There are different types of HR Audits.  Some companies conduct an internal audit, a compliance audit that focuses on relevant regulatory requirements, and a processes and practices audit.

External expertise is crucial to the success of the audit.  HR auditors are well-versed on compliance requirements, risks and current best practices.  Obtaining the results of your HR audit will give you factual information about where you are and where you could be.  The company can then transform information into action, creating specific action plans and designing longer-term plans for continuous improvement.

For some employers, there might be a “Risk Mitigation” Audit performed.  This usually is triggered by a specific compliance violation or another major problem related to the violation of an HR rule or principle.  This type of audit is designed to ensure that existing policies and procedures are effective and are being followed.

These are the types of audit services that can be performed:

• Compliance Audit – covers federal and state regulations that impact recordkeeping, reporting and HR program administration.
• I-9 Audit – reviews active I-9 forms, terminated I-9 forms or both
• HR Program or function audits – covers a review of any individual HR-related functional area (i.e. recruitment function)
• Full HR Audit – covers a review and evaluation of areas noted above as well as an audit of all other HR functional areas, including staffing and recruitment, job analysis and job descriptions, compensation and benefits programs, performance management, training and development, employee relations and policies and HR metrics.

With a small or single-person HR department it isn’t easy to stay abreast of ever-changing regulatory compliance and human resources best practices. Audits bring HR expertise into the picture and can jump-start needed discussions and process changes for small companies. Larger companies may opt for a more comprehensive audit initially before refining subsequent audits to focus on more specific areas.

Payroll frequently represents a major component of HR audits because it represents the single largest expense in many organizations. One would be amazed at how many times we find issues with people inappropriately taking money through payroll.

The specific steps of an HR audit are set forth by the Society for Human Resource Management:

1. Determine the scope and type of audit
2. Develop the audit questionnaire
3. Collect the data
4. Benchmark the findings
5. Provide feedback about the results
6. Create action plans
7. Foster a climate of continuous improvement.

By knowing what to expect and being open to change, an HR audit can assist any size organization become better prepared to deal with the ever-changing laws and best practices that might come their way each year.

    HR Magazine

Look for the DOL (Department of Labor) Wage and Hour Division to be even more aggressive in 2012! Where you used to receive a letter, then a phone call, and then an investigator, now you will get more than one approach at the same time.

Stacie Caraway, of Miller & Marin states that one of her clients is getting daily aggressive phone calls!

Where you used to be able to Self-Audit, the DOL will now insist that the investigator make back pay determinations.  Where you could typically resolve complaints with full back pay, the DOL will now likely want to assess civil penalties and those dollars go back to the Wage and Hour Division to fund more investigations.

The DOL is also increasingly teaming up with other agencies – state agencies, workers’ comp, unemployment and tax agencies, all of whom have an interest in failure to pay or underpayment of employees.

Another attorney, Charles Plumb of Macaffey and Taft says we can also expect:

• More aggressive action by all agencies
• More sharing of information between agencies
• Aggressive investigators that want to see every piece of paper
• Increased scrutiny of wage and hour settlement agreements
• The adding of state law claims to many federal claims
• Continued emphasis on independent contractors
• Increased activity from an increasingly more sophisticated and knowledgeable workforce.
• No end in sight in wage and hour litigation – the availability of attorneys’ fees makes this area a lucrative one.

With all of these changes either in place or on the horizon, it is crucial for you to get up-to-date on the latest employment law developments so you can keep your organization in compliance and avoid costly legal entanglements.

