BUSINESS STRATEGY FOR MINIMIZING HR-RELATED RISKS
February 21, 2013
By Rob Pulley
Guest blogger Rob Pulley is the President of TM Solutions, LLC, a Raleigh, North Carolina-based human resources consulting firm.
Success in business requires proper planning and execution, and we can’t effectively plan for our future success without properly diagnosing the present state of our organizations. There are several key areas to consider when assessing your business and how well it’s positioned for marketplace success. You must tackle fundamental concepts like managing profitability, maximizing productivity, improving expertise and capabilities, strengthening leadership teams, and investing in people.
When business executives sit down to address different elements of their companies and their business strategies, an additional important area to consider is minimizing risk. Leaders often find their current risk management efforts inadequate as they pursue business development with great zeal and urgency. While revenue-producing programs are a great place to start with diagnosing the health of your company, risk management should follow very closely behind in any assessment.
At TM Solutions, we’ve seen four success factors that help companies minimize risk with respect to employment and HR matters during their business planning: ensuring compliance with current laws, identifying and addressing major risk areas, reviewing and updating polices and the employee handbook, and conducting compliance and/or human resources audit reviews.
Ensuring Compliance with Current Laws
Companies should start a rigorous risk diagnostic in the present, ensuring they are compliant with laws that govern them and their respective industries at the federal, state, and local levels. First, owners and executives must understand the compliance framework that applies to the organization, working closely with internal experts and external counsel, as necessary. It’s difficult to comply if you don’t first know which laws and regulations require your compliance.
Compliance, with regard to human resources and the heavily-regulated employment law, also requires keen attention to detail. Companies are required to follow a very prescriptive process for job postings, pay practices, reporting to labor agencies, and thorough record-keeping, particularly with regard to personnel files (among other things) — and with companies that build their business through government contracts, the legal and regulatory requirements are even more stringent, requiring a matching level of attention to detail to eliminate the hard costs of investigations, fines, and even greater penalties.
Identifying and Addressing Major HR Risk Areas
After a company has assessed its current state of compliance with applicable laws and regulations, corporate leadership should work with managers and outside counsel to identify forward-looking major HR risk areas. Some of the obvious areas where companies must give an honest assessment of HR risk management lie with keeping employment applications properly updated with permissible questions, as well as whether or not the company is in strict adherence to document-filing and storage requirements for federal forms, such as the I-9.
A particularly hot area, in the last few years, is with the classification of employees. Do all employees have the proper classification—as employees versus independent contractor? Companies can save 30 percent or more in labor costs through hiring people as independent contractors, escaping responsibility for benefits and taxation at multiple regulatory levels. However, the federal government, in particular, has taken a very hard line in terms of fines and taxation of companies that willfully misclassify people as contractors, the so-called “permanent temps.” Executives must apply scrutiny to each contract position, ensuring they are in compliance with industry-specific Internal Revenue Service regulations to avoid costly investigations and subsequent fines and tax levies.
Reviewing and Updating Policies and the Employee Handbook
Compliance may start at the top of the business by reviewing current laws and regulations, as well as identifying and addressing major risk areas, but everyone across the company participates in strict adherence to risk management policies and programs. Minimizing HR risk across an organization begins and ends with the employee handbook. A best practice for companies is to update the handbook at a minimum of every two years.
Any organization with multiple employees should have an updated, thorough employee handbook that accomplishes two educational goals: advising employees of the laws, regulations, rules, and policies surrounding their employment, and advising employees of how the company itself remains compliant at federal, state, and local level with all applicable employment law. In addition to company-specific ethics and performance standards, an effective employee handbook should also provide specific policies with regard to compliance in areas such as the Americans with Disabilities Act, the Equal Employment Opportunity Act, workplace harassment, at-will employment, and progressive disciplinary procedures in the event that employees, managers or the organization violate any of the outlined laws, rules, and policies.
Conducting a Compliance or Human Resources Audit Review
A final step in minimizing risk in human resources and talent management is conducting a full compliance or human resources audit review. Devoting the time and expertise of outside counsel can be costly, but the risk averted by thorough audits can be staggering in comparison. One wrongful termination case alone can bring tens of thousands of dollars in legal fees; obviously, the bigger the company and the greater the number of employees, the more exponential the risk in this area.
Outside counsel, in the forms of both a corporate attorney and an employment law specialist, are critical to conducting an effective audit for company-wide and/or human resources compliance. These professionals ask the hard questions and demand the right answers of executive teams in areas for business planning, policy development, and litigation. Perhaps the biggest question companies and their attorneys may ask is “Have we integrated best practices in risk management into our normal business processes and procedures?”
As your company hits the ground running with business development opportunities early in 2013, your executive management would be wise to run a thorough risk management diagnostic to ensure that proper policies, procedure, and legal counsel are in place to address the expanding risk that results from growing your business.
Rob Pulley is the President of TM Solutions, LLC, a human resources consulting firm based in Raleigh, North Carolina. TM Solutions focuses on small to mid-market companies, delivering customized talent management solutions, including staffing, leadership development, talent management, outsourcing, and compliance. The Forrest Firm is proud to partner with Rob and TM Solutions, leveraging over 15 years of human resources expertise in the service of our clients looking to grow new companies and remain competitive in mature markets.