(Editor’s Note: Today’s post is brought to you by our friends at Kronos, a leading provider of workforce management and human capital management cloud solutions. The Boston Business Journal has recognized Kronos as the 5th Healthiest Employer in Massachusetts and BostInno named them one of the 10 Coolest Companies to work for. Many congrats! Enjoy the post.)
The human resources function is often criticized for spending too much time focused on compliance. The reality is compliance is an important part of the HR function. It’s also expensive.
A new survey from The Workforce Institute at Kronos and Future Workplace indicates that it can cost organizations as much as $100,000 each time a federal, state, or even local labor law is created or changed. And if you’re thinking to yourself, “That’s exactly why we need fewer labor laws!”, well…you could be right. But that’s only from a maintenance perspective. It doesn’t reduce the cost of changing the law. Organizations have to use just as many resources when a law changes.
We could debate all day whether or not a piece of legislation is necessary. That’s not the point. There will always be multiple sides any time a labor law changes. The real takeaway here is that the task of implementing a policy based on a piece of legislation is complicated, challenging, and costly. Malysa O’Connor, senior director of SMB market development at Kronos, says the key is balancing multiple business responsibilities. “As the survey demonstrates, human resources and payroll professionals at organizations of all sizes want to ensure compliance to the fullest of their abilities, but often struggle because of the constant and rapid nature of the changes.”
How a Labor Law Impacts Your Bottom Line
When organizations are faced with implementing new legislation, costs arise in multiple areas. Obviously sometimes there are direct costs, like a minimum wage change. Then there’s the time that it takes to research the new legislation, change existing policies, and educate the company. Finally, there are costs associated with developing recordkeeping and administrative procedures to maintain the new requirements. Survey respondents shared some eye-opening insights about labor law compliance:
It’s complicated. There’s no one-stop resource to keep up with regulatory changes. Over half of respondents (59%) said they rely on their HR/payroll software provider to learn about changes. Other resources cited include industry associations (39%) and legal counsel (37%).
It’s challenging. We know it’s hard to recruit and it’s not getting any easier. Nearly two-thirds of respondents (58%) reported that they’ve witnessed colleagues occasionally cut compliance corners. Sixty-four percent (64%) say that they expect compliance to be even more challenging under the current administration.
It’s costly. More than two-thirds of survey respondents (68%) said that compliance is more expensive than last year. Three-quarters of respondents (74%) said it’s more expensive than 2007. What’s interesting about these numbers is that, in organizations with less than 500 employees, 20 percent can’t identify the annual cost of being compliant.
While these numbers aren’t comforting, I don’t believe the answer is for HR to minimize the importance of their compliance role. In fact, it’s quite the opposite.
HR’s Role in Managing Compliance
HR needs to play an active part in managing compliance. Because when that happens, HR has a direct impact on the bottom-line. So, what can HR professionals do? Here are three things to consider:
1. Be ready to talk numbers with your senior management team. When new legislation is enacted (or even being considered), the first question senior management asks is “How much is this going to cost us?” Think about the last labor law you had to deal with (i.e. changes to the Fair Labor Standards Act) and what was involved. Put an estimated dollar amount on it. At least that way you can say, “Here’s what this law cost us…”.
This is also a great time to partner with the finance department. Get their insight about what a legislative change means to their function. Together, HR and finance can present not only the costs but a proposed plan to address the change.
2. Discuss the pros/cons of getting involved with legislative advocacy. More businesses are realizing the need to have their voices heard when it comes to government advocacy. I remember years ago working for the airline when a proposed fuel tax was going to impact our business. Not only did the company make their feelings about the tax known, but employees contacted their legislators as well.
Human resources professionals can become members of the Society for Human Resource Management’s Advocacy Team (aka SHRM A-Team). SHRM posts public policy information and provides an easy way to contact legislators. Business professionals can also check with their industry associations and Chambers of Commerce.
3. Find a strategic technology partner. Organizations can use technology to ease the burden of change. While HR plays a key role in compliance, it doesn’t mean they need to manage it by hand. This is when technology gets to do what it does best, so HR spends more time on face-to-face interactions.
Yes, technology helps with administration. But an excellent technology provider does so much more. Cloud solutions and highly configurable systems do more than risk avoidance. They bring direct value and can enhance the candidate and employee experience. While we have to be compliant, we don’t have to make it a negative experience.
Labor Law is Always Changing and We Have to Change with It
Fortunately, and unfortunately, the law is always changing. But this doesn’t mean that HR and the business always have to be burdened with administration. Organizations can create an internal infrastructure that manages compliance efforts with the help of technology.
To get more information about how HR departments can manage compliance more effectively, check out the full “$100K Bill” report on the Kronos website. We will always have to deal with compliance. But, with a little help and planning, maybe we can manage it more effectively.12