The Small Business Guide To Managing HR Costs Effectively
In the current economic climate, the biggest headache for most small businesses is the costs associated with managing and employing staff. Ultimately, this comes down to one key question; are businesses spending too much time carrying out activities that they are not adequately trained to do? Business Mentor and management specialist Judith Germain explains why small businesses need to review the costs of their HR activities and explains why outsourcing non-core activities is so critical in today’s competitive marketplace.
It is inevitable that many entrepreneurs and small business owners will reach the point where they need to support the growth of their business by taking on additional staff, but many are put off doing so by the deluge of rules and regulations covering every aspect of the HR process. As a result, many businesses spend a great deal of unnecessary time and energy on managing their processes instead of running and growing their business.
In this article, we are going to look at the most common HR issues, which cause problems for small businesses and what can be done to ensure these areas are carried out more efficiently.
1. Legislation
Small businesses spend a lot of time trying not to fall foul of the increasing levels of legislation that befall them. Whilst legislation can be a good thing it can have a disproportionate effect on a small business.
For example the Disability Discrimination Act can see small businesses paying huge sums for failing to follow good processes and investigating absence claims properly. Many small businesses do not see the need for establishing absence policies believing that because the business has a family atmosphere there will not be any issues. This is beset with problems as once an employee falls ill, especially if their illness falls under the DDA, then the employee is often encouraged to claim against the employer in pursuit of the huge payouts that is perceived to be available to them. This can cause the business to spend an inordinate amount of time defending a DDA claim which is costly not only in management time but also in professional costs (ie external lawyers).
There is little understanding of the DDA amongst business owners and yet it is one of the most pervasive employment laws affecting businesses. Having a good absence policy can reduce the risk of a DDA claim and it is worth investing in getting such policies drawn up by a HR professional to ensure they meet the needs of the business and the requirements of the DDA.
2. Absence Policies
Whilst absence from work due to sickness is inevitable, businesses need to consider whether the amount of time taken off is reasonable and reflected across the wider business, as there may be underlying issues which are affecting the bottom line that are being missed or masked as ‘absence from work’.
If sickness/absenteeism levels are out of the ordinary (or relating to certain department(s) only) then it could suggest that there is a more serious underlying problem involving the management of the business. This could be due to poor management style, ineffective methods of delivery, low department morale, low motivation etc.
For example, where a department is under threat of redundancy, absenteeism is relatively low and attendance is stable (due to the fear that any days off work could mean that they are chosen for redundancy). But alongside this most organisations will find that there is an increase in absenteeism in other departments as a direct result of the redundancy threat in another department. More often than not this is due to low morale and upset about the pending redundancies.
The key challenge is to look at the company as a whole, and tackle the causes of absence and not the symptoms of it. This could mean a stronger reliance on preventative methods rather than just reactive ones. Thus ensuring that any issues with management efficiency and style as well as employee morale and motivation are identified and resolved at an early stage in order to avoid impacting on absence levels later down the line.
It is worth looking for a consultant who specialises in leadership and development issues who can come into the business and identify and resolve these issues at the core before they have a knock-on effect throughout the entire business.
3. Recruitment
Particularly in smaller businesses, the most crucial task of Recruitment is often undertaken by untrained employees. This can cause a minefield of potential dangers. It’s important to be able to recruit and retain the right employees because replacing an employee on average can cost a business between £5k – £10k.
Remember, businesses may face claims of discrimination in their recruitment process (which are unlimited). One option for small businesses looking to recruit new staff is to hire recruitment agencies to do it instead, as they can reduce the risk and overall cost of the firm doing it itself.
4. HR software for Payroll, Talent Management etc
For many businesses, HR software can bring a number of benefits, the most primary one being a significant cost reduction for the company in terms of administrative time, reduced staff turnover and HR headcount.
Significant improvements in how a company recruits and retains its employees can be established by using Talent Management software as it can provide detailed knowledge of the cause and effect of current and proposed recruitment strategies. Another area where Talent Management software comes into its own is in managing absence. Accurate record keeping, trends analysis and objective assessment can lead to increased attendance, lower costs and avoidance of expensive legislative issues flowing from contravening the DDA as mentioned earlier.
However, HR software should be treated with caution as one of the mistakes that companies make typically when buying integrated Talent Management software is allowing finance, payroll and procurement needs to influence the choice of system with limited input from a HR perspective. This often means that the significant cost savings and performance improvement that could be achieved by having a detailed knowledge of the talent of the organisation are never utilised, because they can be seen as expensive intangible factors for non HR practitioners. This can make the new system an expensive acquisition for small businesses with little practical use in managing the talent of a diverse workforce.
There is nothing worse than spending a small fortunue on a new piece of software only to end up never using it, so it is worth seeking advice from a HR specialist when considering the various HR software options available to ensure that the most suitable option is chosen for the needs of the business.
6. Pastoral Care
Perhaps the most cost effective and efficient means of reducing HR costs is probably the simplest and most overlooked; listening and talking to employees! A happy workforce will be productive, efficient and loyal and simply by looking after staff and ensuring that their needs are met through the business, there will be less absence, less overtime costs and less recruitment costs as staff churn reduces.
Mentoring and Coaching programmes are the most effective way of managing the personal and professional needs of employees and I have come across many situations where a simple miscommunication or misunderstanding between management and employees could have potentially had a disastrous effect on the business if it had not been nipped in the bud during an early mentoring session.
When evaluating the costs associated with managing and running a small business, it is crucial to indentify areas which take up a disproportionate amount of time and detract from the overall growth and development of the business. Outsourcing the more lengthy or risky HR activities such as recruitment, payroll etc can free up valuable time within the business to focus on more critical areas such as the development and well being of employees and their motivation and desire to help make the business prosper.
Tags: Business mentor, HR, Leadership, Small Businesses