Proactive auditing

Why conducting an HR compliance audit is crucial for your organization

Laura Williams

When most business owners, managers and HR professionals hear the word “audit,” images of Canada Revenue Agency (CRA) inspectors combing their financial records immediately come to mind. While a visit from the taxman can be a source of anxiety for any executive, another area of exposure poses just as much risk for their businesses, and that comes on the human resources front.

Time and time again, we’re called upon to help organizations — ranging from SMEs to major corporations — address and repair damage from an otherwise preventable HR law-related incident. By then, however, it’s often too late to do more than simply react and manage the issue. It’s at that point that matters can become costly. Business leaders are often left with little choice but to remedy the situation by paying hefty fines or reaching sizeable out-of-court settlements, unless they opt to take the even more expensive litigation route, where a favourable judgment is never guaranteed.

The solution, of course, is to take a proactive approach in designing a comprehensive and effective employment law compliance and HR policy foundation. It starts by understanding your jurisdiction’s relevant employment legislation as it relates to your business, then ensuring you comply with the law. That’s especially important in Canada, where workplace legislation is changing in provinces on an increasingly frequent basis, leaving employers exposed to potentially crippling legal and financial risks. As the speed of legislative change intensifies, many employers are left confused by their obligations. Even HR professionals are finding it difficult to keep pace, opening the door to a wide range of consequences including potential administrative penalties, fines, unfavourable tribunal rulings or employee lawsuits. Worst of all, a visit from a labour inspector that turns up legal violations in your workplace could serve as a red flag to other agencies — think CRA, for example — that can open the door to unwelcomed scrutiny.

That’s why it’s important to carry out a comprehensive HR law and best practices audit — which examines key areas such as workforce planning and recruitment, workers’ compensation, employment standards, health and safety, and other relevant areas that most often produce significant legal and HR risk for employers — to protect your organization from compliance-related exposures. An audit offers three key business benefits:

• It highlights the adequacy and robustness of existing processes, policies and procedures which govern and affect your workforce — not to mention critical HR law liabilities across your organization — while defining areas for HR policy improvement.

• It helps evaluate your ability to manage claims, manage legal risks associated with non-compliance incidents in the workplace, and facilitate effective and informed decision-making. An audit reinforces HR best practices to build stronger cultures, avoid penalties or legal challenges, and build a more efficient workplace where HR practices are aligned with the organization’s strategic objectives.

• It helps build a strong HR foundation across your organization to gird against business-management challenges — related to everything from employee turnover and rapid growth, to succession opportunities — while also demonstrating to labour ministry inspectors that your organization is committed to legislative compliance.

Conducting a proper audit

Of course, this begs the questions of how to conduct a proper audit in the first place. Here are five basic steps to put your organization on the path to full employment law and HR policy compliance:

Rely on a professional. Like any proactive initiative on the HR front, an audit can be a complex process. The most important point to remember is to trust the process to HR professionals or HR lawyers with a strong grasp of applicable labour and employment laws and HR best practices. As mentioned earlier, workplace legislation is changing so rapidly that it requires specialized expertise to understand compliance responsibilities as they relate to your organization, then structure a coherent, customized HR framework that ensures compliance on all fronts.

Set clear objectives. This means taking the time to understand relevant workplace legislation as it applies to your organization, then strategically defining the scope and goals of your audit. Audits that are too broad tend to run aground simply due to a lack of focus. And if the task is left to just one or two internal employees to manage, that risk of failure on the audit front is only heightened. Define what a successful audit looks like for your company — both in terms of identifying areas of HR law exposure and potential HR improvements that could be introduced into your workplace — then begin analyzing your strengths and opportunities.

Collect data in an organized manner. This typically involves preparing a checklist to help assess the level of compliance and effectiveness of various HR policies and procedures, then tapping a wide array of internal resources — from policy manuals (assuming they exist) to front-line staff and senior leadership — to determine not only which HR policies your organization maintains, but how they are applied and enforced in practice on an ongoing basis. Many companies, particularly when faced with unfavourable court or tribunal rulings, are stunned to learn that HR policy enforcement is just as important as implementation when a legal challenge arises.

Present the audit’s findings coherently and develop an action plan. Structuring the audit’s findings in a coherent report will help leadership understand the potentially costly areas of HR law or policy exposure across their organization. The exact nature of that structure depends on those key leaders’ preferences, but we find that developing HR and law “dashboards” that focus on key metrics — which could include statistics such as employee retention — help focus the ensuing discussions on how to overcome HR shortcomings. Developing an action plan with timelines for key deliverables will help ensure that employment law and HR policy exposure gaps are closed in a timely fashion to limit your organization’s liabilities.

Now do it again. Thanks to ongoing legislative developments, as well as changes within your organization, audits are never a one-time exercise. A period of rapid growth or high employee turnover, or even an event such as your company’s pending sale or merger, could force updates to your HR policy and best practices framework. Plan to conduct an HR audit at least once a year and be ready to act on its findings.

Laura Williams is the founder and principal of Williams HR Law, a human resources law firm in Markham, Ont., serving employers exclusively. Laura can be reached at (905) 205-0496 or [email protected]

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