Labor is most often a company’s biggest operating expense and, by extension, mistakes involving the workforce have a huge impact to the bottom line and worker morale.
Human resources (HR) is critical to all businesses, sitting at the nexus of employee morale, safety, continued training, navigating remote work and maintaining compliance with state and federal regulations. Accordingly, HR functions have increased in importance and scope, and the U.S. Bureau of Labor Statistics predicts the job market for human resources managers is expected to grow by 6% between 2019 and 2029.
The Costs of HR Mistakes
HR mistakes can affect broad swaths of the business. Companies can face enormous costs from litigation for failing to comply with federal and state labor regulations or for failing to ensure data privacy and security. Hiring the wrong employee for the job can introduce risk to the company, which is then compounded by the high costs associated with recruiting and training.
For small and midsized businesses, defense and settlement costs can average hundreds of thousands of dollars and take almost a year to resolve. An analysis looking at 1,214 of closed claims from businesses with fewer than 500 employees found that 24% of employment charges resulted in defense and settlement costs that totaled $160,000 and took 318 days to resolve, on average.
Similarly, onboarding new employees cost an average of $4,129 each. Effective policies and procedure, coupled with clear communication on expectations and legal requirements, can ensure the right people stay with the company long term and continue to contribute to a strong company culture.
11 HR Mistakes Businesses Make
The processes within HR are often complex because the HR department must comply with changing regulatory conditions and business imperatives, and evolve with the business environment. As a result, some present a risk to revenue. Common mistakes include:
A lack of formal policies and procedures. The root of many costly mistakes in HR is a poor definition of expectations and guidance on how to handle common and uncommon workplace situations. Policies needn’t be all-encompassing, but they should aim to provide direction on what is appropriate and what isn’t. HR policies should address areas of possible confusion (personal cell phone use, code of conduct, dress code, etc.), legal requirements, government laws and regulations, and consistency and fair treatment.
A failure to record, display and update those policies. While the Department of Labor doesn’t require that businesses create a physical employee handbook, there are laws that require businesses to display posters that provide details on the key areas of regulatory compliance, including the Fair Labor Standards Act, the Employee Family Medical Leave Act and the Employee Polygraph Protection Act. But it’s in every business’s best interest to document its policies and procedures in an employee handbook as well.
The employee handbook should provide rules and guidance around employee-facing policies, including workplace safety, disciplinary measures, whether you can bring your own devices to work, use of social media, drug and alcohol abuse, and leave and remote work. The Department of Labor provides a Basic Compliance Toolkit that is useful in keeping policies in line with the latest federal guidance. The business must also be mindful of state regulations, as well as changes in the broader external environment that might impact the workforce.
Poor onboarding processes. Organizations spend a lot of time and money on recruiting talent. SHRM says it takes 42 days on average to fill an open position. After compensation, an organization’s biggest HR-related line item is often recruiting. And once employees are hired, companies often don’t have great onboarding processes to bring them up to speed.
Onboarding is typically used to introduce new hires to a company’s culture and policies, making sure they have the right equipment to complete the job (computer, workstation, etc.) and enabling access to self-service tools that allow them to enroll in benefits. Top-performing companies map onboarding to strategic activities that can better welcome employees into the company and enhance its culture. These include peer mentoring, assessment of future training needs, access to training resources and setting up meetings with other teams and stakeholders.
Poor retention planning. Getting high-performing people on board is important, but keeping them is even more so—the average cost of losing a good hire is $29,600. The best companies go beyond the annual employee engagement survey to figure out what really motivates employees and instead create individual experiences tailored to those motivations.
Research from management consulting company McKinsey & Company shows that the top 10 employee needs and experience factors right now are job security, financial stability, work/life balance, being treated fairly, working with people they can trust, physical and mental health, achieving work goals, being rewarded, having supportive coworkers, and being recognized for work. Initiatives that lead to improvement in these areas increased productivity, engagement and employee well-being.
Bad hires. While keeping good people is crucial, hiring the wrong people can cost businesses an average of $14,900, CareerBuilder says, and it’s a mistake nearly three in four employers say they’ve made. Bad hires affect productivity, waste recruiting resources, increase the time it takes to find and train another worker and compromise the quality of work. To lower the chances of this happening, make sure the right people interview the candidate—from colleagues to the manager to executives, if it makes sense—and always check references. Consider their general attitude and ability to learn quickly, and lean on the HR team for advice.
