes payroll software and benefits administration software which follows all state and federal compliance rules
  6. Be familiar with the data you have, and establish a workflow for providing it quickly to auditors if needed
  7. Work with your IT team to shore up or replace any outdated legacy IT systems that may create the possibility of a data breach
  8. Create a disaster recovery plan that emphasizes redundant systems across human resource functions

Staying compliant with local, state, and federal HR rules is a full-time undertaking when small- and medium-sized businesses are increasingly challenged to do more with less. Clearly, the best answer when it comes to surviving an HR compliance audit is to stay ahead of the game via a proactive approach, recognizing it’s not if you’ll be audited — but when.