Penny Wise and Pound Foolish: The Real Cost of Skimping on HR Staffing

August 22, 2022by Ravix Group

During an economic downturn, many companies will strive to cut costs in order to retain cash and survive. One of the functions severely affected by extensive cost cutting has been Human Resources (HR). The prevailing sentiment is ‘our company is too small to need HR’, or, ‘we are not adding headcount, so why spend on HR’. That approach can lead to unnecessary expense in time and money later.

These reasons for not needing HR assistance may be justified for a company with only a couple of employees and absolutely no intention of growing. Regardless of company size, any company planning for the future should realize that as it grows, so too does the need for HR assistance. Fortunately, Ravix Group offers human resource consulting in San Francisco that scales up or down to meet your needs.

Essential HR Tasks for Businesses of Every Size

Here are essential tasks easily handled by the best HR outsourcing companies (without adding headcount to your internal staff):

  • Formalized job descriptions: Periods of economic slowdown are the ideal time to get your core HR practices in place. Job descriptions are just one area where you should implement best practices.
  • HR compliance audit: A simple HR compliance audit can provide you with an outline of items that need compliance with the many federal, state, and local laws that apply to your business.
  • Unified policies and procedures: During busier times, when many companies experience rapid growth and the attention of key personnel is focused on product development, the creation of uniform or cohesive company policies and practices are often postponed or ignored. Companies that don’t have access to an experienced HR professional may not realize the need for formal and comprehensive policies and procedures.

Many companies experience times when effective workforce management is increasingly challenging and later regret not having established policies and procedures. Creating policies and procedures to correct past or existing problems is much more difficult and disruptive than if they were already in place before the situation occurred.

  • Risk management: Employees have many avenues to resolve employment issues besides suing their employer when a conflict arises. Employment agencies such as The California Division of Labor Standards Enforcement (DLSE) for alleged violation of wage rules and The Department of Fair Employment and Housing (DFEH) for claims of harassment or discrimination are available to them.

Employees can take their complaints to these agencies if there are no written policies that address their concerns, or the company has failed to publish policies and communicate them to all employees. If the agency finds in favor of the employee, in addition to any wages due, the agency can and will assess penalties that can be exponentially more costly than the actual wages in dispute. For instance, if a termination is found to be retaliatory or discriminatory, the penalty can be a large sum of money to cover the potential wages that a terminated employee could have earned in the future.

What Can Happen if You Fail To Standardize Your HR Policies?

Ravix Group provides HR outsourcing in San Francisco, so we have seen the consequences of fuzzy, poorly communicated HR policies firsthand. Like many small companies, ABC Co. had no written policies but had the practice of allowing employees to go negative in their PTO balance and allowed them to accrue the negative time back. Unfortunately, ABC Co., like many Silicon Valley firms, had to go through a painful and deep reduction-in-force (RIF) in order to dramatically cut costs and ride out the economic downturn.

One of the casualties of the RIF was sales rep Cindy, who had recently returned from a well-earned three-week European vacation and had exceeded her accrued PTO. When Cindy received her final paycheck, the PTO overage was deducted from her final wages. ABC Co. did not have any HR professionals on staff and did not complete an exit interview with Cindy explaining the final payout. Cindy tried to reach out to ABC Co. but was not satisfied with the answer she received.

Cindy filed a complaint with the California Division of Labor Standards Enforcement (DLSE). In the meantime, ABC Co. reconsidered, and paid Cindy the PTO amount deducted from her final paycheck.

When it came time for the DLSE hearing, Cindy had received all her wages, so ABC Co. thought that this issue had been resolved. But to their surprise, they now had a $10,000 penalty to pay: 5 times more than the original wages in dispute!

Simple Solution: An Official Employee Handbook

To add insult to injury, ABC Co.’s actions were not illegal. It was the fact that the company had not communicated the policy in writing to the employees. Had ABC Co. implemented an employee handbook, this could have been avoided. The cost of implementing an employee handbook would have most likely been less than the penalty and ABC Co. would have had a tangible resource instead of a costly dispute with an ex-employee.

While we sometimes read the tragic stories of disgruntled employees returning to the workplace to commit heinous, irrational crimes against former co-workers, there are far more employees who leave sad and confused and looking for answers. With no one to turn to at the company for answers, and not wanting to incur (or unable to afford) the cost of obtaining an attorney, they are often turning to the Employment Agencies to explore their options.

Right or wrong, the employment agencies take all claims very seriously and pursue them vigorously on behalf of employees. Inevitably, this action leads to time spent by the executive team, billable hours for outside counsel and a potentially painful settlement to the plaintiff.

Consider taking advantage of any slow periods to develop policies, procedures, and practices. That way, when business picks up,  these items will be done well instead of rushed through. Don’t have a short-sighted view on the dollars when it comes to HR development when you have the time.

Are you ready to engage with top HR outsourcing in Los Angeles or San Francisco? Ravix Group provides part-time or full-time fractional HR services to help you build out your policies and procedures. Contact us online or call us at 408 216 0656 today for assistance minimizing your risks and keeping employees informed.

Ravix Group

Ravix Group is committed to providing top-notch finance, accounting, and HR services to start-ups and mid-sized businesses. Our team will prepare you for your journey ahead. Get our services today!

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