Overzealous bottom-line moves can cause anything but savings Featured

12:00pm EDT April 29, 2013

Business owners are still cutting corners to cut costs and stretching their staffs in an attempt to stretch their budgets, but a lackluster economy shouldn’t be the only thing affecting their business decisions.

When companies try to manage “on the cheap,” the result can be anything but savings. The price of cutting corners in HR can lead to escalated risks, decreased productivity, increased turnover and ultimately higher costs.

Risk of noncompliance

To mitigate risk and minimize costs, HR compliance should be a constant consideration for business owners. Employment laws govern how companies hire, schedule, compensate and behave toward their employees. Adhering to these and other government regulations is not just the lawful thing to do, but it’s also the smart thing to do to protect a business from unnecessary risks.

Federal wage and hour laws are one of the most common noncompliance violations for companies. According to one report, the average settlement per case is nearly $13 million.

Allegations include employers’ failure to pay minimum wage, unpaid overtime and inaccurate “exempt” or “nonexempt” employee classifications. Exempt, or salaried, employees are not eligible for overtime pay regardless of extra hours worked, while nonexempt, or hourly, employees can earn overtime.

Corporate anorexia and the cost of turnover In a lean economy, making do with less is simple common sense, but when companies try to operate with too little staff, the unhealthy result is what some experts call “corporate anorexia.”

Remaining employees are expected to carry a heavy portion of the company’s workload. When consistently stretched too thin, employees become less productive, and the most marketable and highest-performing employees eventually look for better opportunities.

Experts estimate that turnover costs companies anywhere from one-half to five times an employee’s annual wages depending on his or her position within the company.

While that may sound like an exaggeration, consider the hard costs of recruiting and training a new employee. Add to that the softer costs of lost productivity and lost opportunity.

Cost-saving solutions

So why would a business owner ever choose to ignore employment laws? Or risk losing the most experienced staff? For most, it’s not a conscious choice but an unavoidable outcome.

When a company is making do with less, its HR function is often severely understaffed or nonexistent. How can a small business owner or a one-person HR department effectively manage the volume of duties and stay abreast of constant changes in employment law?

HR experts suggest that when limited means dictate that companies cut corners, they should focus on the fundamentals. That includes a comprehensive employee handbook and regular compliance audits.

A handbook is the first line of defense in employee matters. It outlines company policies and establishes a guideline for behavior. When employees review and sign a handbook, they acknowledge that they have reviewed and understand the company’s policies and intend to abide by them.

Regular compliance audits can help ensure a company is properly meeting its obligations and can help identify potential risks before they become costly oversights.

Business owners can also augment their HR by outsourcing part or all of the function. Professional employer organizations and HR outsourcers employ experienced human resource professionals who have extensive knowledge in a variety of HR disciplines.

PEOs and HROs also dedicate significant resources to developing proven processes and systems that can help minimize the most common and costly mistakes. As for cost, many qualified firms cost roughly the same as one full-time HR employee.

Cutting costs can be smart, maybe even necessary, but cutting corners on critical functions or deeply into staff can backfire. If you cant cover all the bases, focus on HR’s fundamentals and enlist assistance where needed.

John Allen is president and COO of G&A Partners, a Texas-based HR and administrative services company that manages human resources, benefits, payroll, accounting and risk management for growing businesses.  For more information about the company, visit www.gnapartners.com.