A successful business is built on the foundation of its employees, and the human resources department ensures that every employee feels supported to achieve the goals of the company.
Companies undertake annual financial audits but still there is lack of awareness in the case of implementing the HR/Labor Audit as it is equally important to be reviewed by the end of every year to bridge the gap created by the power dynamics of an employer and an employee. Recent studies show that only 3,500 out of more than 9,000 enterprises of Nepal are found to have conducted their HR/Labor audit even in the five years since the issuance of Audit Standard 2075. (Source : Republica Nepal, Sep 2023)
Introduction to HR/Labor audit
Human resource audit refers to the review of a company's human resources policies and practices to determine if these policies are compliant with laws. A regular HR/Labor audit will ensure the organization's human resource practices are optimized, reducing general organizational liability and improving performance. In context of Nepal, before conducting HR/Labor audit , some of the laws that must be followed by the companies are as follows:
Labour Act 2017 and Rules 2017
Social Security Act 2017 and Rules 2018
Bonus Act 1973 and Rule 1982
Trade Union Act 1992 and Rules 1993
Internal rules and by-laws of the enterprise
Other related provisions affecting the labor issues
To conduct an effective HR/Labor audit, it is necessary to follow the systematic formal process which covers the 3Ws of HR/Labor audit:
When,
Who and
Where?
When to conduct an HR/Labor audit?
All enterprises are required to conduct a HR/Labor audit and as per Labor Rules 2018, rule 56 by the end of Poush (Mid-January) every year.
Who can conduct an HR/Labor audit?
As per the criteria defined by the Ministry of Labor:
1) A managerial level employee of the entity who is also a Nepali Citizen. He/she must hold at least a bachelor's degree & have atleast 2 years’ experience in a managerial position.
2) Entities associated in the field of labor which must be registered according to the law and the individual deployed from the entity should also meet the qualification as mentioned above for an Labor Auditor.
Where to submit the HR/Labor audit report?
A copy of the report of HR/Labor audit should be provided to the Labor Relation Committee & also to the following regulatory authorities such as - Labor & employment office.
Challenges of conducting HR/Labor audit in Nepal
As part of the HR/Labor audit report, the auditors and enterprises should provide detailed and accurate information. In case, if false details are found in the report, the Labour Act and Labour Rules have also imposed penalties of up to Rs 20,000 on either the person who provided the false details or the management of the enterprise.
The above section provides a brief description of what to do or what not to do when conducting an HR/Labor audit in your organization. Despite this, there may be some questions that arise, such as what HR important areas should be reviewed systematically when providing the report to the Labor Relations Committee and other regulatory bodies. These areas are as pointed out below:
HR Policies and Procedures
Recruitment, Selection and Onboarding
Compensation and Benefits
Training and Development
Performance evaluation and Management
Health and Safety
Conclusion
HR/Labor Audit is mandatory for every company in Nepal and it should be regulated by the end of Poush each year. If we, as a company, take this process as equally as important as financial audit it will help in the growth and development of the company and also HR function to the next level which is a fundamental part of every company’s success.
For the past three and half years, we have successfully conducted 3 Labor/ HR audits and submitted our recommendations to enterprises to ensure that their HR policies and practices are meeting the needs of the Nepal Labor Law.
If you as an employer/ enterprise are confused if you are following the minimum standards set by the Nepal Labor law and need guidance or suggestions, our team of expert HR professionals are here to help you!
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