Human resource audit process: What to review

According to the U.S. Department of Labor (DOL), concluded compliance actions in fiscal year 2025 cost employers more than $259 million in back wages and nearly $59 million in civil penalties. In the UK, government investigations found employers underpaid workers by more than £7.4 million, resulting in up to £13.7 million in financial penalties. 

That’s why HR compliance audits are so important. They’re a way to find and correct issues before an investigation or complaint. But they can provide far more than legal protection. Done right, HR audits can help strengthen your brand and bring the HR function into closer alignment with your organization’s goals.  

Here’s what you need to know about getting started with HR audits and how to turn them into a valuable business tool. 

Key takeaways

• An HR audit is a detailed review of your organization’s HR policies and workflows. 
• There are three main audit types: an HR compliance audit, an HR operational audit, and an HR strategic audit. 
• There are several reasons to do an HR audit, but the most common is to reduce compliance risk and avoid costly penalties. 
• An HR audit is a multi-step process that begins with defining the audit scope and ends with addressing any concerns you find. 
• HR and workforce platforms can make audits easier by centralizing records and supporting audit-ready reporting and issue tracking. 

What is an HR audit?

An HR audit is a methodical and meticulous assessment of how your HR function is documented and run. It’s measured against legal requirements and your organization’s own standards. The goal is to identify compliance risks and process gaps before they create employee issues or regulatory exposure. 

Audits often review: 
 

• Documentation: Employee records, required forms, retention practices, and supporting evidence 
• Policies: Handbooks, written policies, and policy updates/acknowledgements 
• Practices: What teams and managers do day to day (not just what’s written) 
• Workflows and systems: End-to-end processes and the tools that support them (HR, payroll, time, case management) 

HR audits can be conducted by internal employees, often from the HR, legal, or finance departments. However, some organizations bring in an external consultant for a fresh perspective.  

Types of HR audits

Most HR audits fall into three categories: 

• HR compliance audit: You examine your policies and practices against applicable local, state, and federal labor laws. 
• HR operational audit: You gauge how well your current processes and systems serve your department and organization. 
• HR strategic audit: You assess how well HR activities support your company’s current and future goals. 

When to perform an HR audit

Generally, you should conduct HR audits on a consistent schedule to proactively identify and address issues before they spiral out of control. Annual audits may make sense if you look at the entire HR department at once.  

More frequent audits can be appropriate if you only review individual areas like payroll or recruiting on a rotating basis. You may want to conduct an out-of-sequence audit if you receive an employee complaint, hire many new team members, or undergo a merger. 

Why run an HR compliance audit?

Compliance management might be the first thing that comes to mind, but a thorough HR audit can deliver value in several areas. Consider running one when you want to: 

• Meet labor law requirements to reduce exposure to litigation and fines 
• Eliminate redundancies and bottlenecks slowing your HR team down 
• Align HR activities more closely with your company's current and future goals 
• Improve the employee experience in ways that increase engagement and retention 
• Ground people-related decisions to the data you’ve collected 

HR audit process: Steps to follow

A thorough human resource audit process follows five stages. Here’s how to approach each one. 

Define scope and security buy-in

Before you do anything else, decide what you’re auditing and why. For instance, you might focus on your recruiting function if it’s taking a long time to fill open positions. Or you might audit your entire department if it’s been a while since your last audit (or you’ve never conducted one at all). 

Once you’ve defined the project’s scope, it’s time to get buy-in from leadership. Getting them on board helps you line up the resources you need to complete the audit. It can also give you the backing you need to act on what you find. 

Make a plan and assemble an audit team

Next, figure out who will conduct the audit. Using internal team members is cost-effective, but they may have blind spots and will have less bandwidth for their regular duties. Hiring external auditors can put fresh, unbiased eyes on your department, but it can come at a higher cost. 

Once your audit team is assembled, determine the policies and practices you’ll review. Then, create a realistic project timeline to keep the audit on track. 

