Understanding HR/Labor Audits: A Key to Successful Business Operations
- The HR Vantage
- Dec 22, 2024
- 3 min read
Updated: Feb 18
A successful business is built on the foundation of its employees. The human resources department plays a crucial role in ensuring that every employee feels supported to achieve the company's goals.
Companies regularly conduct financial audits. However, many overlook the importance of an HR/Labor audit. This review should be conducted at the end of each year to address the power dynamics between employers and employees. Recent studies reveal that out of the more than 9,000 enterprises in Nepal, only 3,500 have conducted an HR/Labor audit in the five years since the issuance of Audit Standard 2075. (Source: Republica Nepal, Sep 2023)
Introduction to HR/Labor Audit
The human resource audit involves reviewing a company's HR policies and practices to ensure they comply with the law. Regular HR/Labor audits help optimize human resource operations, reduce liability, and enhance overall performance.
In Nepal, companies must adhere to specific laws before conducting an HR/Labor audit. These laws include the following:
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 labor provisions
The 3Ws of HR/Labor Audits
To carry out an effective HR/Labor audit, it is essential to follow a systematic process that encompasses the three critical elements: When, Who, and Where.
When to Conduct an HR/Labor Audit?
All enterprises must conduct an HR/Labor audit by the end of Poush (Mid-January) each year, as mandated by Labor Rules 2018, rule 56.
Who Can Conduct an HR/Labor Audit?
The Ministry of Labor defines the criteria for who can perform these audits:
A managerial-level employee of the entity who is a Nepali citizen, holds at least a bachelor's degree, and has a minimum of two years’ experience in a managerial position.
Registered entities associated with labor must deploy individuals who meet the same qualifications.
Where to Submit the HR/Labor Audit Report?
After completing the audit, a copy of the report must be provided to the Labor Relation Committee. It should also be submitted to relevant regulatory authorities, including the Labor & Employment Office.
Challenges in Conducting HR/Labor Audits in Nepal
The audit report must contain detailed and accurate information. If any false details are found, penalties can be imposed under the Labour Act and Labour Rules. Penalties can reach up to Rs 20,000 for the individual who provided false information or for the management of the enterprise.
This discussion highlights what to do or avoid during an HR/Labor audit in your organization. However, questions may arise about which crucial HR areas should be systematically reviewed. The following key areas should be considered when preparing the report for the Labor Relations Committee and other regulatory bodies:
HR Policies and Procedures
Recruitment, Selection, and Onboarding
Compensation and Benefits
Training and Development
Performance Evaluation and Management
Health and Safety
The Importance of Continuous Improvement
Regular HR/Labor audits provide a valuable opportunity for continuous improvement within an organization. They offer insights into what works well and what needs adjustment. Organizations can identify gaps in compliance and rectify them promptly.
Strategies for Effective HR Management
Implementing effective HR policies improves employee morale and retention. This, in turn, can significantly boost productivity. For successful audits, organizations should also encourage open communication between management and employees. This approach fosters transparency and builds trust within the workplace.
Adopt HR Technology Solutions
Businesses can benefit from adopting HR technology solutions. These tools streamline processes, improve record-keeping, and enhance compliance tracking. They also assist in conducting more efficient audits, making it easier for businesses to adhere to government regulations.
The Role of Training and Development
Training and development programs are essential for sustaining a robust workforce. By investing in employee development, companies enhance their operational competence. Regular training ensures that employees are well-acquainted with updated compliance standards and organizational procedures.
Conclusion
HR/Labor audits are mandatory for every company in Nepal and should be completed by the end of Poush each year. Treating this process with the same importance as financial audits can contribute significantly to a company's growth and development. Enhancing HR functions is fundamental for any company’s success.
In the past three and a half years, we have successfully conducted three Labor/HR audits and submitted our recommendations. Our aim is to ensure that HR policies and practices align with the needs of Nepal's Labor Law.
If you're an employer or enterprise and unsure whether you meet the minimum standards set by the Nepal Labor Law, our team of expert HR professionals is here to help you!
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