Can You Afford NOT to Have a Human Resources Audit?
In today’s business environment, you are not alone in looking for ways to reduce costs, increase
efficiencies, and find real value. Unfortunately, compliance and training initiatives are sometimes seen
as a luxury that can be trimmed back—or eliminated entirely—during tough times. In reality, effective
compliance initiatives can reduce costs, protect your organization’s brand and reputation, and help
avoid potentially crippling legal liability.
During an economic downturn, the propensity for legal liability tied to workplace compliance issues
actually escalates. As unemployment rises and remains high, so does employment law litigation. In fact,
the unemployment rate accounts for approximately 95 percent of the variance in the number of claims
filed. A Stanford University study confirms that every 1.5 percent increase in unemployment drives a
corresponding 21 percent increase in employment lawsuit filings.1 Accordingly, employment litigation
collections and enforcement are at an all-time high, as shown below:
Employment Claim Type
Median Award
Average Award
Discrimination*
$198,322
$600,690
Retaliation*
$200,000
$722,179
Wrongful Termination*
$259,975
$789,184
Whistleblowers*
$210,000
$715,045
Wage & Hour**
$1,600,000
$4,600,000
“Employment Practice Liability: Jury Award Trends and Statistics.” 2011 Edition, Jury Verdict
Research (2004-2010 data)
** “Trends in Wage and Hour Settlements: 2011 Update.” NERA Economic Consulting
Poor records management can reduce profits and expose your business to compliance actions and legal
liability. The liability exposure can be enormous and can literally destroy a business; just consider these
simple examples:
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A subcontractor that gets reclassified as an employee can expose you to federal and state tax
liabilities that may go back years, as well as workers' compensation liability, for both injuries and
premiums. Additionally, there can be added monies due to the employee in order to bring the
company into compliance with wage & hour law.
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Each missing I-9 can cost you $1,000, and may also expose you to civil and criminal liability.
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Exempt to non-exempt reclassification can cost you tens of thousands of dollars in overtime
going back years.
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Undocumented meal periods can result in penalties for multiple years, for every employee.
Remember, all it takes is one claim with the Department of Labor, Equal Employment Opportunity
Commission, or other enforcement agency, and all your employee files may be open to scrutiny.
1
Donohue, John, and Siegelman, Peter. “The Changing Nature of Employment Discrimination Litigation.” Stanford
Law Review 43 (1991): 983.
Even when legal issues do not arise, common employment-related mistakes result in costs to the
organization in terms of lost productivity, efficiency, effectiveness, sales and revenues, and decreased
profitability. To help avoid expensive employment litigation, to put your mind at ease, and to protect
your company’s hard-earned assets, employers should periodically audit their employment legal
compliance with an experienced employment attorney.
An HR, human resources, audit is a comprehensive review of your employment files, reports, processes
and records to minimize risk of penalties or fines. HR audits shed light on departmental processes and
procedures to makes it easier to determine compliance with employment laws and to make wellinformed decisions on behalf of the company and its workforce.
An HR audit can reveal whether you are in compliance with the Fair Labor Standards Act and other
employment laws, such as Title VII of the Civil Rights Act of 1964. An HR audit can also reveal whether
your workplace policies and procedures are up-to-date and consistent with labor and employment laws.
Auditing HR processes can also show whether a company is operating as efficiently as possible. An HR
audit for due diligence inspection can facilitate a seamless transition for employment processes during
mergers and acquisitions.
Still not sure if your company needs an HR audit?
Does your company:
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Know what its turnover rate and how much it is costing your company?
Perceive HR as a critical, profitable strategic function and support it as such?
Train supervisory personnel regarding: Equal Employment Opportunity, Harassment (Sexual,
Racial, Religious, etc.), Corrective Counseling and Documentation, and Basic Management Skills?
Have written HR policies and procedures for: Employment, Compensation and Benefits,
Employee/Labor Relations, Safety and Health, HR Administrative Practices, Counseling and
Termination, Training and Development, HR Information System(s)?
Have EEO and anti-harassment policies that the EEOC will agree meet their requirements?
Take appropriate measures to prevent and address harassment and discrimination?
Have a certified written affirmative action program if required?
Distribute policies/procedures in handbook form to all employees? And can prove it?
Have an employee handbook that includes all of the newly required policies; for example,
setting forth your commitment to comply with the Fair Labor Standards Act?
Know what to do in the event a charge of discrimination is filed?
Currently maintain practices and filing data required by Title VII of the Civil Rights Act of 1964,
Section 709(c)?
Know if drug and alcohol use is considered a disability under ADA?
Know if IRCA affects you? Correctly complete both parts 1 and 2 on the Form 1-9 for U.S. citizens
and non-citizens in a timely manner?
Know if you are required to provide employee leave under the Federal Family Medical Leave Act
(FMLA)? Know if Mississippi requires it
Keep appropriate safety records and filing the required OSHA reports?
Conducted the 20-Factor test to see if "independent contractors" qualify as such and are not
really employees? Will the IRS agree with your conclusion?
Know if the employment agreements you have are legally valid and binding?
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Comply with federal and state laws governing background checks for new hires?
Comply with Mississippi’s drug-and-alcohol testing statute?
Correctly classify employees as “exempt” under wage and hours laws?
Pay non-exempt employees all required overtime; for example, for “on-call” and travel time?
Pay the correct amount of overtime to its non-exempt employees; for example, on quarterly or
annual bonus amounts?
Follow disability-leave rules to accommodate an employee’s mental or physical impairment?
Properly maintain employee personnel records for the required length of time?
Use a discipline process that will reduce legal risk of a wrongful discharge lawsuit?
Have employment agreements that include appropriate termination provisions and are drafted
to protect the company’s interests?
Have non-competition agreements drafted to comply with applicable state law?
Know what to do if a government investigator appears at your door?
If the answer to any of these questions is “no,” “probably not,” or “I don’t know,” you should consider
obtaining an HR compliance audit from your employment attorney under the auspices of the
attorney/client privilege. (This helps protect the information from later use against the company.)
Despite the old saying, ignorance is NOT bliss when it comes to a non-compliance violation of any of the
employment laws. All of the laws presume the employer knows what its compliance requirements are
and is in compliance with those requirements.
A proactive approach to labor and employment law compliance can provide you with critical legal
defenses against harassment claims, can reduce or eliminate punitive damages in discrimination claims,
can reduce damages in wage and hour claims, and reduce up to 95 percent of fines and penalties for
violations of federal law2.
Wells, Marble & Hurst’s employment attorneys can guide you through the employment law maze of
confusion and compliance. The attorneys in Wells, Marble & Hurst’s Employment & Labor Law Group
provide knowledge and expertise that can help you uncover areas of legal exposure and eliminate areas
of concern. Investing in an HR audit now could save your company thousands of dollars in the future.
Wells, Marble & Hurst’s employment attorneys offer various types of audits from the most basic, highlevel review (which may take only a few hours) to an in-depth analysis of practices, documents, and
compliance mechanisms. If you would like more information regarding our audit services, or have
questions about labor and employment law, please contact:
CRISTINA GUERRERO
Wells, Marble & Hurst, PLLC
cguerrero@wellsmar.com
601-605-6900
2
Under the Federal Sentencing Guidelines, both public and private organizations can avoid up to 95 percent of
potential fines and penalties assessed for violation of federal laws—including laws like the Foreign Corrupt
Practices Act and the Dodd-Frank Act—if those employers can show that they had in place an effective ethics and
compliance program.
3