HR Risk Management – Top 8 Sources of Human Resource Risk
Your business or organization needs employees to get work done and revenue booked. The trade off for that work is paying a salary. However, the overall cost of employing someone isn’t just their paycheck. In fact, the ancillary costs have been growing. If you turn a blind eye to them, they can make a huge impact on your bottom line. Read on to discover the Top 8 Human Resources Risks your organization faces and their causes.
1. Workplace Culture
From our experience, there are two major types of workplace culture. First, we have the team culture that unites everyone in the organization to achieve the desired goals of the organization’s leadership. This culture is typically embodied in how business is conducted, what kind of comradery is shared by everyone, how unified efforts are, and how well communication flows from one side of the org chart to the other (and everywhere in between). Building this type of culture is a different process for every organization. Sometimes a very charismatic leadership can set the tone, and everyone buys in. In very ‘flat’ organizations it can be a common rallying cry or shared purpose/cause that ties everyone together. Whatever the source, you need to cultivate and hire folks that will fit in with that culture and either maintain it or improve it.
The second culture is one of safety and risk management. Simon Sinek is famous for writing the book ‘Start with Why’ to explain that customers or business partners care more about Why you do something before they even think about How you do it. Well I’m here to tell you that the How is a very close second! How you operate needs to include a huge dose of an organization-wide safety and risk management culture. Why? Because how you operate needs to include a consideration of risk vs. reward and opportunity cost. Check out the video below for a deeper dive into cultivating an Organization-wide Culture of Safety & Risk Management.
So how can both Team and Safety & Risk Management culture break down and harm your organization?
- Employee Unrest – caused by either the perception of unfair treatment or concern over the direction of the organization. Impact: higher employee turnover, decreased morale, decreased productivity, and a drag on overall growth.
- Lack of Leadership – most organizational failures relate back to a breakdown in leadership. This is never more apparent than cultural failures. Leadership needs to buy in and practice what they preach in both of these areas. ‘Do as I say and not as I do’ is a recipe for disaster here.
- Uncontrollable circumstances – these can run the gamut from catastrophic weather to economic crisis. In these situations, a strong culture can save the organization. However, it is exceedingly rare that a lackluster culture is improved by an external crisis. Typically, even average organizational cultures fail during chaotic circumstances.
2. Workers Comp Injuries, Medical Costs, and Lost Productivity
Worker injuries can be prevented but you’re not going to be able to prevent all of them. They do happen from time to time. Some of them may result from freak accidents but often, they result from an unsafe work space, improper procedure, or an outside influence (think hit by a reckless driver).
Potential impacts to your organization may include:
- Loss of productivity
- Increased labor costs (Anyone able to work overtime?)
- Decreased employee morale
- Medical & Disability payments
- Fines and Regulatory Penalties (Hi OSHA! Haven’t seen you in a while.)
- Employee Turnover Expenses
3. Employment-related Lawsuits
“You can’t make all the people happy all the time.” And sometimes, a poorly executed HR process can not only fall short of expectations but severely discriminate against one or a whole group of your employees. The kicker is it can be inadvertent just as much as it can be intentional. There are always bad apples out there and part of a strong organizational culture is holding those folks accountable for their actions and potential undermining of that culture. Just as important, your organization needs processes in place to make certain that employees feel like their complaints and feedback are heard and taken seriously. Employment-related litigation is one of the fastest growing HR expenses (outside of health benefits). Suitable treatment of the workforce has lagged our society’s standards and if you turn a blind eye to it, the costs can be staggering.
Here are some effects:
- One or several lawsuits that will cost you significant sums of money for legal defense, damages, and even the employee’s attorney fees in states that allow fee shifting.
- Employee morale will plummet if the collective opinion is that the organization isn’t doing enough or nothing at all to protect them from discriminatory treatment or an unsafe work environment.
- Decreased employee productivity and increased missed days – if you don’t feel safe where you work, you’re not going to have too many reservations about calling out ‘sick’.
- Tarnished brand image – if it gets bad enough, a toxic work environment can lead to a negative opinion within the business community and pool of potential new hires. You might simultaneously find yourself unable to hire top talent and losing business out the back door based on this public image. In the present age of technology, this type of information spreads like wildfire and can be memorialized forever on websites such as http://www.glassdoor.com.
4. Employee Benefits Liability
Let’s punt on the 800-pound gorilla in the room and not delve too deeply into the trend of health insurance costs at this moment. If you want to learn more about that issue, check out our Benefits Solutions page. Your benefits programs are an expense, but they are ultimately in place to help recruit the best talent and retain that talent. Always keep in mind that how you administer your benefits program can open you up to risks related to who has access, how you inform them about their eligibility, support in enrolling, and what they are covered for (or receiving). This is a complex issue that is addressed in the video below:
Beware of these specific causes and effects:
- Poor communication can result in employees or dependents misunderstanding which benefits they are eligible for, deadlines for eligibility, or extreme disappointment when employee expectations are not met…results in lower morale, higher employee turnover, and a potential lawsuit (legal expense and damages)
- Program Design issues can be inadvertent or intentional; inadvertently excluding eligibility for an employee or group of employees or intentionally excluding eligibility when regulations or legal statutes are misunderstood or ignored…results in a very costly lawsuit (legal expense and damages) as well as potential regulatory fines.
5. Network & Data Security Risks
Hackers can gain access to your network and data several different ways. One of the most frequently exploited channels is your employees’ behavior. From opening suspicious emails to voluntary sending log-in credentials or financial information, your staff is on the front line of combatting intrusion or possibly opening the door, so a hacker can waltz right on in. The key here is training and awareness because the causes mostly relate back to improperly followed procedures.
- Lost data
- Network and business interruption
- Lost revenue during down time
- Costs to fix the damage or replace the data
- Forensic audits
- Regulatory fines & penalties
6. Theft & Embezzlement
Theft is a very common and often difficult risk of loss to protect against. It seems like every year there is a story about a disgruntled or financially strapped employee that has pocketed a large sum of employer money. The causes here vary but often it comes down to an employee who has fallen on hard times, has a behavioral issue (ie – gambling habit), or is disgruntled and wants to settle the score. The ultimate losses here are any assets that are unrecoverable, the loss of an employee (sometimes they’re even really good at their job), and any public relations exposure associated with the event/s.
7. Training & Competency
This risk really crosses every aspect of your organization’s daily operations. Training & Competency failures typically result from a poor or missing program that doesn’t set your employees up for success. Causes here are usually apathy or unawareness of training deficiencies. The results are across the board from liability lawsuits brought by customers or outside third-parties, a hacking event, an employment liability claim, repeated workers comp injuries, and even all the awful effects of an employee death. Most Risk Management Services programs focus heavily on training.
Turnover is a common theme in almost every aspect of HR Risk Management. The causes originate from everything above. The costs of unhealthy employee turnover rates can be crippling for an organization. In fact, some studies show that a single lost employee results in expenses equal to a multiple of that employee’s yearly salary. Check out this Employee Turnover Calculator provided by bonus.ly. You may find the numbers a little sobering!
Human Resource risks are present at every step of the hiring, retention, and daily operations processes. Take a proactive approach and make sure that human resources planning is always top of mind. If it isn’t, the consequences will sneak up on you and these issues have a habit of snowballing. So be safe, get out ahead of them.
BONUS: Take Our Hiring Best Practices Quiz