Introduction to HR Human Resource Audit

HR Human Resource Audit greentick

The word “audit” is derived from the Latin word “audire” and its meaning refers to listen. As the name Human Resource Audit suggests, it is a task to listen to all the affairs or transactions within an organization. The nature of audit defers according to the type of organization and nature of everyday activities that an organization has to perform. Even though it refers to listening, it is not limited to finding current status. It requires evaluating the presence of gaps between current status and desired status, and are being aligned with organizational goals and objectives.


It is a legal obligation to exercise audit practices regularly in the case of finance and accounts. However, it is not compulsory to have a Human Resource Audit in most of countries in the World The Human Resource Audit is similar to any other type of audit system. Organizations prefer to have a Human Resource HR audit as it provides beneficiaries to examine strategies, documents, structure, system, practices, policies, and procedures. These are the fundamentals of a strong build organization. HR audit helps to analyze organizational strengths, limitations, and developmental requirements for building efficient and productive human resources for an organization.


Importance of Human Resource Audit

The protean nature of an organization’s needs to achieve its targets impacts the requirements of employees. Consequently, these ever-changing requirements call help from an auditor to the organization. In addition, Auditors provide consistent methodology and techniques for an organization to remain responsive towards their employees. A Human Resource audit does not necessarily solve an organizational problem but provides an insight into the root cause of problems that requires attention. Human Resource audits can be non-routine and performed specifically for an organization’s unique requirements at a certain time.


HR audits can be as simple as an internal survey to management with the help of external consultants or auditors. Similar to the human body which looks good from the outside can have many internal problems, and organizations have many issues too. Human Resource HR Audit facilitates immune organizations from risks of internal damage through unification, collaboration, and healthy competition of its workforce.
In other words, it provides objective and systematic procedures for job analysis and design, selection, recruitment, orientation, placement, training, development, performance appraisal, job evaluation, motivation, communication, and levels of communication, etc for an organization. Human Resource audit also extends its scope to the retention of employees, budgeting, compensation, employee relations, etc. apart from hiring processes.


Benefits of Human Resource Audit

HR audit guides to accomplish the goals and objectives of an organization. Some of the advantages include ensuring legal compliance, maintaining and improving competitive advantages, providing guidance for communications and training, establishing the documentation process, and building up technology practices. Furthermore, in a broader sense, it helps analyze the position where a company stands.
For example: if an employee is on sick leave, an organization cannot stop. It needs to find a solution so that other employees can step up to carry out his responsibility when required. Such gaps cannot be filled within a day. Hence, it is inefficient to try and take such decisions after an employee goes to leave. It requires detailed planning and considerations beforehand for finding the solution of the future.


Additionally, a good HR audit can save money and internal conflicts in an organization financially. Furthermore, the analysis of expense on employees and return of investment becomes clear.


Purpose of Human Resource Audit

The following points describe the purpose and need for HR audits.
  • Prepare an organization and make them responsive to employees’ needs and requirements.
  • Evaluation and identification of employees for positions in an organization.
  • For the illustration and definition of a position in an organization through Job analysis and requirements.
  • Selection and recruitment procedures for jobs available.
  • Training methods and professional development policies.
  • Performance evaluation and appraisal for deserving candidates.
  • Remuneration, team collaboration, and targets evaluation for motivation of employees’ productivity.
  • Quality of work-life balance in an organization.
  • Policies to prevent exploitation of employees.
  • Analysis of efficiency and productiveness of Human Resource Management System.


Approaches of HR Audit

There are different methods and approaches that organizations utilize over time to improve their Human Resource capability. Similarly, Human Resource Auditors also use different approaches in analyzing HR Audits. Some of the approaches are as below:


  • Comparative Approach: Firstly, as the name suggests, it is a comparison of the system from one company with the other. Auditors take a reference of a competitor company and compare it with the organization requiring an audit.
  • Outside Authority Approach: Auditors approach with a set of standards from top consultants and provide facts, figures, and gaps present in the organization.
  • Statistical Approach: This approach follows the development of performance analysis and evaluation techniques utilizing existing information of an organization. Statistical measures help to point out the direction in which an organization needs to move forward.
  • Compliance Approach: The legal compliance, industry policies and procedures, and international standards are evaluated to determine the position of the company.
  • Management by Objectives (MBO) Approach: Finally, there are specific visions and missions to achieve in this approach. Performance is measured regarding the achievement of these specific criteria of goals and objectives. The organization’s performance and its objectives get evaluated.


In the Context of Nepal

HR Audit is a foundation for organizational growth. It is one of the important aspects to stay ahead of competitors and achieve organizational goals and objectives. In Nepal, Labor Act 2075, section 56 has put a set of standards for an institution to follow while conducting an HR audit. Some other acts like the labor act 2074, social security act 2074 and 2075, Bonus act 2049 and 2050, rules and regulations of the company, etc. require consideration while performing HR audits in Nepal.


There are certain criteria for an individual or institution to perform an HR audit in Nepal. To perform an HR audit,


  • An auditor must have citizenship in Nepal
  • Need to complete a minimum of Bachelor’s Degree
  • And, must have at least 2 years of experience in any institution within a managerial position


For an institution to perform an HR audit,


  • Must be a legal company with registration bylaw in Nepal
  • The objectives of the institution require having an interest in Human Resource related issues.
  • If an institution appoints an individual, he/she needs to fulfill the individual requirements criteria as mentioned above.


These are a few mandatory requirements to be an HR auditor in Nepal.


To conclude, an HR audit is an extremely important task for any organization like its financial audits to build up a strong and sustainable business for the future.