The real cost of poor HR and compliance

What is it costing when your company’s HR practices are not up to 2022 standards?

Old school HR thinking is out. In fact, the top people issues of five years ago look nothing like those of today. In 2017, employers were concerned with social media policies, structured workspaces and flexible benefits. Telework and outsourcing were emerging trends.

The pandemic has flipped the switch from issues like these, to mega issues like the worker-employer relationship, the meaning of work and fairness all around – factors that have fundamentally changed business.

It’s a fact. Companies that are not putting the human in human resources are experiencing the high costs of poor HR and compliance practices.

Few executives truly understand the costs associated with HR matters. We break down five of them for you here:

1. Bad hires

Everyone has been there. On paper, a candidate has all the skills needed for a position and gives an impressive interview. References sing their praises, and you feel certain they will be a great contributor to your team. Only they’re not.

I remember a business colleague who hired the wrong manager bemoaning her choice. “It is the worst decision I ever made,” she lamented. “I should have been more deliberate, asking more situational questions and probing their attitudes and expectations. Clients didn’t respond well to them, and my employees didn’t either.”

How much did bad hires cost you over the last 12 months? Use a 1:1 ratio of their annual pay. For example, a bad hire with a $50,000/year salary will cost $50,000.

2. Losing good employees

If you’ve lost good employees, you’re not alone. Nearly 70 million Americans left their jobs in 2021—the highest number in history. About 3 out of 5 left voluntarily. Turnover is rampant.  Even employers who have had historically low turnover and have great employee offerings are challenged in this environment.  Knowing that most other employers have taken a hit doesn’t quite ease the burden. There’s the cost of lost productivity and rehiring, not to mention the added stress on employees who remain.

“For top management, it can feel demoralizing when your best people leave, especially those that have been the backbone of your company. It’s especially hard when you’re caught totally off guard,” noted a New Jersey-based employer during a Great Resignation panel discussion.

The bottom line: it’s a 1:1 ratio. The loss of a good employee making a $65,000 annual salary for example, costs your company $65,000.

 3. Improving total productivity

 It’s no secret that happy employees are more productive and there are plenty of studies to prove it. For one, the University of Oxford studied a customer call center and found that happy employees were 13% more productive. “They work faster, making more calls per hour and more importantly, they convert more sales,” explained Professor Jan Emmanuel De Neve.

What would be the impact of improving total productivity by only five percent? Use five percent of payroll as your answer. If you have $1,000,000 in payroll, this bump in productivity adds $50,000 to your bottom line.  The key is, how do you make your employees happy?  Here is one way to find out… ask them!

 4. Keeping poor employees

 It’s natural to avoid the anxiety that comes with performance improvement plans and managing people out the door. Doing so with dignity is important but takes experience and skill. Why not just hold onto your poor performers? 2 main reasons.  #1.  It’s costly.  #2. It penalizes your top performers.

Here’s the test: if they quit, would you be relieved or upset? Use the impact they have on your entire team in your calculation. For example, $1,000,000 in payroll x .05 = $50,000.

5. Compliance costs

While few executives want to be bogged down with HR administrative matters, it’s important that companies get it right. Federal laws and fines can really add up. So can state penalties.

For example, each FLSA violation costs $1,100, each I-9 paperwork violation can be as high as $2,156 and COBRA violations are $110/day. This doesn’t include extras like liquidated damages, retroactive pay and personal liability for business owners.

Then there are sexual harassment, discrimination and other lawsuits made even more complicated with the new law ending forced arbitration.  Did you even know that happened last week?  If not and you think it can’t happen to you, think again. Statistically, one in four employers are sued every year with an average verdict of $250,000.

We have a handy tool here to help you calculate your costs of HR and compliance problems. If you’d like help with HR counsel, strategies and implementation, chat with us or email us here.