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Auditing Global HR Compliance
 

By Donald C. Dowling  5/23/2014
 

Globalization pushes multinationals to align more and more aspects of human resources across borders. Multinationals now routinely globalize many of their HR programs, policies, benefits and other “offerings” that, back in the old days, would have been purely local. But globalizing HR offerings causes ripple effects; a big ripple is that headquarters has to watch over what it has globalized. And so after HR initiatives go global, HR compliance needs to go global as well.

Cross-border HR compliance initiatives have many facets. A multinational has obvious incentives to verify that its overseas HR operations comply both with foreign local laws and with the growing list of “extraterritorial” laws that reach workplaces internationally. In addition to legal compliance, multinationals need to verify that their overseas operations conform to the organization’s own in-house code of conduct, other international policies, employment agreements, and corporate values and norms.

This push for cross-border compliance assessments or audits of human resources operations can come from any of various constituencies within a multinational organization—for example, from compliance (of course), from upper management or the board of directors, from the general counsel’s office, from human resources or from specific business functions—say, industrial safety (assessing global safety compliance), audit/accounting (assessing global Sarbanes-Oxley compliance), or mergers and acquisition teams (assessing employment compliance of to-be-spun-off or to-be-acquired business units). In fact, international HR employment compliance audits actually transcend employment law and become relevant to operations within an organization well beyond HR. For example, the U.S. Foreign Corrupt Practices Act and the U.S. securities laws against insider trading are not employment laws, but the only way a multinational can ensure it complies with these particular rules internationally is to propagate cross-border HR policies against bribery and insider trading, to train employees on those HR policies, and then to enforce those policies against transgressing foreign staff. All of a sudden, headquarters functions with no HR responsibilities—in this case, the in-house functions responsible for overseas bribery and international insider trading compliance—become concerned with auditing HR practices internationally.

Understanding why multinationals need to audit HR compliance internationally, the question becomes how? How does a multinational efficiently audit, assess, check or review its own ongoing compliance practices across HR operations overseas?

The first step in any global HR compliance check or audit is to assemble the compliance audit project team. In assembling that team, be sure to involve headquarters, foreign and local human resources staff, in-house legal and compliance functions and consider involving the corporate audit function. Consider tapping outside counsel with attorney/client privilege or at least involving an outside international HR consultant.

Audit team in place, the issue becomes global audit project management—how to manage this particular cross-border HR audit cost-effectively and efficiently. The temptation here can be the quick-and-dirty approach, grabbing some global HR audit checklist off the shelf, diving in and just doing the audit. Unfortunately, this approach never works because no one ever finds that one-size-fits-all “global HR audit checklist” that will serve as an accurate, sufficiently detailed roadmap for this particular project. That is because each global HR audit project spins off in its own uncharted direction, with its own specific goals, its own pool of affected countries and its own particular industry issues. Give up that search for the perfect off-the-shelf global HR audit checklist. Instead, embrace the inevitable fact that your global HR compliance audit will require an organic approach.

The organic approach for any global HR audit breaks into five discrete steps: Articulate audit context and scope; create a master audit checklist template; align local-country checklists off the master; conduct the audit; and report and implement remedial measures.

Articulate audit context and scope. To begin any international human resources compliance check or audit, first isolate the context and delineate the scope of this particular audit project. Put aside all irrelevant, though auditable, issues not in play.

HR compliance assessments and audits arise in very different contexts including, for example, implementing a new corporate structure, preparing for a corporate restructuring, launching a merger or acquisition (spin-off or post-merger integration), responding to a lawsuit/government investigation, or simply toughening compliance through a robust HR practices check-up. Some global HR audits focus externally on outside supplier compliance while others focus internally on specific employment law challenges like health/safety, wage/hour, worker data privacy, whistle-blower hotlines, or—increasingly—corporate social responsibility and ethics. As mentioned, some HR-context audits actually focus on concerns separate from employment law, like compliance with bribery and insider trading laws.

After setting context, delineate audit project scope. Which countries are involved here? Should this global HR audit focus on compliance with laws, with collective agreements, with corporate policies, with best practices—or with all of these? As to legal compliance, should this audit look at local laws, at headquarters-country laws that reach extraterritorially—or both? Should this audit confine itself to local host-country employees, or should it also check expatriates, contingent staff, consultants, independent contractors and employees of suppliers? Should this audit go beyond employment laws and policies to assess compliance with HR-context data privacy, corporate and tax laws? And which industry-specific issues require special focus here (for example, wage/hour in retail, conflicts of interest/insider trading in financial and professional services, health/safety in manufacturing)?

