Business Risk Management:
Employment Practices & Human Resource Audits
By: Christopher S Pobieglo, CRIS

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Successful and sophisticated businesses understand that managing the risks associated with employment practices is a key pillar of the overall risk management plan, and thus dedicate large amounts of expenses and resources to supporting a human resource department that serves as the critical control in mitigating and managing these risks.

Among the most common are claims of wrongful termination, claims involving sexual harassment, claims of discrimination, claims of wage and hour issues, and claims of invasion of privacy.  According to industry statistics, 20-30% of all claims in the nation’s courts are employment related, and 35% of private companies have experienced an employment practices claim in the last five years.

Creating a greater challenge is the reality that employers lose 70% of these court cases, with the average compensatory damages totaling more than $625,000.  Even a frivolous claim has to be defended, and thus legal expenses and other costs are incurred despite the potential there was no basis for a claim.

Obviously employment practices liability insurance is on the front line of protecting a business, but it shouldn’t be viewed as the sole remedy.  Instead, business owners should have an active and engaged human resource mechanism, whether it’s the owner in a smaller business handling some of those duties themselves, or whether it’s a dedicated human resource specialist or team.

The three most effective ideas when it comes to human resources and managing those employment practices claims, is consistency, documentation and training.  Consistent with all three of those objectives is the process of conducting an annual audit on the human resources systems themselves.

While each business should create a consistent audit process with a checklist customized to meet their specific human resource needs, we have provided a proprietary checklist provided by Business Insurance Associates to assist with the Human Resource audit process.  This is provided for informational purposes only, and we assume no liability for how an individual or business owner may or may not utilize this information.

Recruiting & Interviewing Procedures

• Review Job Descriptions for all categories of employees
• Update descriptions over two years old
• Review for exemption status
• Review for ADA/FEHA status
• Review language job openings language
• Review of all recruiting procedures

Employment Application Review

• Compliance with Federal & State Discrimination Laws
• At-will statement
• Compliance with disability issues (ADA & FEHA)
• Authorization for background check, drug test, references
• Provide employment application, as necessary

Interviewing/Selection Process

• Consistency in interviewing (who interviews)
• Review of interview questions
• Review of how hiring decisions are made
• How/When background checks are administered
• How/When drug screens administered
• Review skill/aptitude test procedures

Reference Checks

• Review questions asked
• Ensure compliance with state labor code

Job Offer

• Review job offer letter
• Provide checklist of things to do prior to employee start date

New Employee Orientation Checklist

• Employment Eligibility Verification (I-9)
• Review Procedures, Timing & Compliance
• Employee’s Withholding Allowance Certificate (W-4)
• Sexual Harassment information
• Paid Family Leave
• State Disability Insurance information
• Employee Information Form
• Change in Personal Data Form
• Employee signed receipt of Employee Handbook

Procedures for New Employees

• Compliance with applicable federal and state laws
• Receipt of At-Will statement
• Ensure all forms completed and filed properly
• I-9/IRCA Compliance
• HIPAA Compliance
• Civil Rights Act compliance
• Employee Handbook/policies and procedures

Business Non-Harassment Policies & Procedures

• Grievance procedure
• Harassment Policy
• Policy recommendations for non-harassment
• Program to prevent harassment
• Non-Retaliation Policy Review
• Review of Employee Training

Compliance with State Laws

• Physical and Mental Disability (including HIV/AIDS diagnosis)
• Marital status
• Employment at-Will
• Discrimination guidelines
• COBRA/Continuation of health care coverage
• Pregnancy disability leave
• Child Labor Laws
• Garnishments
• Harassment
• Military duty leave
• State & Federal Poster Requirements:
• Unemployment Insurance Coverage
• Age Discrimination
• Drug Free workplace
• Jury duty
• No Smoking policy
• Workers' Comp insurance coverage
• Family leave legislation
• Employee Handbook

Compliance with Federal Laws

• Age Discrimination in Employment Act (ADEA)
• Americans With Disabilities Act (ADA)
• Civil Rights Act - Title VII
• COBRA
• Fair Credit Reporting Act (FCRA)
• Drug Testing
• Employee Information Reports
• Equal Employment Opportunity (EEO)
• Equal Pay Act (Interstate/foreign commerce)
• Family & Medical Leave Act (FMLA)
• Uniformed Services Employment and Reemployment Rights Act (USERRA)
• Health Insurance Portability and Accountability Act (HIPAA)
• Immigration and Reform Control Act (IRCA)
• Mental Health Parity Act
• National Labor Relations Act (NLRA)
• Pregnancy Discrimination Act of 1978
• Summary Plan Descriptions (SPD)
• WARN Act

Wage & Hour Issues

• Exempt vs. non-exempt status for all employees
• Proper administration of overtime pay
• Definition of  work day and work week
• Sick leave/holiday/vacation policies
• Vacation pay policy
• Independent contractor/employee status review
• Minimum wage review
• Frequency of employee pay periods
• Child labor laws
• Final paycheck policy

Employee Records

• Confirm employee files contain only job-related information
• Security and privacy of employee records
• Job offer letter
• Performance Reviews/Appraisals
• Payroll information
• Employee signed receipt of Employee Handbook
• Receipt of 'at-will' statement
• I-9 review
• Records retention
• HIPPA compliance

Employee Relations

• Review performance appraisals
• Review of disciplinary and discharge process
• Review step-by-step discipline procedures
• Review of warning/termination letters/documents
• Review evacuation procedures
• Proper postings of state & federal posters

Employee Benefits

• Medical/Dental/Disability review
• Voluntary benefits
• Retirement Plan - present and evaluate

Christopher S. Pobieglo is a licensed commercial insurance and surety broker, and the current President of Business Insurance Associates.  For the past 17 years, Business Insurance Associates has been providing business owners with professional risk management consultation and representation.  For additional questions about audits or other insurance matters he can be reached at chris@businessinsuranceassociates.com.

Let me know if you have any comments, questions, or suggestions.
Write David W. Weatherholt at david@waconsult.com

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