The Real Cost of Poor HR Practices
Not only are sound Human Resource practices critical, but there is no substitute. It doesn’t matter whether you are in the retail business, the service industry, a manufacturing firm or a contractor, or if you have 3 employees or 3,000 employees. The true cost of poor HR practices is overlooked by most businesses and often times they don’t embrace proper practices until a problem arises. When they feel some pain, is when they accept and support that they need to make changes.
Forward looking companies, small to medium to large, don’t wait for the pain. They grasp the concept of being proactive and decide to adopt best practices early on. This approach not only makes them a great company, but undoubtedly can save them from the pain and often times the financial hit they could possibly take.
So, what’s the cost of poor practices? Using three examples of Hiring, Legal Compliance and Employee Discipline and Termination will give you an idea. In addition, other unaddressed areas such as retention, performance management, workers compensation, management and delegation, workplace culture and compensation will only add to the financial burden if not executed properly.
Think about the cost of a bad hire. Not only does the new hire have an impact on the other team members if they don’t fit, or pull their weight, but they also cost you time and money in other ways. Think about some of these costs related to poor hiring practices:
- They don’t have the proper skills
- They have significant character defects
- They have a substance abuse problem
- They have felonies on their criminal record
- The cost of training if they don’t work out
- Workers compensation cost if they have an accident
- Unemployment claims if they are terminated
- Litigation costs for improper employment practice related issues
It’s difficult to add up all the costs associated with a poor hire, but safe to say the costs can exceed the first year compensation for the position. Additionally, many employee lawsuits start with poor hiring decisions.
2. Legal Compliance
Employment related litigation is on the rise and is expected to continue. Consider the fact that the employee prevails with a lawsuit more than two thirds of the time. Also consider that the average employment related award exceeds $250,000 and the cost of defending can approach $100,000. Even the most frivolous lawsuits can cost tens of thousands of dollars. Obviously the financial impact of employment related litigation is very large, so the need to make sure proper compliance with the myriad of human resource laws and regulations is of the utmost importance. Laws and regulations constantly change as well, and it’s important to stay on top of the changes.
3. Employee Discipline and Termination
In the past, management controlled more of an employee’s performance so the end result is they took on a larger part of employee problems. Today many companies wish to place their associates in a position where they are most likely to succeed and let them have ownership and take responsibility for their actions. Ask yourself; what’s the cost and damage of holding on to an individual that doesn’t perform as expected? Have you ever said you’d be relieved if they left?
Many managers discipline employees in a manner that can set off a “fight or flight” response, not the taking of responsibility. Most managers do a poor job of rewarding good performance and spend most of their time managing the smallest number of employees causing most of the problems. Improper documentation of poor performance is one of the main reasons that companies hesitate to terminate poor performers. There is always a way to get your team to take responsibility. Harboring poor performers is damaging and costly.
The true cost of poor HR practices is overlooked by most businesses until they run into a problem. Hiring, compliance and employee discipline and termination, retention, performance management, workers compensation, management and delegation, workplace culture and compensation all add to a very large financial burden if not executed properly.
For assistance with any or all of your human resource needs, HR Affiliates provides solutions that fit any company.