Workforce compliance is crucial to maintaining a thriving business. It’s the foundation that enables your employees to work confidently, engage customers and partners the right way, and make decisions that grow your business.
So, how do you measure compliance?
In an ever-evolving landscape of regulations and legal requirements, there’s more need than ever to keep a close eye on compliance.
The way to do this is with regular compliance audits.
Don’t worry; a “compliance audit” isn’t always as serious as it sounds. And the benefits of regular audits are worth it.
This guide will walk you through the essentials of workforce compliance audits.
By the end, you’ll have a comprehensive understanding of when and how to conduct a compliance audit, and how to use what you learn to build trust in your team.
Table of Contents
- What is a workforce compliance audit?
- The three types of compliance audits
- The benefits of regular compliance audits
- How to complete a compliance audit
- Tips to improve compliance and sail through your next audit
- There’s no time like the present to prepare for your next compliance audit
What is a workforce compliance audit?
A workforce compliance audit is a systematic review of your adherence to requirements that govern the employee-employer relationship.
This includes everything from labor laws and wage regulations to health and safety standards, employee data handling and ethical practices.
A good audit involves a thorough review of documentation, interviews with key personnel, and, potentially, on-site inspections.
Quick side note: This guide only examines workforce compliance audits. There are other types of compliance audits, including dreaded tax audits, SOC 2 compliance audits, product and process audits, ESG (environmental, social and governance) audits and many more. Which type you need depends on your operations and industry, and the specific regulations that apply.
What gets audited?
The answer to this all-important question depends on your workforce compliance strategy.
An audit will either examine a specific aspect of your operations to ensure your company complies with relevant legislation, or evaluate the overarching compliance management system.
There are several types of workforce compliance audits:
- Labor law compliance audit: Ensures adherence to wage and hour laws like FLSA, overtime rules, and employee classification regulations.
- Health and safety compliance audit: Focuses on compliance with workplace health and safety standards.
- Data protection and privacy audit: Reviews practices related to the handling of employee data, ensuring compliance with GDPR, HIPAA, and other data protection laws.
- Tax compliance audit: Verifies you’re withholding, paying and reporting employee taxes correctly and adhering to applicable tax codes.
- IT security compliance audit: Ensures your organization’s IT systems comply with cybersecurity regulations and standards, safeguarding sensitive information.
The three types of compliance audits
1. Internal
Internal compliance audits offer a proactive approach to identify potential non-compliance issues before they escalate.
They’re usually conducted by compliance officers. If you haven’t appointed dedicated compliance officers, HR leadership is your next port of call.
2. External
External compliance audits provide an objective assessment of your operations, controls, policies and processes. An independent third-party auditor will conduct the audit and provide a report.
Depending on your compliance requirements, this might be useful for regulators, certification bodies, partners, clients, financers, or shareholders.
3. Regulatory
Regulatory compliance audits are most often triggered by complaints, suspicions of non-compliance, or as part of routine oversight.
Government agencies or industry regulators (or their appointed auditors) will review your operations to assess whether there is cause for concern.
Regulatory audits can be daunting. But if you have a robust compliance management system, there’s no need to worry.
The benefits of regular compliance audits
Workforce compliance audits are essential for understanding whether your compliance management system and/or specific compliance strategies are working.
They’re not simply tick-box exercises. Compliance is an ongoing and ever-changing challenge. Audits provide crucial data and insights to help you stay compliant in this environment.
Identify risks
By systematically reviewing processes, policies and employee behavior, audits can uncover vulnerabilities you may not see in day-to-day operations.
They also highlight issues arising from new initiatives, such as remote employee compliance or potential data security violations.
This early identification enables your team to take corrective action before potential non-compliance risks become significant issues.
Continuously improve
Audits aren’t just about finding problems. They’re also about discovering opportunities to improve.
Regular compliance audits provide a structured way to evaluate and refine your compliance strategy. They help your team stay up-to-date with evolving regulations and industry best practices, ensuring that compliance efforts are continually improving.
Enhance operational efficiency
Inefficiencies in workflows and procedures often come to light through the audit process.
For example, an audit might reveal redundant steps in compliance processes or outdated practices that no longer meet regulatory standards.
By addressing these inefficiencies, you can streamline operations, reduce compliance costs and improve overall productivity.
Build trust
Some compliance audits are required for doing business. For example, SOC 2 compliance has become the de facto standard for service organizations in the US, despite being a voluntary standard.
When your organization is proactive about auditing its compliance efforts, it sends a clear message: we value ethical practices and are dedicated to maintaining high standards.
Employees – not to mention partners, suppliers and funders – will hear that message loud and clear. Compliance audits are one of the most effective ways to demonstrate accountability and transparency.
Prevent compliance fatigue
It’s easy for employees and management to become overwhelmed by the sheer volume of compliance requirements. That’s especially true in complex regulatory environments like healthcare, finance and knowledge process outsourcing (KPO).
Regular audits help to manage this burden. They break down compliance into manageable, actionable steps. This prevents compliance fatigue and ensures that compliance measures are consistent across the organization.
Gather essential evidence
One recent survey by a GDPR watchdog found that one-third of senior leaders (32.3%) could be pressuring managers to limit GDPR compliance.
This isn’t a category you want to be counted in. GDPR non-compliance can attract fines of €10 million or 2% of global revenue.
A workforce compliance audit provides documented evidence of your organization’s efforts to do the right thing. This documentation is critical if you’re tapped for an external audit or subject to regulatory scrutiny.