1. Avoid “legalese” and jargon – Even lawyers should not write an employee handbook like lawyers.  Employment policies should be written in clear, easily understandable language.  Avoid jargon from your industry.  Remember:  the most important reader of your handbook in your new employee, who is unlikely to be familiar with acronyms or jargon.
2. Avoid ambiguity - Choose your language carefully.  Be sure that all of your employees will know what you’re talking about.  Ensure clarity.
3. Don’t overdo it - Don’t attempt to make your policies so comprehensive that a court might assume they’re intended to cover every conceivable situation.  A common mistake is to draft very specific policies and then disregard them.  Leave yourself flexibility in your policies and procedures.
4. Don’t underdo it - Your employee handbook is your opportunity to communicate critical information to employees about their legal rights under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), Title VII of the Civil Rights Act of 1964, and their California counterparts – as well as other important terms and conditions of employment.
5. Make sure you don’t have contracts to sign – The last thing you want is to be contractually bound by an employee handbook.  The handbook is a tool to communicate with employees, not a contract.  Remember that employment is presumed to be “at will” in California unless you, as the employer, do something to mess it up.
6. How progressive should you be? - Many employers get caught in very rigid progressive discipline policies.  Progressive discipline should reserve flexibility for you to apply any step of discipline, including termination, at any time without having applied earlier steps or given previous warnings. Always leave yourself flexibility when drafting disciplinary policies.

Here are Judge Chin’s tips to avoid seeing him in his court:

1. Don’t Discriminate.  Know the rules and make sure your decisions are based on legal business reasons.
2. Supervise your supervisors.  Communicate with them, train them, watch them, and deal with infractions.
3. Be brutally honest with employees.  Terminated employees who believe that they had no warning that their work was substandard are angry and juries are sympathetic.  If you withhold information, you will pay.
4. Grade low.  If a “poor” performance rating follows a string of “high” ratings, it looks suspicious.
5. Never say or write anything you will regret.  One bad sentence in an otherwise routine communication will catch the jury’s attention.  Also, remember that many employees will surreptitiously record conversations.
6. Make a record, but not unfairly.  If you have written no memos for years, and then you write a sudden string of memos right after the employee makes a complaint, the jury will construe a case of discrimination.
7. Don’t let a weak discrimination case become a strong retaliation case.  Remember that employees have a right to make complaints without retaliation.  All too often the discrimination case is thrown out but the retaliation case sticks.
8. Be fair even if you don’t have to as a matter of law.  Staying out of court – which is an HR priority is a challenge given the change in the laws, stretched budgets, and over-worked people.

The DOL’s Goals are to implement the PLAN – PREVENT – PROTECT Program designed to assure that employers regulated by the DOL take responsibility for employment law compliance as Congress requires.

The Regulations will require:

• PLAN – Require employers to prepare a written plan for identifying and remediating risks of legal violations (for example: explain why certain workers are classified as independent contractors)
• PREVENT - Require employers to implement the plan in a manner that prevents legal violations and risks to workers.
• PROTECT - Requires employers to ensure that the plan’s objectives are met – for example: implement a misclassification initiative, including working with the IRS and state labor agencies to target employers who are not classifying workers properly.

What should a company do? – the answer is:  AUDIT – AUDIT – AUDIT!!

It’s back to basics.  Attorneys Gray and Joseph suggest that you look closely at the following areas:

• Exempt/Non-Exempt classifications
• Independent Contractor Classifications
• Improper Deductions/Docking
• Recordkeeping
• Posters
• Paying for all “Work” – Bonuses Calculated in Overtime, Travel Time, Waiting Time/On-Call, Working off-the-clock, etc.

The DOL isn’t the only source of challenges – the IRS is also mobilizing to combat misclassification with a National Research Program that will target 6,000 businesses. Targets will be selected at random and will cover five employment tax-related issues:

• Worker Misclassification
• Fringe Benefits
• Non-Filers
• Officers’ Compensation
• Employee Expense Reimbursements

Types of Termination:

Voluntary:  written resignations, job abandonment, extended absences without proper notification, retirement, refusal of a transfer after job elimination, failure to report for light duty, failure to report status during a leave of absence, and failure to return after leave of absence.

Involuntary:  Permanent layoffs, discharge for cause, death, disability

Policies:

Severance Pay: What are your guidelines (how many years of service to obtain certain levels of severance)? Are there any situations where severance will not be granted?

