Human resource audits are a vital means of avoiding legal and regulatory liability that may arise from an organization's HR policies and practices. In addition to identifying areas of legal risk, audits are often designed to provide a company with information about the competitiveness of its HR strategies by looking at the best practices of other employers in its industry. In essence, an HR audit involves identifying issues and finding solutions to problems before they become unmanageable. It is an opportunity to assess what an organization is doing right, as well as how things might be done differently, more efficiently or at a reduced cost.

In today's competitive climate, organizations operate within the confines of a heavily regulated employee environment. This challenge includes dealing with myriad complex laws and regulations. The scope of the HR function includes establishing and administering a host of policies and practices—many of which involve compliance implications—that significantly influence the productivity and profitability of the enterprise.

Given that many HR departments are both understaffed and overworked, only in retrospect do many organizations become aware of the monetary costs of ignoring HR-related legal hot buttons. Noncompliance with applicable laws and regulations involves significant financial risk. To minimize the risk, many organizations purchase employment practices liability insurance. Though this is a sound strategy, organizations can take other proactive measures. Chief among these is a voluntary HR compliance audit.