What is HR audit? It is a detailed examination of policies, procedures, documentation and the entire human resources system with the aim of identifying areas that can be improved. In work with clients, it often turns out that many companies function in a way “we’ve always done it this way”, without systematic checking whether their HR practices are still effective or aligned with changed laws and business needs.
In practice, this means that the same patterns, rules and procedures are used for years, although in the meantime work models, employee expectations and the legal framework have changed. In one smaller company, for example, the HR audit showed that the rules do not cover remote work at all, although most employees worked outside the office, which created legal and organizational uncertainty.
The human resources audit process usually includes interviews with employees, managers, C-level and key stakeholders to gain a complete insight into the actual state. It also includes a detailed review of current documentation, templates, checklists, work procedures and all other HR materials that affect the daily experience of employees.
From human potential management, hiring, onboarding, training, salaries and benefits to compliance with regulations, the HR audit covers a wide spectrum of activities that often remain invisible until they create concrete problems. The goal of the audit is not to “catch mistakes”, but to provide a realistic picture of the system and offer guidelines on how to align HR functioning with the company’s business strategy and culture.
Checklist: key points for HR audit
The HR audit is most often conducted through a structured checklist of areas that need to be analyzed. It helps to not forget anything and for the results to be comparable over time, especially if the audit becomes a regular practice.
I. Recruitment and candidate selection
From experience with small and medium companies, most do not have clearly defined recruitment tools nor a strategy that follows their business goals. The HR audit checks how your employment channels work, whether you use them at all in a strategic way, whether the employment strategies are effective in attracting quality candidates and whether the job descriptions are accurate, detailed and up-to-date.
When the recruitment process is not standardized, the result is often longer time to fill positions, more failed hires and higher selection costs. The audit can show that you do not track basic metrics such as time to hire, sources of the best candidates or reasons for offer rejections, which makes it difficult to make better decisions in the future.
II. Hiring process, onboarding and terminations
The process of introducing new employees is often the weakest link in the HR system. Clients I work with most often either have no structured onboarding at all or are concerned about prolonged onboarding that creates insecurity for new people and wastes time of the existing team.
The HR audit examines how onboarding works, whether you communicate changes to rules on time, what are the weak points in the process and how to improve them and whether there is a clear procedure for employee exit that protects both the company and the individual. In practice, it is often seen that the first employees in company scaling receive a lot of support, while later arrivals go much “thinner”, precisely because there is no standardized, documented process.
III. Policies and procedures
Policies and procedures must be written, clearly communicated and easily accessible to everyone who needs them. In work with clients, it has been shown that employees often seek information from the wrong address because they do not know where to find them or are not sure which version of the document is valid (if it exists at all).
The HR audit checks whether HR policies are aligned with business goals, whether they are implemented consistently and fairly for all employees and whether there is a difference between what “is written on paper” and what happens in practice. Precisely those differences often create a sense of injustice, favoritism or lack of transparency within the team.
IV. Compliance with applicable laws and regulations
In the complex Croatian legislation, errors in salaries, leaves or occupational safety can have serious financial and reputational consequences. What I most often hear from owners I work with is: “We didn’t know the law had changed”, which clearly shows how difficult it is to follow all regulations without systematic checking.
The HR audit checks whether all practices are aligned with labor legislation, including annual leave, sick leave, parental leave and the like, whether information about rights is available to all employees and whether occupational safety is up-to-date, with regular training and fire protection measures. In this way, the audit helps reduce the risk of inspections, fines and potential lawsuits from dissatisfied employees.
V. Employee records, data protection and storage
Employee data must be stored in a secure place with clearly defined access rules. From my experience, many companies do not have security systems in place nor know who has access to sensitive information such as salaries, evaluations or health data.
The HR audit checks whether electronic documents are password protected, who has access to personal data, whether your HRIS system works or whether it is necessary to consider introducing a digital tool for human resources management. This area is particularly important in the context of data protection and employee trust in how their information is handled.
VI. Compensation packages
Clients are often surprised when the HR audit shows that their salaries are not competitive with the market or that there are unexplained differences between employees at similar levels. As part of the audit, it checks whether compensation and benefit packages meet national standards and market conditions, whether there are pay differences by gender, disability or other criteria, whether you have a defined salary structure by positions and seniority and whether you protect investments in employee education.
Compensation packages strongly influence the perception of fairness and motivation, so the audit helps detect where people feel undervalued or neglected. Through that analysis, space opens for a more transparent salary and benefits policy that is clear to both managers and employees.
