One of the largest thorns in the side of business growth is unexpected costs. While an unexpected cost may not necessarily put a business out of commission, it could certainly be a roadblock for reaching monthly and quarterly goals. Beyond hampering present scaling efforts, unexpected costs ruin future predictions of a company’s potential growth and delay closing the books on past expenses. In short, unexpected costs have the potential to harm all past transactions, present efforts, and future goals of a company.
Know the name of unexpected costs
In the Art of War, Sun Tzu says, “If you know the enemy and know yourself you need not fear the result of a hundred battles.” While the words written are designed for military purposes, it also contains sage advice for businesses. Simply knowing what unexpected costs a business can face (know the enemy), as well as knowing what people, processes, and systems are in place to prevent them (know yourself) can save a company hundreds of thousands of dollars annually.
Here are a few unexpected costs that may arise as a business scales:
Charges from benefits reconciliation errors: When an employee is terminated or experiences a qualifying life event, changes need to be recorded both in payroll and with insurance carriers. However, if an insurance carrier doesn’t receive notice that an employee had a status change, the insurance carrier will eventually bill for back charges which could total anywhere from hundreds to tens of thousands of dollars. It is estimated that employers who provide benefits to their employees may be over or underpaying their monthly bills by 1 to 5% because of benefits reconciliation errors.
Unexpected turnover: According to the Society for Human Resources Management (SHRM), the average cost-per-hire is $4,129. This statistic is just for hiring and doesn’t include other costs associated with the absence of the previous employee. A higher turnover rate may come in the wake of a new policy implemented by management, as the result of workplace tensions surfacing, or by some other means, but ultimately, a spike in turnover rates will inevitably lead to thousands in unexpected costs.
Government fines: One of the biggest business upsets is failing an audit conducted by a government institution. Fines are charged depending on the severity of the noncompliance and could result in hundreds to thousands of dollars as well as legal costs. In a report conducted by the Labor Enforcement Task Force, an average of 91% of businesses in California were out of compliance with one of its many labor laws. Despite intention, all compliance violations uncovered in an audit will incur fines.
These are only a few examples of the unexpected costs a business can potentially face. Depending on industry, employee headcount, and a host of other factors, there could be more to be aware of.
The shield against unexpected costs
Fortunately for business, having an effective HR department with the right people, processes, and systems in place is a way to mitigate the risk of unexpected costs due to one of the above causes.
People: In a field like HR, expertise is everything. However, as the HR industry grows more complex, HR personnel need to be adept with more than just traditional HR skills. HR professionals that can interpret data and turn insights into strategic decisions will be necessary to preventing unexpected costs.
“If you can collect a lot of data about the workforce and look at it holistically, you can predict who the right people to hire are, and who are most likely to be successful as leaders," Josh Bersin, CEO of Bersin by Deloitte, said. "If out of the last 20 people we hired in this job, the four people with this background failed, we're not going to hire people with that background again.”
HR professionals should be capable of seeing trends, interpreting data, and then crafting solutions that will effectively resolve workplace issues before they become costly expenses.
Technology: Technology provides the data HR needs to prevent unexpected costs. Having the right Human Resources Management System (HRMS) or Human Resources Information System (HRIS) is vital for HR to be effective. This technology should also do more than just store employee data; it should provide visibility into the workforce so that HR can make better hires, ensure compliance, and monitor the workplace.
Processes: Automating processes can reduce inefficiencies in HR. Leveraging the right solutions to do so can allow technology to mitigate human error and streamline processes. This will free up HR personnel to focus on being a strategic partner and not mainly a paper pusher. If the right processes are in place, then HR can quickly move through complications that may have resulted in an unexpected cost.
Overall, an organization that wants to prevent unexpected costs will need to do everything it can to make its HR department as efficient as possible.
Roadblocks to an effective HR department
The ideal HR department isn’t always a reality for some organizations. In fact, very few organizations have a flawless HR track record. Different things may keep an HR department from being effective.
Overburdened HR employees contribute to inefficiencies and thus can cause unexpected costs. Studies reveal the average HR employee spends over 50% of their day handling non-strategic tasks. When an HR professional is in this position, they may spend hours trying to resolve an employee issue rather than developing solutions to preventing the issue in the future.
A lack of expertise is another roadblock to efficiency. Often as a business scales, employers neglect hiring an HR professional to manage their workforce. Rather, HR tasks are given to employees who have little to no knowledge of HR. This simultaneously increases the risk of errors occurring, while placing additional responsibilities on employees who may already be overtasked.
To create the optimal HR department, it will take more than just a single individual. A successful company is built with the help of a team of HR, payroll, and benefits specialists. Businesses needing additional support may seek a relationship with a trusted outsourcing partner who can provide the resources necessary to create such a team.
About the Author
Andrew is a marketing Communications Specialist for Zuman, the one solution for HR, payroll, and benefits administration that supports growing small to midsize businesses.More Content by Andrew Larsen