Small businesses spend many hours molding and shaping their organization so that they can retain their focus of beating competitors, finding new customers, and boosting their revenue and profits.   Business owners often overlook one of the most potentially serious and costly issues- compliance with human resources.

One challenge is that when small businesses first start that the human resource department is often only one person.  This one person is usually responsible for compensation and benefits that may include payroll, employee evaluations and grading, job analysis; HR management which includes the policies, procedures, budgeting, and planning; labor relations which usually includes in discipline, discrimination and harassment complaints, attendance, and conflict resolution; staffing and recruitment; and orientation and training of employees.  This way of running an HR department is very risky because normally the person is learning on the job, and the saying “ignorance of the law is of no defense” is applied when the business is faced with an audit or investigation by a governmental agency such as the IRS, Department of Labor, or Equal Employment Opportunity commission or even litigation.

The idea solution for any company is to hire an in-house specialist with experience.  Another solution is to send the employee for specialized training.  However, small businesses normally cannot afford this luxury especially when the company is new and just starting up.

Another challenge for small businesses is that small businesses could be overlooking and not addressing exposure to workplace litigation.  In 2003, the EEOC (Equal Employment Opportunity Commission) reported over 80,000 charges claiming multiple types of discrimination with race and sex discrimination being the most prevalent.  Despite the possibility of being sued small business owners are not addressing the problems.  Few business owners, when surveyed provide training for sexual harassment and/or employee discrimination.  According to the DOL (Department of Labor), 50% of new hires leave their jobs within the first six months.  For a wrongful termination lawsuit, the average cost run up to $85,000 with winning plaintiffs receiving judgments that average $500,000.

According to the U.S. Small Business Administration, small businesses spend 80% more per employee for federal regulatory compliance than large companies.  Poor management of personnel-related tasks is one reason for the increase of costs.    Keeping up with regulations and laws are daunting tasks.

One solution is to carry Employment Liability Insurance to cover the cost of employee lawsuits.  However, for a small business owner they normally cannot afford the coverage that costs approximately $10,000 per year.  There is also a lot of information online from reputable resources.  The DOL and the EEOC both have so many wonderful resources for employees and employers.  The drawback is the amount of information is overwhelming, and it will take the one employee a lot of hours to research and learn the needed information.  It is vital that the laws be truly understood, and the employee MUST become an expert.  The business owner has to be able to know which laws and regulations apply to them.   

Another problem is data entry errors due to duplication of paperwork.  Every new hire comes with a mountain of paperwork consisting of verifications, tax forms, I-9 forms, insurance enrollment forms, retirement savings forms, and flexible spending account forms.  Quality assurance is a must.  All the information is then transferred to payroll that may or may not be in-house, and a lot of the times it is the one employee.  To correct the errors it costs time and money.  This can lead to the human resource functions not being coordinated properly.  Recordkeeping must be accurate and kept in sync within the processes and/or departments. 

Buying payroll software can correct a portion of these errors; however, the software does not address the need to integrate payroll, benefit, and HR functions.  Having more than one employee can help with quality assurance.

There is one simple solution for all of the above challenges.  By outsourcing HR functions, dealing with these issues a business owner is protected because the owner is able to have expert guide them.  By outsourcing, the company does not take the risk of the one employee quitting and taking the knowledge with them.   Outsourcing is also much more cost effective.  By outsourcing, the business owner will save on the salary for the HR manager along with taxes and benefits.  The business owner receives experienced HR support with experts with specialized training.  The business receives on-site and off-site support and assistance.  The business owner along with the employees receives training in a wide variety of areas.  The business owner is assured that they are in compliance.  Processes are streamlined saving time, making the process more efficient, and more accurate.  By outsourcing HR functions, business owners and the employees can focus on the goals of increasing revenues and profits, finding more customers, and beating the competitors.

For a free needs assessment, the Business Revelation can be contacted by phone at 501-278-5122 or email at info@thebusinessrevelation.com. The Business Revelation strongly believes in working with the small business owner, employees, and other outsourcing companies as a partner for cost effective solutions.