All businesses have as one of their primary goals for developing HR policies to avoid employment lawsuits. One way to prevent these claims is by following strong HR procedures. Following well documented procedures can not only prevent many claims, but if a lawsuit is filed can provide a company with the means to defend the company against said claims. Therefore, it is a best practice to audit your HR policies and procedures periodically to make sure they are achieving this objective. A thorough HR audit looks at everything from recruiting and hiring, to performance management, training, and employee termination practices. Here are four areas which if covered correctly can reduce a company’s exposure to claims:

1. Incomplete employee files. In the event of an employee claim, your first line of defense is an accurate and complete employee file. This includes all hiring paperwork, including W-4 and I-9 forms up-to-date, and properly signed. When working with smaller businesses, we find many of their employee files lack employee performance documentation. I'm not just talking about missing performance reviews, but no records whatsoever of conversations with an employee about their performance (good or bad). This is a big source of exposure to liability that can easily be cured.

2. Flawed time records. Unpaid overtime is one of the more common claims filed by employees against their employers. Having accurate and objective time worked records is your primary line of defense against these claims. We recommend having all your nonexempt employees’ clock-in using a biometric system which is easily available today. Additionally, ensure time-keeping policies and procedures are clearly communicated and consistently administered to avoid claims of discrimination.

3. Misclassified employees. Confusing wage and hour laws can make it difficult to correctly determine whether an employee is truly an employee or an independent contractor, and whether they should be classified as exempt or non-exempt for overtime eligibility. Often it requires legal counsel to look at the pay they receive and duties they perform to properly classify, and many small companies with little HR experience lack the expertise to make the determination or the funds to hire competent legal counsel for advice. This leaves many small businesses exposed.

4. Incomplete or outdated policies and procedures. An HR audit would not be complete without a thorough revision of a company's employee handbook, legally required postings and notices, insurance policy documentation and coverages, and any other standard operating procedures (SOPs) employees are expected to follow during the normal course of their employment. Think how to request PTO, payroll policies, etc.

These four risk areas are not the only issues that an HR audit should cover, but certainly getting them right can eliminate some exposure to employee claims. When was the last time your organization conducted a comprehensive HR audit?