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Employment practices audit — getting up close and personal with your employment risk

July 10, 2014

proctologistMost people would prefer to volunteer for a colonoscopy than an audit. But, just like the invasive medical examination that identifies potential problems before it’s too late, an employment practices audit is one of the most cost effective way to proactively manage your employment risks — and perhaps save yourself a bundle in the bargain.

In an employment practices audit, a knowledgeable outsider comes to you, to shine a bright light into the dark recesses of your employment practices. Your policies, procedures, handbooks, and posters — and most important of all, your company’s actions — to make sure you are complying with the law and limiting to the extent possible the risks of a claim from an employee. Or a class of them.

What does it involve? Well, every employer is different, and so is every auditor. But in general, an effective audit will include:

  • A face-to-face meeting. The best audits start with a one on one meeting with the auditor. He or she will want to know a lot of information about your company and its employees. Only an auditor that really knows your mission, your values, your plans, and the day-to-day workings of your business will be able to properly advise you on what your risks are and how to address them.
  • A lot of reading. The auditor will need to find out what records and other written material you generate in connection with the business. Policy manuals and employee handbooks are important, but so too are job descriptions, performance reviews, payroll records, medical files, personnel files, employment applications, and on and on and on. All of these need to be evaluated for legal compliance and maintained in the appropriate place and for the appropriate time.
  • Analysis and mitigation of discrimination/EEO risk. The auditor will review your policies and practices to root out potential discrimination risks. Most companies get the basics right in the handbooks, but not all. Far fewer, however, walk the walk. Do supervisors know all of the legally protected classes? What to do if a complaint gets filed? How to perform a proper investigation? Do performance reviews or other documents show a culture of “go along to get along”? These and other issues should be analyzed by the auditor, who can also provide tips on fixing problems that come to light during the audit.
  • Review of payroll policies and practices. The auditor will also examine payroll policies and records to ensure compliance with federal and state laws concerning overtime. Are meal and rest breaks being given at the appropriate time? Are employees properly classified as exempt or non-exempt (an especially tricky issue in California)? Are paychecks being issued with the proper information, at the proper time? An audit should bring to light any potential issues lurking in your payroll policies.
  • Evaluation of policies regarding leaves of absence, medical leave, and pregnancy. The auditor will review procedures and practices relating to FMLA and its state analog CFRA, California’s challenging pregnancy disability leave law and other leaves to ensure compliance with applicable laws and no hidden discrimination red flags.
  • Any other relevant practices or employment issues. The auditor, armed with knowledge of your business and aspirations, should evaluate any other potential problems that might be hiding, including for instance independent contractor issues, OSHA and other workplace safety concerns, employee privacy, etc.
  • A written report card and follow up conferences as needed. A good auditor will prepare a written evaluation or report card at the end of the audit, with a concise identification of problems and concrete proposals to solve them.

A good employment practices audit will take some time to complete, but it shouldn’t take more than a week, at most two. It will take attention from the CEO level all the way through the ranks. Yes, devoting the time to properly do the job can be an inconvenient if temporary diversion from your business. And yes, it’s going to cost some money (check with your EPLI carrier though — some provide premium credits or other financial incentives to do an audit).

But compared to the financial exposure you’ll face when you find out, inevitably after the fact, that you’ve been doing it wrong for the past four years, the expense is well worth incurring.

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