Every small business experiences unique HR challenges. If you have successfully smoothed out every bump in the road in your HR practices, you may run with the philosophy to keep things as they are, “If it is not broken, there is no need to fix it.”

The problem is, if your HR department is not up to scale—complying with current regulations, it puts your business at risk of legal exposure, audits from the federal and state level, as well as financial penalties that can cause you to fall behind and lose your footing and competitive edge.

Why You Should Audit Your HR Department

At the foundation, an HR audit is a tool to review your current practices and highlights the areas that require adjustment.

An HR audit mitigates risk for your company, and a fine-tuned focus on compliance is where that is rooted. For your business to stay in HR compliance, it must foundationally be in compliance.

An HR audit involves much more than compliance. It can also save time and money for your business by identifying processes that are either out of date or do not reflect today’s technological advances in the workplace.

Have you covered all your HR bases?

Our HR audit takes a deep look into each of the six pillars of human resources (Operations, Performance Management, Workplace Safety, Benefits and Compensation, Recruitment, and Workplace Culture). Each of these areas is critical to compliance and risk management, but today we are focusing on one pillar, Operations.

Operations is the foundation of a strong HR function with a focus on maintaining regulatory compliance. Without this focus, the development of policies and procedures, employee handbooks, and mandated posters and materials that are provided to employees may contain critical gaps, or may risk employer rights such as employment-at-will, and can lead to out-of-compliance issues when these materials and processes do not exist at all.

An HR audit also covers these critical areas (but is not limited to):

Employment Application and Background Check Documentation

Ensure employment application and background check documentation complies with nondiscrimination laws and minimizes exposure to negligent hiring and employment-at-will liability.


Ensure managers are consistent in terms of the questions that they ask in the interview process, and that the questions are permissible according to law.

Employee Handbook and Policy Manual

Review for compliance and minimize risks to employment-at-will with appropriate employee handbooks and manuals.

Job Descriptions

Ensure job descriptions accurately explain job functions and distinguish essential from non-essential functions in compliance with the Americans with Disabilities Act.

Wage and Hour Matters

Verify that employees are correctly classified as exempt or non-exempt to ensure compliance with wage and hour laws and payment of overtime.

Manager and Staff Training

Ensure employees are trained regarding their rights and responsibilities under applicable equal employment opportunity laws, policies, the organization’s complaint procedure, and harassment prevention.

This is only an outline of some of the functions that must be covered in an audit of an HR department.

Do not find yourself in this common situation:

An employer is audited by the state employment department after an employee and/or general contractor files for unemployment (or some other type of state benefit). The external audit could have been prevented had the employer classified the worker correctly as either an independent contractor or an employee. Once the state identifies a discrepancy in a worker’s classification, an audit can be ordered.

This example is why you should audit your HR department (even if you don’t have one!).

We are busy people as business owners and HR managers, and critical functions with the varied aspects of compliance can slip through the cracks. As time progresses, it does not get any less complicated. As your business grows, compliance evolves (applicable regulations change).

We Can Help

Regulatory change is on a fast track and is forever transforming our business compliance needs. An HR audit can be a life-line for your small business.

Download Combs Consulting Group’s HR Audit Checklist here!