A New Year, A Fresh Start: How to Conduct an HR Audit to Identify Risks and Opportunities

The start of a new year is the perfect time to step back and take a clear look at your HR practices. Whether you’re leading a growing team, navigating constantly changing employment laws, or aiming for more than just basic compliance, a thorough HR review can uncover both risks and opportunities that shape a stronger year ahead.

HR touches every part of your business - and small issues can turn into big problems if they go unnoticed.

Why an HR Audit Matters More Than Ever

HR is one of the most complex and high-risk areas of any organization because employment laws continue to evolve at the local, state, and federal levels. An audit becomes especially important when:

• Your business is growing
  As teams expand and responsibilities get delegated, gaps in documentation, processes, or oversight can easily appear.

  Your HR team is stretched thin
  A solo HR professional managing compliance, engagement, and day-to-day operations rarely has the time to step back and audit systems thoroughly.

  You have new HR leadership
  A new HR lead needs a full picture of existing policies, practices, and risk areas to move forward confidently.

  You want proactive risk management
  Even leaders comfortable with some level of risk want to understand where vulnerabilities exist so they can make informed decisions.

  You want HR to be strategic, not just compliant
  If your goal is stronger engagement, better retention, or organizational development, an audit is the the foundation for progress.

Step-by-Step Guide to Conducting an HR Audit

1. Review Employee Documentation
   Start with foundational documents like I-9s, W-4s, and offer letters. Ensure all required forms are completed, up to date, and stored securely. Look for:

   • Missing or expired I-9s.

   • Incorrect employee classifications (e.g., exempt vs. non-exempt).

   • Inconsistent or outdated offer letters.

2. Evaluate Policies and Procedures
   Policies are living documents that should reflect current laws and your company’s culture. Review:

   • Employee handbooks for compliance with federal, state, and local laws.

   • Time-off policies, including sick leave, PTO, and holiday schedules.

   • Anti-harassment, discrimination, and workplace safety policies.

3. Audit Payroll and Compensation Practices
   Pay-related issues are among the most common sources of HR-related lawsuits. Ensure:

   • Overtime pay complies with wage laws.

   • Salaries are aligned with current market benchmarks and equitable across roles.

   • Payroll records are accurate and compliant with legal retention requirements.

4. Check Benefits and Compliance
   Benefits administration can be a complex area. Confirm that:

   • Health insurance offerings comply with the Affordable Care Act (ACA).

   • Retirement plans meet ERISA requirements.

   • COBRA notices have been provided as needed.

5. Assess Employee Engagement and Retention
   Beyond compliance, assess the health of your workplace culture. Use surveys, stay interviews, and performance reviews to identify areas for improvement.

6. Evaluate HR Technology and Processes
   Technology can streamline HR functions, but outdated systems or inconsistent processes can create risks. Check:

   • Whether your HRIS is fully utilized.

   • Integration of payroll, benefits, and performance management tools.

   • Employee data privacy and security protocols.

Where the HR MRI Assessment® Comes In

Knowing you should do an HR audit and knowing where to start are two different things. That’s why SevenStar HR offers our complimentary HR MRI Assessment®.

Think of it as a diagnostic scan for your HR function.

The HR MRI Assessment® helps identify hidden risks and gaps across areas like:

• Compliance and documentation

• Payroll practices

• Benefits administration

• HR processes and policies

Instead of guessing or working from a generic checklist, you get clear insight into where your organization is strong and where attention is needed - so you can prioritize improvements with confidence.

Build a Stronger Foundation for the Year Ahead

An annual HR review is a great way to protect your business, support your people, and create systems that allow your organization to grow with confidence.

Starting the year with a clear picture of your HR health puts you in control instead of reacting to problems later.

Ready to see how your HR practices measure up? Start with SevenStar HR’s free HR MRI Assessment® and get the clarity you need to move forward with confidence.

Your people practices are the foundation of your success - make sure they’re built to support the year ahead.