January HR Audit: The Early Catch That Avoided Penalties
Starting the year with a comprehensive HR audit can save organizations from costly compliance mistakes down the road. This article examines how one company's proactive January review of their multi-state operations and documentation helped them avoid significant penalties. Industry experts share practical strategies for updating handbooks, maintaining accurate time records, and staying compliant across multiple jurisdictions.
Maintain a Multi-State Matrix and Prioritize Time Records
Managing compliance in multiple jurisdictions requires diligence. To keep things organized, I maintain a comprehensive matrix covering all the cities and states where my clients operate or have remote employees. My annual client check-ups move through five key areas: First, Pay & Classification - checking for changes in minimum wage rates, exemption thresholds, transparency laws, and OT calculations. Then, Leave & Accommodation, looking for federal and state expansions. Third is Posters & Notices, ensuring both physical and digital compliance for remote workers. Fourth, I review Policies & Handbook with revision logs and documented communication plans for updates. Finally, I note any required manager training, including timekeeping, leave administration, or harassment prevention.
The checklist item that catches issues the earliest is always timekeeping -it affects daily operations, and the rules around recording time, meals, and rests are surprisingly complex. Small businesses often have a compliance intent, but lack compliant systems. One 50-employee client was using the honor system time tracking across three states - a massive liability risk we caught before any wage claims arose. A proactive example is following the 2024 EEOC changes, updating client handbooks to include 'menopause and perimenopause' in their reasonable accommodations language. This single update positioned clients ahead of emerging state mandates like Rhode Island's, preventing them from scrambling to comply while simultaneously improving recruiting and retention.
Update Handbooks Early and Replace Posters
I approach January HR compliance audits with a structured, front loaded checklist before normal operations resume. At Advanced Professional Accounting Services, the item that catches issues earliest is always handbook language tied to state specific leave or wage rules. This January, we proactively updated paid sick leave wording and remote work policies to reflect new thresholds. We also replaced required labor posters on day one rather than waiting for notice letters. That early action prevented follow up questions from regulators and reduced client stress. The lesson is simple. Compliance is cheapest when handled before the first payroll runs.
Correct COBRA Notices and Keep Proof of Postage
The audit found delays in COBRA notices after qualifying events like terminations or reduced hours. The process was fixed to send election notices within the required window. Addresses and event dates were verified before mailing.
A tracking log and proof of mailing were kept for each case. This avoided daily penalties and helped people keep coverage. Check your COBRA notice timeline and documentation today.
Adjust Minor Schedules and Restrict Hazardous Tasks
The audit examined schedules for employees under 18. Several shifts placed minors beyond allowed hours during school weeks. Schedules were changed to meet federal and state youth rules, including curfew limits.
Tasks were reviewed to keep minors away from banned work areas. The fixes prevented child labor fines and record issues. Review ages, duties, and schedules for all minors this week.
Ensure ACA Affordability with Safe Harbor
The audit showed some employee health plan costs could fail ACA affordability. Contribution rates were reset to meet an IRS safe harbor, such as the federal poverty line option. Payroll systems were updated at the start of the plan year.
Communication explained the change and new rates to affected staff. This lowered the chance of 4980H(b) penalties and marketplace subsidy challenges. Run an ACA affordability test for each pay group today.
Reverify I‑9s and Set Expiration Alerts
The January HR audit flagged soon-to-expire work authorization documents. Form I-9 Section 3 entries were updated before the dates lapsed. A calendar and reminder system was set to track future expirations.
Managers received short training on reverification timing. This prevented fines and avoided gaps in staffing. Review all I-9 files now and set alerts today.
Follow FCRA Steps for Background Decisions
The audit reviewed files for roles that used background checks. Some records missed a proper pre-adverse action notice with the report and Summary of Rights. The process was updated to send the notice and allow time for a response.
Final adverse action letters now include required details and contact info. These steps reduced the chance of FCRA claims and demand letters. Audit your screening flow and notice templates now.