Unemployment compensation: Do you have required procedures or paperwork?

Sick Leave/Vacation Pay/PTO: Does a terminating employee receive pay in lieu of unused time?

Health/Life Insurance:  When does insurance terminate? What opportunities exist to continue coverage? How about COBRA coverage?

Compensation: What rules govern final paychecks? What will be the status of bonus payments and commissions? Stock options, etc.?

Repayment of Debt: What provisions will cover repayment of loans or advances or other outstanding debts?

Perqs: What policies govern the return or purchase of company cars? What will happen with club or gym memberships?

Dismissal Procedures and Responsibilities: Who makes the final decisions about terminations? Who must approve? Who must be notified, when and how?

Company Property: Whose responsibility will it be to ensure that the employee returns all company property, drawings, tools, reference data, uniforms, ID cards, credit cards, keys, etc? Computers, BlackBerry, and other electronic equipment?

Reference Letters: What will the policy be with respect to letters of reference?

Exit/Termination Interview: Will you require exit interviews? Who will conduct them? 

6.  Uninformed Supervisors. You must train your supervisors and update them on your policies and relevant workplace laws and do that before you distribute new policies to employees.

7.  Uninformed Managers. The same goes for your managers, only more so!  If managers resist HR Training, Janus says a powerful motivator is telling them that, in some cases, a court may find them individually responsible if a lawsuit ensues.  And in every case, causing enormous liability for the company is not usually a good career move.

8. Incorrect Exempt/Non-Exempt Decisions. It is imperative that everyone with compensation responsibilities be trained in the requirements of the FLSA – Fair Labor Standards Act on this issue.  And, warns Janus, “The longer unlawful overtime exemption situations exist, the more expensive they become.”

9. Docking Employees Illegally. Legal ways of reducing employees’ pay for disciplinary reasons are very limited, so managers are advised to consult with HR before taking this step.  Janus notes that “substantial penalties apply” for illegal docking.

10.  Illegal Reduction in Overtime Rate. Some workers “make deals” with their employers to work overtime at less than the required rate.  This is illegal, warns Janus.  “Employees cannot waive their right to overtime.”

- HR Daily Advisor

1.       Unlawful Pre-Employment Questions. It is imperative that you only ask questions you are allowed to ask during an interview and that you treat all applicants equally.  Janus suggests: “Standardize the application and interview process, keep questions objective and focused on job requirements and on the skill sets needed to perform those requirements.  Laws such as the federal Americans with Disabilities Act make it imperative that you do just that

2.       Dishonest Evaluations. Sometimes, managers just want to be liked or to be nice and so they “sugarcoat” base performances on reviews.  Then, when the inevitable happens and a termination occurs, the ex-employee uses that paper trail in court to press a wrongful termination suit.  Janus suggests relying on objective criteria, noting plainly when standards are not met, and avoiding personal comments.

3.       Rash Disciplinary Decisions. Employers sometimes react out of emotion in taking disciplinary measures…a recipe for trouble.  Janus says do a thorough investigation. Review employees’ file, gather proof that they received a copy of the policy violated, and provide a chance to tell their side of the story.

4.       Termination Errors. Firing an employee is something most employers just want to get over with, but Janus calls for a careful review process, including making sure there were no written or oral promises of continued employment.  He recommends a structured termination meeting from prepared notes. Clarify the logistics of termination” he says, “and don’t apologize or talk about other people.”

5.       Uninformed Medical Request Decisions. Because medical leave falls into what he calls the “Bermuda Triangle” of FMLA, ADA, and Worker’s Compensation, Janus tells managers to thoroughly consult with HR before replying to leave requests.

- HR Daily Advisor

A couple of recent court rulings show that comments made about or to an employee under a protected class can be used in discrimination suits even if they weren’t made directly to the employee.

In Reid v Google, Inc. the plaintiff, Reid, age 52 sued for age discrimination based on comments made about him.