VII. Employee Handbook and Work Regulation
Employees often seek answers to questions that the Employee Handbook could solve right from the start, without the need for constant repetition of the same information. The HR audit checks whether employees use the Employee Handbook and Work Regulation at all, whether the document is available in the right places in the company, whether it needs updating or adding new information and whether all changes have been communicated to all employees.
At the same time, alignment between the Employee Handbook and Work Regulation is checked – does one say one thing and the other another, or do they send a consistent message. When these documents are aligned and alive, they become the foundation of internal communication and clear setting of expectations.
VIII. Training and development
Lack of training leads to stagnation and departure of talented people, no matter how interesting the job is on paper. In work with clients, it has been shown that training programs are often outdated, ad hoc or too dependent on individuals who no longer have time to transfer knowledge.
The HR audit checks whether current training programs meet the needs of employees and the organization, whether they follow technological, industry and economic changes and whether there are clear competency development plans. Based on the findings, new programs, mentoring schemes or more concrete roles for internal trainers can be designed.
IX. Performance management and feedback
How do you evaluate employee performance – systematically based on a model that is equal for everyone or “by feeling”? What I most often hear is: “We have a good team, but we don’t know how good work is rewarded.”, which clearly shows that a structured performance management system is missing.
The HR audit examines whether there is a performance evaluation process with defined criteria, whether the automated system works (if it exists), whether documentation is stored systematically for future reference and whether there is a career planning system without favoritism and bias. When performance management is transparent, it is easier to make decisions about development, rewards and advancement.
How is the HR audit conducted?
The HR audit can be internal or external. The internal one is conducted by the HR team or a specially formed working group, while for the external one, an external expert is engaged for objectivity and impartiality, which is often useful when the company wants an “outside mirror”.
Regardless of the approach, it is key that the audit is thorough and systematic, and not just a formal exercise to satisfy form. The process usually consists of four main steps that can be adapted to the size and specifics of the organization.
The first step is preparation, where the goals of the HR audit, focus areas are defined and the implementation team is assembled. The second step is data collection through analysis of documentation, interviews with key stakeholders and, if necessary, anonymous employee surveys to get an honest insight. The third step is analysis, in which the current state is compared with applicable laws, internal rules and best practices in the industry. Finally, the fourth step is preparing a report with concrete recommendations, priorities and deadlines for implementing improvements, so that the audit results in action, not just a document in a drawer.
From my experience, HR audit results almost always reveal at least five to ten areas for improvement that the company had not even noticed before because they developed gradually over time. Often, just a few targeted interventions are enough to feel significant improvement in the daily functioning of the team.
What is a sign you need an HR audit?
It is never too early to consider an HR audit, but there are clear signs that you should take it seriously into consideration. One of them is rapid growth – if you have grown from a few people to several dozen in a short time, and processes have remained the same as at the beginning, there is a high probability that you rely on improvisation.
The second sign is increased employee turnover or repeated departures from the same team, without a clear understanding of why it happens.
The third is the appearance of the first more serious complaints, conflicts or misunderstandings about rights, obligations and expectations, which often indicates that the rules are not clear or not applied equally.
Additional indicators are that you have recently introduced new work models, such as remote work or flexible working hours or even return to the office, or that you have brought in an internal AI expert without updating internal policies and documents.
Why is regular HR audit necessary?
The dynamic business environment requires continuous evaluation of HR practices. Changes in legislation, labor market and technology application mean that what was correct two years ago may no longer be good enough today.
What most concerns my clients is the risk of labor inspections, potential lawsuits from departed employees or loss of talented people due to non-competitive HR practices that are not adapted to current market conditions. The HR audit enables early identification of risks before they become costly problems, ensures compliance with applicable laws and reduces the possibility of fines.
In addition, the audit optimizes HR processes and saves time on daily operations, since clear procedures reduce the number of ad hoc questions and fires that need to be extinguished. Transparent and fair procedures improve engagement and employee retention, because people more clearly understand what is expected of them and what they can expect in return.
Most think that HR audit is a one-time activity, it is not, but part of regular maintenance of business health, similar to annual financial review or servicing of business vehicles. Start today structuring human resources as a real business system that supports and enables the growth of your organization, instead of relying on the sentence “We’ll figure that out along the way”.
If you recognize yourself in not having looked at your HR processes for years, it is probably just the right time now to consider the first or next HR audit.
I hope this text was useful to you, and if you have additional questions, feel free to contact me.
Andrea Čerina
HR Consultant
