How to Audit Your HR Systems Before an Employee Sues
Ron Mckenzie | Februarty 9, 2025
Most employment lawsuits are not caused by bad behaviour.
They are caused by broken HR systems.
By the time a lawyer gets involved, the real issue is usually:
the wrong contract template
missing leave records
inconsistent policies
or a dismissal process that was never documented
This guide shows how employers can run an employment law compliance audit to find these risks before they turn into claims.
What Is an Employment Law Compliance Audit?
An employment law compliance audit is a structured review of the systems that control how you hire, pay, manage and terminate employees.
It looks at whether your business is legally protected if an employee makes a claim for:
unfair dismissal
underpayment
discrimination
bullying or harassment
or breach of employment law
It is not about individual performance.
It is about whether your paperwork, payroll and policies would survive legal scrutiny.
Why Most Businesses Fail HR Legal Compliance Checks
Courts and regulators do not judge what you meant to do.
They judge what your systems prove you did.
Most failures come from:
| Area | Common Failure |
|---|---|
| Contracts | Outdated or copied templates |
| Payroll | Incorrect leave, overtime or allowances |
| Termination | No written process or evidence |
| Records | Missing timesheets or pay history |
| Policies | Not signed, not followed, or not current |
When these gaps exist, even a weak employee claim becomes expensive.
Who Needs an HR Compliance Audit?
Every business that employs people, including:
Small businesses
Medium enterprises
Franchises
Construction and trades
Healthcare and aged care
Retail and hospitality
Professional services
The moment you hire one employee, employment law applies.
What Happens If You Skip HR Legal Compliance?
If your systems are wrong, the risks include:
Back pay orders
Penalties and fines
Wage theft investigations
Reinstatement of employees
Legal costs
Management time lost
Brand and reputation damage
Most employers do not lose because they were unfair.
They lose because they cannot prove they were fair.
How to Run an HR Compliance Audit
A proper audit looks at five risk zones.
1. Employment Contracts
Check:
Are roles classified correctly?
Are awards or agreements referenced?
Are termination clauses enforceable?
2. Payroll and Leave
Check:
Are wages, overtime and allowances correct?
Are holiday and sick leave balances accurate?
Are casual and part-time employees handled properly?
3. Onboarding
Check:
Are contracts signed before work starts?
Are policies acknowledged in writing?
Are right-to-work and ID checks recorded?
4. Performance and Discipline
Check:
Are warnings documented?
Are procedures followed consistently?
Is there evidence of fairness?
5. Termination
Check:
Was the process lawful?
Was the reason recorded?
Was the employee given a chance to respond?
If any of these fail, your legal exposure increases.
Why This Matters More Than Ever
Employment laws are tightening worldwide:
Wage theft is being criminalised
Pay transparency is increasing
Contractor misclassification is under scrutiny
Holiday pay systems are being reformed
That means paperwork mistakes now trigger bigger penalties than ever before.
What Employers Should Do Now
An HR compliance audit allows you to:
Find legal gaps before an employee does
Fix contracts without litigation pressure
Update payroll before regulators audit
Protect the business, not just HR
The earlier problems are found, the cheaper they are to fix.
If you are unsure whether your current HR systems would stand up to an employee claim, a short conversation can provide clarity.
Mckenzie offers confidential employment law compliance reviews to help employers identify gaps in contracts, payroll, record-keeping and termination processes before they become disputes.
A consultation is designed to give you a clear picture of:
where your legal risk sits today
which systems need attention
and what practical steps will reduce exposure
If you would like to discuss your situation, you can book a consultation with Mckenzie to review your current compliance position and plan your next steps with confidence.
