HR Risk Management: A Complete Guide for Businesses

July 7, 2023
Human Resources Risk Management

Business involves risk. From start-up nonprofits to massive corporations, risk management is always going to play a key role in the workplace. HR risk is the specific risk posed to an organization by human interactions. To stay compliant and mitigate risks in employee behavior, HR teams need to take a proactive approach.

If poor HR risk management leads to high turnover rates, for example, jobs will sit vacant. Vacancies are expensive. Plus, they strain existing staff and that may cause dissatisfaction. To compensate, hiring managers might rush things and bring a poorly vetted candidate into a key role. The damage grows and cascades throughout the organization. This is typical of the losses inflicted by the failure of risk management or its absence.

The world of human resources is a flowing ecosystem. Everything is related and unmanaged risk in one area can cause unexpected trouble in others. This article is a complete guide to navigate the complexities of human risk and HR risk management.

Types of Risk

Before we can reduce risk, we have to identify where it might come from. HR professionals can help a company work through and identify all potential risks in their business, from sexual harassment to workplace injury.

Once the risks have been identified, they can be prioritized. What is the likelihood of it happening? Is it likely to be an isolated incident? If not, how often might it occur? What are the consequences? Can it be prevented by training? If it were to happen, how would we deal with it?

Let's work through a few examples as a point of entry for HR risk assessment.

Recruitment risks

Hiring and onboarding eats up time and money with the potential for mistakes. As we’ve mentioned, a pressured work environment could lead to a rushed hiring process. A missed background check or incomplete follow-up with references could bring in a real problem person. Or, someone in the hiring process could make a discriminatory hiring decision, causing the business to face legal claims.

Retention risks

Once new employees are in the door, it doesn’t mean they’ll stay. After a confusing onboarding process, a new hire might be unsure of their responsibilities or of safety protocols. This could lead to damaged equipment, injuries, privacy violations or simply low-quality deliverables. Meanwhile, the employee might question their own competence and feel hung out to dry.

Even if no disaster occurs, employees brought on board with little guidance often feel little loyalty to their company. It's hard to feel adrift and engaged at the same time. Among other problems, new employees might be unaware of opportunities for training and career growth. They might assume they need to find another employer for that.

Compliance risks

Outside of health benefits, employment-related litigation is one of the fastest-growing HR expenses. To avoid risk, prudent companies adhere to labor laws and follow workplace safety guidelines and industry norms. Failure to do so can bring lengthy, costly and demoralizing fallout. This can be true whether the risk was calculated or unintentional.

Employment risks

These can take many forms. For example, employees might be asked to work extensive overtime, risking burnout and denting the company's budget for payroll. Burnout can worsen other problems, such as workplace conflict and harassment.

Employees, former employees or potential employees can claim discrimination, harassment, retaliation, wrongful termination and other issues. One study found that more than one in four private companies reported experiencing an employment practices liability (EPL) loss in the previous three years. The same study found that average losses can reach over $100,000.

Problems in this area may fall on management. One survey found that 84% of U.S. workers blame bad managers for creating unnecessary stress. Managers need adequate supervision, too. This is one reason that it's critical to conduct exit interviews when employees leave. They may tell you about bad managers who are creating hostile work environments and driving away good employees. You can guess where this leads us back to: retention risks. (If you want a shock, check out this calculator for the cost of employee turnover.)

Data privacy and security risks

Data security now seems to touch on all areas of life. In such a tech-based work world, it’s easy for a company to fall prey to standard phishing scams and hard-to-catch malware. Employees are just a click away from exposing themselves and their colleagues’ sensitive data or allowing hackers to cripple a company's operations.

It’s also critical for departing employees to be swiftly and cleanly separated from access to confidential and proprietary information. As soon as possible, companies should revoke their accounts and passwords and reclaim their company-owned electronic devices.

Techniques for Mitigating Risks

Companies can take a wide range of steps to mitigate risks involving a company's human capital. Let's look at some common and effective approaches.

  • Develop HR policies and procedures. Create standard ethical guidelines, workplace policies and training procedures, and spell them out in an employee handbook. Have each employee review and sign a handbook as part of the onboarding process.
  • Conduct HR audits. List relevant workplace risks and rank them. Make an approachable tasklist for HR representatives to start tackling. Remember that it’s an ecosystem and a positive change in one area can bring positive consequences throughout.
  • Provide training and education. In a 2022 report, 75% of millennials and Gen Zers said they planned to quit their work due to a lack of workplace learning opportunities. For employee growth and satisfaction, create room for ongoing training and continued challenge in their roles.
  • Strong onboarding process. Strong onboarding sets the stage for an employee’s future success by providing the necessary resources, training and support. Include a thorough orientation that outlines safety standards, clarity regarding company policy, along with individual priorities and responsibilities.
  • Implement risk management software. Wherever possible, use risk management software that can help monitor regulatory compliance.

Benefits of HR Risk Management

Let's recap some of the most common benefits of a comprehensive risk management plan.

  • Improved engagement. Employers can breathe easier when they feel assured that the company is doing everything possible to stay compliant with regulations. Employees, too, will feel safer in knowing that their rights are being respected and upheld. That kind of security can help everyone focus on their main tasks and goals.
  • Increased employee satisfaction and retention. Minimizing potential risks is a great way to make employees happy. And if an incident occurs, employees are comforted when there’s a clear procedure that's followed promptly. U.S. employers are experiencing the lowest job satisfaction rates in 20 years and baseline risk management can make a big difference.
  • Reduction in costs. With precautionary measures in place for staying compliant, organizations can spend less money in litigation. Reduced overhead allows for greater profit margins, creating more room for investment into industry innovation or employee bonuses.
  • Better overall organizational performance. When less time, energy and money is spent putting out fires, it’s usually because someone took the time to water the ground in preparation. That is the perfect soil to plant new seeds and grow better organization ideals, increase profit and improve overall organizational performance.

How TriNet Can Help

Establishing a risk management plan isn’t easy. Both employees and management may resist new oversight. Also, a company might find it difficult to afford the necessary HR management team. How can a company with limited HR power proactively prevent problems, while retroactively resolving issues? TriNet offers a specific HR risk management plan catered to serve your small business.

We conduct industry-specific risk assessments with experienced risk management consultants to help reduce your likelihood of workplace violations or injuries. From payroll compliance to occupational health standards, we are here to offer solutions. Once a solution is implemented, we also step in to help you track and monitor your results. From start to finish, TriNet strives to help protect your company from all matters of workplace HR risks.

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