Gather and analyze the data

With your plan in place, it’s time to perform your HR audit. Work through your chosen areas step by step, gathering and analyzing relevant data while looking for any concerns that need to be addressed.  

If you’re evaluating your hiring process, for example, you might: 
 

• Look at job descriptions and advertisements for biased or noncompliant language 
• Review your application form for any questions that could create legal exposure 
• Assess your interview questions for consistency and compliance 
• Talk to new hires about their experience for candid, firsthand perspectives 

Your HR software can be a valuable source of information throughout this stage, particularly its reporting and analytics capabilities. 

Produce a report of the findings

Once your analysis is complete, compile your findings into a comprehensive yet digestible report for stakeholder review. Categorize concerns by functional area (e.g., benefits, payroll, or recruiting) and then prioritize them in order of urgency. For instance, correcting an overtime pay issue will take precedence over streamlining your employment application. 

Build an action plan for continuous improvement

With your priorities established, work closely with leadership to build a concrete action plan. Be sure that it assigns ownership and sets realistic timelines. You’ll also need to make sure it allocates the resources needed to get things done. 

Let’s say your HR audit revealed errors on I-9 forms, for example. Given the potentially costly compliance risk, the audit and executive teams agree that the HR manager needs to correct the forms within the next month or as soon as practically possible. 

HR audit checklist: What to review

Your HR audit checklist will vary based on your company and audit scope. But the table below offers a practical starting point organized by functional area. 

Functional area	What to review
Hiring	Interview guides Background check records Offer letters Recruiting procedures Selection criteria consistency
Benefits	Benefit plan documents Regulatory reporting and notices Benefits vendor contracts Open enrollment procedures
Compensation	Pay equity analyses Pay structure Salary bands Commission, bonus, and incentive plans Merit increase process
Training	Onboarding materials Rocords of mandatory training Tuition reibursement policy Training catalog Learning management system (LMS) access and controls
Time and attendance	Time sheets Paid time off (PTO) accrual reports Medical leave requests and documentation Timekeeping policies Integration with payroll
Payroll	Payroll registers and summaries Tax filings Direct deposit forms Garnishment orders Payroll processing procedures
Performance management	Employee performance review forms Performance improvement plans Succession planning records Compensation decision documentation Review cycle and process
Employee relations	Employee handbook Complaint investigation files Disciplinary action records Progressive discipline policy Employee engagement survey results

How HR tools impact the audit process

The right software can make all the difference in your HR audit process. When policies and employee records all live in one place — with a clear trail of who changed what and when — you can pull evidence quickly without chasing down spreadsheets.

Dayforce, for example, is built around a single employee record, with configurable workflows, role-based access, and reporting that gives your team the visibility it needs to document decisions and close gaps with confidence. Learn more about Dayforce HR software. 

Frequently asked questions

What is an HR audit and what does it cover?

An HR audit is a systematic assessment of your company’s human resources policies and procedures. A successful audit helps make sure the activity of your HR department: 

• Complies with all applicable employment laws 
• Follows industry and profession best practices 
• Aligns with overall company goals (current and future) 

What are the primary steps in an HR compliance audit?

An HR compliance audit has five main steps: 

1. Determine what to audit and get the key stakeholders on board. 
2. Create an audit plan, including the participants and project timeline. 
3. Gather and analyze relevant data. 
4. Write a report on your findings, organizing issues by type and priority. 
5. Develop an action plan to tackle these issues and follow up to ensure project completion. 

What documents should be reviewed in an HR audit?

It depends on your scope. An HR audit focused on employment policy compliance, for instance, will center heavily on your employee handbook, while a payroll audit will call for an entirely different set of records. Let your objectives guide what you review. 

How often should you conduct HR audits?

At least once a year is a reasonable baseline to keep current with legislative and industry changes. But you might want to do off-schedule audits in response to certain events, like an employee discrimination allegation or a company merger. 

How does HR software assist in compliance audits?

HR software can help streamline the HR audit process by housing all the relevant data in a centralized location. It can also help you create custom reports to better understand what’s happening in your organization. 

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