Poor job descriptions. One cause for making the wrong hire—and for employee turnover, as well—is that the job the person accepted isn’t really the one that was offered. Lots of misalignment and miscommunication can happen between recruiting, the hiring manager and the people whom the new hire will be closely working with. The day-to-day duties of the job may not map to the person’s skills or the expectations laid out in the hiring process. Ensure all the right people review the job posting and agree on the role before it’s published.
Not documenting performance issues. Documenting performance issues not only helps employees make improvements in their day-to-day duties, but is critical in the case of litigation. Documentation should include the employer’s expectation, how the employee failed to meet it, prior counseling or discipline, expectations going forward and the consequences of failing to meet those expectations.
Incomplete or missing employee records. Equal Employment Opportunity Commission (EEOC) data shows that retaliation continues to be the charge most frequently filed with the agency, followed by disability, race and sex discrimination. If an employee brings a claim of retaliation against the company, the business will need documentation showing that it was a legitimate business decision in order to rebut the claim. So, make sure you’re keeping track of documents like performance improvement plans, written records of disciplinary action and violations of company policy and can easily find them.
Compliance lapses and potential litigation. Keeping up with changing regulations and laws, particularly at the state level, is a big driver of litigation. Its research showed that some states have a far higher instance of charge activity than the national average, with state laws driving in increase in charge activity. HR teams need to stay on top of laws that affect their organizations and communicate any key changes to managers and employees. If there is an accusation, immediately start an investigation and interview the relevant parties.
Insufficient training. Training is crucial to employee retention strategies because it provides standout employees with paths to advance their careers and lengthen their tenure with the company. Training around new regulations and expectations of the workforce is also crucial in preventing the type of behavior that could lead to litigation.
Unsecured data. Organizations, especially midsize companies, face huge risks from data theft and breaches. Like the failure to create a culture that embraces diversity and inclusion, the risk extends beyond concrete costs to brand reputation issues. Stolen or compromised employee accounts and credentials, in which attackers use previously exposed emails and passwords, are among the most common causes of a malicious breach for companies. Train employees on best practices for data security and strengthen requirements for passwords and how frequently they must be updated to reduce the chances of a successful attack.
HR and Payroll
How Can NetSuite SuitePeople Help?
Employees may not need the help of the HR department often in their time with the company, but when they do, those needs are most often immediate and critical. Having all of the information ready for the employee—as well as making the process as straightforward as possible—is an important part of the employee experience, ensuring they remain engaged and still feel loyalty to the company. This can help lower attrition rates and the costs associated with recruiting, onboarding and training.
SuitePeople, NetSuite’s HR software, centralizes employee information to automate and measure human resources processes, reducing the risk of lost revenue, making compliance reporting easier, and increasing employee satisfaction—from the employee, to the manager, to the HR professional using the software. It handles employee information, hiring, onboarding, performance management, payroll management, promotions and compensation changes. This solution also provides self-service access to all of the information employees need.
SuitePeople’s performance management capabilities give managers a central place to record performance reviews, information often otherwise stored in Excel or Word documents. This helps employees set goals in conjunction with their managers, monitor progress against those goals and makes it easier to recognize achievements. It can also encourage conversations before potential issues became major problems. Goals are automatically updated from operational data within NetSuite and added to performance reviews, providing more accurate performance results with less manual effort. This innovative approach keeps employees more engaged, focused and able to achieve their goals.
With all employee-related data in a central place, HR professionals can monitor hiring and termination trends and manage the entire employee life cycle from a single, personalized dashboard. What’s more, access controls ensure people only have access to the information they need. By automating many administrative tasks, human resources can spend time developing relevant trainings on safety, diversity and inclusion and cybersecurity, creating paths to career advancement and leadership opportunities.
HR leaders now have a seat at the proverbial board room table in a way they never did before. Exceptional human resource leaders understand the organization’s strategy and contribute to it, and they understand the implications of new initiatives on revenue and contribute to the conversation. That starts with making sure there aren’t any risks to revenue, which comes from solid policies, procedures and communication that guide employees on the path from understanding to compliance to engagement.