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HR Audit: What It Is And How To Conduct One

UPDATED 04/27/2023

Audits are vitally necessary. HR Audits are invaluable tools to protect your business and stop any potential mistakes.

That being said, you are likely a little confused: What is an HR audit? How can you use it to protect your practice? Where can you find help in conducting one? Thankfully, there are real answers available. Read on for more!

What is an HR audit?

An HR audit is a comprehensive overview and inspection of your entire HR system. This audit - often performed by an independent professional without direct affiliation to your practice - will review all aspects of your HR and ensure your compliance with appropriate laws and regulations. The HR audit will then reveal a series of recommendations about improving your HR policies and protecting your practice from potential legal and financial pitfalls. Done right, an HR audit can confirm that your employee handbook is up to date, your timekeeping practices are accurate, you have all the proper paperwork on your employees, and more.


There are many types of HR audits. These include: 

• Paperwork compliance audit: Different industries and locations have different requirements for paperwork. Is your practice appropriately adhering to those?

• The employee handbook: There are real dangers in practicing with an out-of-date handbook, including one that offers benefits you no longer offer or fails to make appropriate statements about behaviors that will and will not be tolerated in the office.

• Payroll audit: Are you paying your employees correctly for the time they work? Can the accuracy of your timekeeping system be improved in any way?

• Onboarding and offboarding: Having the correct procedures in these areas can improve employee retention and allow you to learn invaluable information about why employees leave. 

• Compensation: Besides ensuring that you are paying your employees properly, you should ensure that your compensation is comparable with other practices in your area.

Furthermore, there are many common mistakes that these HR audits can determine. This includes misclassifying employees, following appropriate meal breaks, paying overtime, providing compensation during interviews, and more. 


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Classifying an Employee as an Independent Contractor

Classifying an employee as an independent contractor often makes financial sense. These independent contractors are subjected to less regulations over their pay, do not need to be paid overtime, and don’t need benefits. As such, there is a tendency to want to classify employees as independent contractors whenever possible. However, if done wrong, this can lead to a huge HR problem and potentially be illegal.

There is a major difference between employees and independent contractors. These differences exist on many levels, including how employees are paid, if they are exempt from overtime laws, and what benefits the employee may qualify for. Fundamentally, remember, an independent contractor is not an employee if they are the ones who control the work that they are doing, as well as how and when it is done. If this critical principal is not meant, then you have an employee, not a contractor.

Of course, employees are more expensive, qualify for benefits, and may need to be paid overtime. As such, while there is an understandable desire to classify an employee as an independent contractor, doing so may run afoul of Department of Labor or state regulations, and can result in a serious HR violation for your business. 

Is Your Practice Following State Meal and Rest Break Requirements? 

The federal government and states each have their own meal and rest break laws. These laws apply to non-exempt employees and must be followed if you want to stay out of trouble and maintain employee morale.

Of course, giving an employee a meal and rest break isn’t enough. You must ensure that you are appropriately tracking these breaks in order to prove compliance and appropriately compensate employees. Fortunately, at HR for Health, we have timekeeping software that is accurate to the second. This can help ensure that you have correct records to protect your practice. 


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Do You Employ Exempt and Per Diem Employees? 

Exempt employees are those who do not qualify for overtime pay and who are salaried. Per diem, employees are paid a flat daily rate for each day of work and is an appropriate form of compensation for nonexempt employees. If you have any employees that are paid per diem and are also categorized as exempt, you will want to revisit that classification because an exempt employee cannot be paid per diem. . 

If you are inappropriately classifying employees in such a way, you are at risk of major fines and legal penalties.

At HR for Health, we can ensure that you have access to a bevy of HR experts who can help you manage these HR issues, get answers to your HR questions, and protect your practice. 

Do you Provide Appropriate Compensation During a Working Interview? 

A working interview is an interview in which an employee performs some job and/or duties for you, giving you a chance to evaluate their skills while working. However, this is critical: You must pay employees for their time! Under the eyes of the IRS, working interview candidates are considered employees. As such, you must ensure that you complete the required new hire paperwork. At the bare minimum, complete a working interview letter containing all the interview details, an I-9, W-4, and employee handbook acknowledgment.. This information will then need to be stored for potential audits and tax purposes later, even if you don’t hire the employee. 

Importance of Temporary Employee Offer Letters

Sometimes, your practice may need to hire someone temporarily. If this is the case, you need to create a temporary employee offer letter. At a minimum, this letter should contain:

• Proposed compensation for the temporary employment

• A description of the work that needs to be completed.

• Circumstances under which the work will be completed.

• How potential disputes will be handled.

• A start and end date

Once these letters have been completed, you will need the employee to sign the letter, agreeing to the terms stated. You will then need to store this information. From there, the onboarding process is precisely the same as regular employees, and the same new hire forms will be used.

These documents are critical to have in the event that there is a dispute over the work done. You will also need to store these documents in case the IRS has issues at a later date. Fortunately, at HR for Health, we offer an array of document templates and can work with your dental, optometry, veterinary, or other medical practice to create such a document. We also have an electronic onboarding process and secure, cloud-based document storage, allowing you to keep track of all your documents. 

What You NEED To Know

The importance of conducting an HR audit cannot be understated. When you conduct an HR audit, you can:

• Find flaws in your compliance with appropriate regulations and laws, thus enabling you to take corrective action and avoid potential fines or legal penalties.

• Identify failures of operations and procedures within your practice, thus enabling you to make necessary improvements. This can result in improved employee efficiency, morale, and retention.

• Ensure that you are adequately tracking the amount of time your employees are putting into work, thus protecting their rights and ensuring that you are paying them fairly.

• Identify weaknesses or areas that need improvement in your practice. 

• Provide good-faith evidence that you are striving to improve your practice and protect your employees' rights. This can be very useful in the unfortunate event that an employee sues you for any reason. 


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There are many types of HR audits, and they are all invaluable tools for proactively addressing problems and ensuring that your human resource operations are performing as well as you need them to. Outside professionals can be invaluable in helping you conduct these audits. 

How HR for Health Can Help

At the end of the day, you're busy. You must manage your practice, care for your patients, and oversee your work. This means you may not have time to engage in the difficult and time-consuming HR audit process. Fortunately, at HR for Health, we're here to help. We have plenty of experience in managing practices just like yours, helping to care for all of your human resource needs.

Want more information on how we can help your practice? Schedule a free, fifteen-minute call, and learn more about how HR for Health can assist you in an HR audit and so much more.

Schedule an HR Consultation