Offense or defense? Which of these wins ball games? Sports fans have heard this question raised many times. If the offense scores a lot of points but the defense allows more, you lose. If the defense stands tough, allowing very few points but the offense scores none, you lose. The answer may be as random as the opening coin toss, says Dennis Swearingen, a business development representative at Sequent.
“Over the past few years, the economy has affected many businesses to the point that some have reduced their work force, while others have either closed their doors or sold their company,” says Swearingen. “The analysis of what to do has been difficult and the decisions have been twice as hard.”
He says that some executives chose to add sales representatives but slice the expense of advertising and marketing their product or services, while others made reductions in areas that they believed provided no revenue or profit opportunities. In a sense, executives have made a choice to take either an offensive or defensive strategy, and how they view the role of their HR department has played a large part in that.
Smart Business spoke with Swearingen about how to view your HR department and how it can help you increase the profitability of your organization.
Should the human resources function be considered a profit center or overhead?
When it came time for work force reductions, some owners or executives (depending on the size of the organization) started their cuts with the human resources department because it is typically viewed as an overhead function, not adding value to the organization. However that is not the case, and a strong HR department can be critical to the success of your business.
Let’s review some of the offensive strategies to the HR function. There are many facets of human resources that, if managed properly, can help increase the profitability of your organization. There are two basic ways to proactively impact your profits — either increase revenue or decrease expenses. Below are a examples of how a strong HR function can increase the profitability of your organization.
- Periodically review your outsourced vendors, such as your payroll processor and 401(k) provider, mandated by the Pension Protection Act, to determine if you have the best system and product for your organization that provides best service at a reasonable price.
- Evaluate not only your medical plan design and premiums but educate your employees on consumer-driven health decisions and the use of your preventive and wellness benefits.
- Manage the unemployment process closely. For example, if a company has 100 employees and its unemployment rate is reduced by 1 percentage point, it could save the company approximately $9,000 in state unemployment taxes the following year.
- Focus on employee retention. Depending on your industry, the cost avoidance of turnover can save your company thousands of dollars in hidden costs of retraining, production, efficiency and even customer retention.
What is the cost of noncompliance?
What about the defensive side of human resources? In other words, does your organization have a professional, certified HR person who is proactively implementing and managing the risk and compliance programs within your organization?
If you have eliminated or reduced your human resources staff, or have never had one, the probability of your company to be noncompliant in any area of HR is high. Over the past few years, there has been a substantial increase in the number of audits that have been conducted by the numerous agencies enforcing employment regulations.
Following are just some examples of where noncompliance can easily cost your bottom line, and even your company.
- Payroll tax filing with the IRS. If your provider fails to file your payroll taxes in a timely manner, it is likely that your company will pay the penalty. The IRS views nonpayment of payroll taxes as theft. Verify what certifications your vendor has obtained to protect your liability.
- Are your job descriptions classified properly as exempt or nonexempt under the Fair Labor Standards Act? If not, you could be liable for unpaid overtime and subject to fines up to $10,000 and possible imprisonment.
- Cross the I’s and dot the T’s on the I-9 Employment Eligibility Verification Form. Civil violations alone can range from $110 for each form out of compliance to $16,000 for each person hired knowing the individual is not authorized to work in the United States. Imprisonment could occur for criminal violations.
- The Department of Labor is monitoring 401(k) fiduciary liability more closely than ever. Whether the violations occur with the broker, investment advisor or third-party administrator, the ultimate responsibility may lie with the fiduciary, which often is the owner of the company. Penalties could reach hundreds of thousands of dollars.
Should the human resources function be managed in-house or outsourced?
The most common factor in determining when human resources should be managed internally is typically based on the number of employees a company has but is not the only basis. Additionally, there is not a magical cutoff when a company should hire a professional HR person. In order to provide the most efficient and compliant HR function, many factors must be considered.
With the economic challenges that we face today, cost will rank as one of the leading deciding factors. Another important component is how much valuable time is not being spent on increasing revenue and profitability for the future growth of your organization. So ask yourself whether human resources be managed in-house or outsourced. With the ever-changing compliance issues that employers face, the answer must be one or the other.
Dennis Swearingen is a business development representative at Sequent. For a free consultation, reach him at (513) 535-1970 or firstname.lastname@example.org.
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