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Best Practices in HR Risk Management

I am always surprised by HR professionals who gamble with their organization's financial and human capital assets by ignoring sound risk management principles. At a time when legal, regulatory, and operating issues dominate employer focus and constrain budgets, the HR function often plays a passive role in providing strong risk management for the organization through best practices leadership. So, how can you correct this inertia and better leverage your organization's HR knowledge? You will want to employ these five risk management practices that every organization should demand from their HR function.

  • Conduct Annual Compliance Audits and Correct Deficiencies Immediately.  All organizations must operate within the confines of a heavily-regulated employee environment with complex laws and regulations. Examples include: ERISA, COBRA, EEOC, OSHA, ADA, FMLA, FLSA, and Title VII compliance. Equally important is how you handle employee misclassification, workplace violence, substance abuse, staffing, performance management, training, discipline, termination, unemployment, age discrimination, and sexual harassment. You should develop an audit checklist that ensures your internal processes manage potential noncompliance risks that are frequently the basis for significant financial risk. Also, scan your organization's current level of regulatory compliance to avoid employee lawsuits as well as regulatory intervention and fines.
  • Update Your Policies Regularly with Employment Law Changes. Seek out expert HR advice and meet with your legal counsel on a regular basis to identify legal and regulatory changes affecting your organization. Develop a communication process that informs and educates staff, supervisors, and management about the impact of policy changes. Provide employees a policy handbook and make sure they understand your policies. In the Internet era, your employees are very knowledgeable about employment rights-they will not hesitate to pursue claims if they sense the employer-employee "fairness" compact is breached.
  • Manage HR Supply Chain Risks. HR has primary responsibility for the major cost supply chains in most organizations. Examples include: labor and benefit costs, recruiting, training, vendor management, recognition programs, and health/wellness programs. It is critical that you recognize the cost of failures in the supply chain and develop processes that protect against failures. You should constantly assess the capabilities of vendors to perform, audit supplier performance, and establish a contingency process to minimize service delivery disruptions.
  • Aggressively Manage Benefit Plan Costs. Numerous opportunities exist to manage and reduce benefit plan costs which typically can account for 25-30% of your compensation costs. Evaluate using Paid-Time-Off (PTO) Banks to reduce accrued payout liabilities. Implement flexible spending accounts (FSA) to reduce employer tax liabilities. Conduct medical, dental, and disability utilization reviews to reveal negative trends and detect potential abuse patterns. Conduct dependent eligibility audits to reduce claim leakage/costs. Conduct retirement plan audits to identify hidden fees. Clearly communicate your benefit "menu" to employees and provide annual benefit statements highlighting its cash value. Establish employee advisory committees to review benefit programs and identify preferred benefits. Conduct employee surveys to assess whether employees value current benefits. Utilize external benefit experts who can guide you on the most cost-effective programs.
  • Make Effective Use of HR Professionals. Your HR professionals should strive to be recognized as part of the leadership team while not forgetting that the "Seat-at-the-Table" must be earned. You should demand competent and effective HR support services. Hire HR professionals who are: financially literate; can see around corners and know what is next; and are thought leaders and catalysts for change management in every aspect of your organization's operations. Whenever possible, build your organization's HR "brand" and credibility around well-educated and certified HR professionals with recognized HR credentials (PHR, SPHR, GHRP) compensation credentials (CCP, GRP, CECP), and benefit credentials (CBP, CEBS, WLCP).
Posted October 26, 2011

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