Create a master audit checklist template. Compliance means following rules. Because HR-context rules differ significantly from jurisdiction to jurisdiction, anyone who leads a multijurisdictional compliance assessment or audit will need aligned but localized checklists or questionnaires that allow for “apples-to-apples” comparisons across jurisdictions. To align local HR audit checklists, first craft a single master global audit template or compliance checklist. Create that master template organically—tailor it to fit your particular audit project. Include in your global audit template all topics consistent with the specific audit project scope and then actively exclude all other topics. By definition, topics outside the scope are irrelevant.

Depending on context, topics possibly to include in a global HR compliance audit template or checklist might include:

  • Local labor/employment laws and other laws reaching employees.
  • Headquarters-country employment laws that reach overseas.
  • Data privacy laws reaching employee data, personnel files and global Human Resources Information Systems.
  • Past and pending employment claims/litigation.
  • Benefits and compensation issues.
  • Corporate, tax and other laws reaching employment.
  • Written internal employment policies, rules and agreements.
  • Individual employment contract issues.
  • Collective (union/works council) agreements.
  • Contingent and irregular staffing issues.

Align local-country audit checklists off the master. Next, localize the master HR audit checklist template by spinning it off into a set of tailored but aligned audit checklists, one per jurisdiction subject to the audit project, each anchored in the local legal standards. For example, if the global master template says “check compliance with local vacation laws,” then the local Brazil checklist for example, might say something like “confirm employees get 30+ vacation days per year and draw down vacation either in a 30-day uninterrupted block or a 20-day uninterrupted block plus a 10-day vacation time sell-back.” And the France checklist would address not only France’s minimum vacation benefit but also France’s ban on roll-over.

In addition to localizing topics from the master checklist for each affected jurisdiction, be sure to add into each local checklist all quirky local rules that, because they are inherently local, did not get picked up on the global template. For example, a local HR audit checklist for England should address overtime opt-outs, one for Canada should address contractually quantifying pre-dismissal notice, one for South Africa should address affirmative action plans, one for Saudi Arabia should address workplace gender segregation, and one for Indonesia or Korea should address mandatory menstruation leave. Again, these topics are mostly unique to these jurisdictions and so will not likely appear on the master template.

Conduct the audit. At last it becomes time to go out and conduct the global HR assessment or audit. Take the local checklists into the field and do the global HR compliance audit, gathering compliance information in each jurisdiction. Decide how the audit process will work and decide how deep to plow. Will headquarters auditors travel onsite—or can auditors conduct the field piece remotely or delegate local audits to local HR staff? Will auditors interview employees? Will auditor inspections be announced or surprise? How to handle local HR staff that fail to respond adequately? How to handle the political issue of local management hostile to the audit? How to handle local staff refusing to cooperate? Under law in many jurisdictions, local staff does not have to cooperate. How granular will the audit be? Will auditors look only at policies/protocols/agreements? Or will auditors scrutinize specific employment agreements, employee-signed acknowledgements, minutes of union/works council meetings, paycheck stubs, timesheets, safety logs and the like? Will translations be needed? Will auditors get access to local outside providers like payroll agencies and benefits administrators? And how will the international audit process itself comply with local employment and data protection laws?

Be sure to apply appropriate metrics in the audit. For example, if the audit looks into diversity, it would be foolish to apply U.S. EEO-1–style diversity metrics to employee populations in, say, Japan or Finland. If an audit uncovers any specific act of wrongdoing that merits its own discrete investigation, spin off that investigation as a separate project.

Report and implement remedial measures. Summarize the HR compliance audit findings. The summary report should avoid identifying specific employees (to minimize data protection and defamation exposure) and should account for attorney/client privilege and evidentiary admissions issues. Could the report later get used against the employer as evidence of willful noncompliance?

Finally, the audit team should propose specific remedial measures, or fixes. Finally, someone needs to follow up to check that the fixes actually get implemented locally.

Donald C. Dowling is a partner in the New York office of White & Case.

Republished with permission. © 2014 White & Case. All rights reserved.

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