If you’re running a business then you know that the reality of managing risk can threaten the foundation of your company. In our experience, many smaller businesses often overlook or simply aren’t aware of how much is at stake from a financial standpoint when it comes to certain aspects of Human Resources. Here are some things we look at for our clients that are a good place to start when thinking about uncovering HR risk areas in your business:
1. Handling terminations properly.
Wrongful termination lawsuits are costly and expensive to defend (the average is $10k to $25k) and then they still often end up settling, which adds additional fees (think upward of $20k to $30k in additional expenses). Handling your terminations properly helps reduce your risk in this area. Having a strong employee handbook is important and so is having proper documentation around performance issues. How you handle termination conversations matters too, and can escalate or deescalate additional risk and challenges that can emerge from termination conversations that were not handled well.
2. Poor benefits program design and strategy.
Smaller businesses can get taken advantage of when it comes to benefit program design and this often means you may overpay for plan options that are not competitive. This can really hinder your ability to attract and retain great employees because your benefit costs are too high and your plan options are weak. Partnering with a benefits expert and with the right broker who is experienced in managing benefit plans for smaller group sizes is critical to getting great plan options that are affordable and meet your needs.
3. Failure to successfully “hook” top talent and convince them to work for you.
We see a lot of smaller businesses struggle with hiring talented people who may be reluctant to join a smaller team. Having a thoughtful employment proposition and a list of compelling reasons why someone would want to work for you is important to effectively convince people to join your team. Things like flexibility, PTO, growth opportunities, or other perks are important to talk about. Potential employees are going to ask these questions and you need strong responses to close them. Retaining top talent is a risk area for smaller businesses too. Knowing what matters to your current employees and how they feel about working for you is important data for you to have. Third party engagement surveys are a great way to get honest feedback from your team.
4. General HR compliance mistakes
I-9 compliance is a big risk area for many businesses, not just small businesses. Whether it’s completing I-9s incorrectly (or not at all), this area is one that carries hefty fines for employers and there has been a recent increase in Immigration and Custom Enforcement (ICE) audits. Other general HR compliance risk areas include failure to send out annual 401(k) notices, FLSA compliance (which is huge and can lead to class action lawsuits), failure to issue Section 125 Wrap documents, and more. The fines for failure to issue a section 125 Wrap document alone can be up to $110 per day for each participant. Many employers often think that if you’re a smaller business, federal regulators won’t target you. But it only takes one disgruntled employee to blow the whistle and report that they never did an I-9 for the light to shine on you.
These things are real money and real risk. A review of these areas is great first step in the right direction when you think about minimizing your financial exposure as you grow your business. If you have concerns about any of the above HR risk areas, send us an email or give us a call anytime for a quick consultation.