His supervisor was overheard referring to him as “fuzzy, obsolete, too old to matter, slow, sluggish and lacked energy”.

His co-workers referred to him as “the old guy, an old fuddy-duddy,” and joked that his name plate, in the shape of a CD should be changed to an LP.

Reid sued.  Google claimed protection under the “stray remarks rule” basically stating the comments were taken out of context and said amongst other employees, not directly to Reid.

The California Supreme Court rejected the defense that would have excluded certain comments under the rule.

This decision now makes it potentially more difficult for cases to be dismissed on summary judgment.

So, seemingly harmless remarks must be taken seriously especially if a potential protected class is involved.  Employees needs to be aware that anything they say about another employee, either directly or indirectly that comments on their age, sex, race, religion, pregnancy, sexual orientation, etc, can be used against the company in discrimination law suits.  No longer is it just what is said by management directly to an employee that could get you in trouble, but anything said about an employee by anyone in the company even in a joking manner.

Source:  Employer Resource Institute

The U.S. Department of Labor (“DOL”) recently announced dramatic changes it will implement during 2011 to ensure employers are in compliance with Federal laws covering Wage and Hour, Safety and Anti-Discrimination.

The regulations are in the final stages of being written, but are expected to be implemented Spring 2011

One of the most important areas that these new regulations will affect is Wage and Hour compliance.  In an effort to eliminate what the DOL has termed “The Underground Economy”, new legislation will target employers who misclassify employees as “exempt” when they do not meet the standards set by the DLSE, thereby denying employees overtime  pay and “Independent Contractors” or “1099′s” as a way of avoiding payroll taxes and taxes on wages paid by the “employee”.

“Plan, Prevent, Protect”, or P3, will require all employers to create plans and processes that assess and demonstrate compliance with federal laws.

Plan: The development of the plans will require employers to work with employees in setting up plans and processes to determine proper classification of employees.  Most important in this new legislation is that the employees will monitor the employers’ compliance.

Prevent: This will require employers to implement the plans and demonstrate to the employees that the plans are actually in use.

Protect: Employers will be required to designate certain employees to be in charge of implementing the plans and evaluating their effectiveness.

Exempt employees:  The new regulations require each employee classified as exempt to work with management to analyze their own classification and determine, using the Secretary of the Treasury’s standards, that they in fact meet the exemption status requirements.

Independent Contractors:  The regulations require each worker classified as an Independent Contractor to work with management to analyze their classification and determine, using the Secretary of the Treasury’s standards, that they in fact meet the requirements of an Independent Contractor, (e.g.:  do they hold a business license, do they carry their own Workers’ Comp. insurance?).  The employer will face additional penalties when workers are misclassified as Independent Contractors since not only does this status deny the government revenue from payroll taxes, it denies workers employment law protections to which they are entitled to.

Each analysis must be documented to support or not the classification.  If a worker’s classification is determined to not meet the standards, it is the responsibility of the employer to make the appropriate changes.  The results of each analysis must be compiled as an audit of Employee Classifications and distributed to all employees.  Workers must then advise management if they agree with the classifications.  Each case of disagreement on the classifications must be reviewed and documented again with exact reasoning for the determination.  The results must also be provided to the Wage and Hour enforcement division upon request.

The designated employees will continue to monitor and assess classification practices and must document anytime an employer knowingly misclassifies a worker.

There can be no retaliation to a worker who disputes their classification, the findings of the audits or participates in documentation of violations.

The DOL is taking the stand that employers have ignored repeated warnings about worker classification and are now allowing for the employees to determine if they in fact meet the qualifications of their classification.  It further requires that the employees monitor the employer’s practices and document all violations.

Employers should be aware that it’s not a matter of if, but when the Wage and Hour division will request these audits.  Millions of dollars have been earmarked specifically for the enforcement of this new legislation and a large workforce of attorneys has been hired to review each audit.  The amount of revenue they expect to receive in penalties and fines they will be assessing employers far exceeds the cost to implement this program.