Support strategic decision-making
The insights gained from compliance audits can inform broader strategic decisions. For instance, if an audit reveals a recurring compliance issue in a particular department or region, you can allocate resources or adjust strategies to help managers address the underlying causes.
This data-driven approach helps your organization’s leaders make informed decisions that align with both compliance goals and business objectives.
According to Gallup’s research, it’s also essential for building trust within teams. Around one in five US employees (21%) trusted their organization’s leadership, with clear evidence that leaders who dropped the ball on change management communication damaged their reputation.
Avoid penalties
One of the most direct benefits of compliance audits is preventing legal and financial penalties.
Non-compliance can result in hefty fines, lawsuits, and costly legal actions. There are several risks here:
- Mishandling sensitive data can attract financial penalties under data privacy laws
- Failure to report a compliance issue leads to fines and legal action
- Mistreated employees can launch legal action and damage your employer brand
Regulators are coming down hard on compliance. Penalties are increasingly frequent and severe. Just ask the 500+ UK companies penalized in a wage scandal that affected 172,000 employees, or the companies paying billions in GDPR fines.
Promote a culture of compliance
When employees know their actions are subject to regular review, they’re more likely to take compliance seriously. Plus, if they have the tools to monitor their own compliance, they’re more likely to self-correct bad behavior and hold teammates accountable.
This is one reason that 95% of compliance professionals are shifting focus from single-point compliance strategies to fostering a culture of compliance in their organization, according to Accenture’s latest research.
Increasing the visibility of compliance and communicating the benefits of best practices will bring your team onto the same page.
How to complete a compliance audit
Every compliance audit looks different.
Some are short and sharp, evaluating isolated issues or checking single processes. Others take months or even years, depending on the scale and severity of the findings.
However, almost all compliance audits follow the same process. That’s because workplace compliance is ongoing, ever-evolving and strategically important.
Step 1: Planning and preparation
Define the scope of the audit, identify relevant regulations, and gather necessary documentation.
Step 2: Risk assessment
Identify areas of potential non-compliance and prioritize them based on the level of risk they pose to the organization.
Step 3: Review and testing
Conduct a thorough review of policies, procedures, and practices. Test for compliance by examining records, interviewing employees, and inspecting operational processes.
Step 4: Reporting and documentation
Compile the findings into a report outlining compliance and non-compliance areas, along with recommendations for corrective action.
Step 5: Follow-up
Implement corrective measures and schedule follow-up audits to ensure continuous compliance.
Tips to improve compliance and sail through your next audit
Workforce compliance audits don’t need to be daunting tasks. With effective management, the right technology and thorough preparation, an audit can be a valuable tool for improving your organization’s operations.
Here are some tips to help you navigate the audit process.
Follow a compliance framework
Develop a comprehensive compliance management system (CMS) that outlines your organization’s policies, procedures, and controls.
Compliance audits support this CMS. In turn, the CMS supports broader organizational goals.
Document everything
Maintain detailed documentation of your compliance efforts, including policies, procedures, training records and audit results.
The trickiest part here is documenting employee performance and actions without contravening data privacy laws. Using a GDPR and ISO 20017-compliant workforce analytics platform like Time Doctor ensures you have detailed, verifiable records to support an audit.
Leverage technology
Compliance management software is a specialized tool that helps large and growing organizations centralize important information and streamline compliance audits.
There are many tools out there. Trial a few to see whether they can help you get a handle on compliance management.
On a day-to-day basis, Time Doctor provides the essential data you need for a thorough, insightful and accurate audit.
- Accurate time tracking features help you ensure compliance with labor regulations and prevent time theft
- Employee activity insights help you monitor adherence to company policies
- Internet usage reports highlight potential compliance risks and non-compliant behavior
- Unusual Activity Reports (UAR) highlight suspicious and potentially non-compliant behavior, such as mouse jigglers and errant keyboard usage
You can even monitor compliance in real time and integrate data from 60+ business tools to gain a complete picture of compliance.
Train your teams
Make sure your employees are aware of compliance requirements and the importance of compliance-focused initiatives like time tracking.
Regular, tailored compliance training helps to refresh their knowledge and reinforce compliance as an organizational priority.
Maintain secure systems
Prevention is better than the cure when it comes to workforce compliance.
Ensure that all employee data is handled securely and in compliance with data protection regulations. Data security is highly scrutinized during an audit. Having robust safeguards in place is essential.
Time Doctor ensures that all time-tracking data is stored securely, in compliance with data protection standards like GDPR, HIPAA and ISO 27001.
By using Time Doctor, you can demonstrate to auditors that your organization prioritizes data security and has implemented measures to protect sensitive information.
Schedule compliance reviews
Schedule compliance reviews and audits as part of ongoing operations, even if they’re not mandated.
This helps to ensure that compliance remains a priority. It also helps you catch potential issues before they become problematic.
Compliance reviews don’t need to hold up operations. Time Doctor’s reporting and monitoring tools make it easy to set up regular reports, so you can keep track of key compliance metrics.
There’s no time like the present to prepare for your next compliance audit
Workforce compliance is non-negotiable for modern businesses. Thankfully, it’s also much easier to monitor with Time Doctor.
Time Doctor’s comprehensive workforce analytics not only help you maintain accurate records but also provide the insights needed to address compliance issues proactively.
Explore Time Doctor with a free demo below.
Liam Martin is a serial entrepreneur, co-founder of Time Doctor, Staff.com, and the Running Remote Conference, and author of the Wall Street Journal bestseller, “Running Remote.” He advocates for remote work and helps businesses optimize their remote teams.