Employment Practice Audit
Employment law compliance is rarely the paramount focus of most business owners. Small business owners and start-up founders are not an exception. Regrettably, there are no general exceptions to the law for small businesses and start-ups. The risks to a small or new business can be substantial as investors or buyers are keen to understand unforeseen financial risks which impact the valuation. Entrepreneurs and established businesses alike should consider whether their employment practices are putting their growth at risk by placing unnecessary financial risks on the books.
What is an Employment Practice Audit?
Like a doctor’s check-up, an Employment Practice Audit examines the company’s handbook, policies, practices, job descriptions, forms, files and work environment to evaluate whether the company is in compliance with legal requirements and whether the business is optimizing its operations and human capital.
A complete audit will review every stage of the employee cycle; including the recruiting and hiring practices, management and discipline procedures, handbooks, agreements, exit and termination requirements, and employee records maintenance. The auditor will assess some of the issues that human resource managers deal with daily, for example, (a) how does the business respond to harassment and discrimination complaints; (b) are employees classified properly under FLSA; (c) whether the business has the appropriate forms and procedures for training, evaluating, disciplining, and rewarding employees.
While an Employment Practice Audit can take various shapes and forms, the goal remains the same, to address the company’s most pressing needs and minimize legal risk. An audit can be tailored to the risks and challenges that the business is likely to face. There is no one one-size fits all audit approach.
Why conduct and Employment Practice Audit?
Simply, your management team does not have the time to undertake a time-consuming project. As employment laws continue to change, even sophisticated employers are hard-pressed to keep up to date with the changes. Without a regular check-up, companies will find that their employment agreements, pay practices, or hiring requirements may no longer meet a new legal standard.
The audit provides an opportunity to minimize the risk of fines, penalties, or lost revenue which may come from an illegal or non-effective employment practice. A well conducted audit can also proactively reduce the risks and costs of litigation by placing the employer in the best possible position to defend against allegations of wrongdoing. For companies that have experienced extreme growth, an audit is the best way to make sense of the day-to-day employment practices in their organization.
A regular audit can also minimize risk to the leaders of the company. It is not possible for a C-Suite leader to evaluate the minutia themselves but that does not absolve the leader of the duty to ensure compliance. The audit ensures that the company has taken the necessary steps to make its employment practices align with the law.
Which areas need immediate focus?
Although legislative activity at the federal level has slowed and appears in some cases to be trending in favor of employers, the laws in Illinois have changed dramatically. Smaller employers with fewer than fourteen employees need to come into compliance with the Illinois Human Rights Act (IHRA), 775 ILCS 5/1-101, et seq. Illinois employers also need to assess job applications, employment agreements, arbitration agreements, confidentiality agreements, and severance agreements for compliance with the Workplace Transparency Act, 820 ILCS 96/1-1, et seq.
Even if a full audit is not possible, due to time or cost considerations, all employers should consider at least conducting an audit of the following four areas:
- the proper classification of workers and wage and hour compliance;
- compliance with changing minimum wage, paid leave, hiring, and other requirements that have been implemented at the state or local level; and
- reporting and training on harassment and discrimination.
- legal compliance and risks associated with legalized cannabis.
Andrew Szocka, P.C. offers its clients a tailored approach. We recognize that not every business has the band-width to implement a broad audit. We offer cost effective solutions for businesses which need to ensure their key practices, policies and documents are in compliance. For those businesses which have experienced mergers, acquisitions or organic growth, a more robust audit is likely to yield a greater return on the investment. Our firm can devise a strategic plan to assess the key areas of concern, implement immediate corrective actions, and develop long term strategies for future compliance implementation.