How Does HR Outsourcing Help With Risk Mitigation?

Every business that has employees must navigate through a thicket of federal, state, and local employment-related rules and requirements. These grow more complex every year, putting companies at greater risk of becoming non-compliant. The financial impact can be severe.

For example, a company that doesn’t correctly pay overtime can face a lawsuit brought by the Department of Labor or by the employee who was underpaid. Penalties may include two-times back wages, attorney’s fees, court costs, additional penalties, and even, in some cases, criminal prosecution.

A business that loses an employment discrimination lawsuit could face steep costs, potentially including back pay, back benefits, attorney’s fees, court costs, and expert witness fees.

Many businesses adopt a strategic approach to HR outsourcing by leveraging expertise to help with risk mitigation. Third-party providers can mitigate risk by supporting HR processes and providing best practice guidance on HR compliance.

The Risk Landscape for Modern Businesses

The key HR-related risk categories that businesses face today include:

• HR compliance. It’s hard for a small or medium-sized company to keep up on its own with constantly evolving employment-related laws.
• Misclassification and payroll errors. This category includes misclassification of exempt versus non-exempt employee and independent contractor. Businesses also often run afoul of wage and hour laws through incorrect minimum wage or overtime payments. The financial risks include penalties from regulatory agencies and claims from employees.
• Shoddy HR processes. Poor workflow, inadequate records safeguards and other procedural weaknesses increase the risk of non-compliance.
• Loss of reputation because of employment practices. HR compliance failures can inflict financial harm over the long term by damaging a company’s reputation with its customers and potential employees.
• Risks specific to certain industries. Employers in heavily regulated sectors need to take more precautions to avoid noncompliance.
• Employee claims. These include claims of discrimination, harassment, wrongful termination and retaliation.

How HR Outsourcing Mitigates Common Pitfalls

The right outsourcing solution can help your company navigate common compliance pitfalls and mitigate risk, including:

Worker misclassification (employee vs. independent contractor)

The problem. Employers may incur penalties by mistakenly classifying employees as independent contractors. The rules defining the differences between the two are complex, and it can be hard for a non-specialist to always make the right call.

The solution. Compliance specialists at HR outsourcing firms  can use their experience and expertise to provide best practices to companies so they can navigate classification.

Wage and hour violations

The problem. Wage and hour violations include payments below minimum wage, use of child labor, misclassifying non-exempt employees as exempt, and not keeping required records. These violations are often the result of a lack of in-depth knowledge of the applicable rules and requirements.

The solution. Following best practices and staying on top of complex and changing employment-related laws helps mitigate risk.

Benefits administration errors

The problem. Complex laws, including the Affordable Care Act, create compliance challenges for non-experts.

The solution. HR outsourcing firm experts understand the implications. They can help prevent errors from occurring and provide support in case they do.

Inadequate workplace safety protocols

The problem. Lack of adequate workplace safety protocols can trigger OSHA violations.

The solution. HR outsourcing providers can help with effective safety procedures and safety training that meet OSHA standards.

Workers' compensation fraud

The problem. Processing claims can be convoluted and time-consuming. In the end, employers could face fines and premium increases. In addition, dishonest workers sometimes file fraudulent workers’ compensation claims.

The solution. HR outsourcing providers can help with the claims process. In addition, some HR outsourcing companies can provide access to premium coverage from a top rated workers’ compensation carrier and pay-as-you-go billing for cash flow optimization.

Inconsistent application of policies and procedures

The problem. When employees of different protected statuses are treated differently from each other, that could give rise to claims of discrimination.

The solution. Emphasize the need for consistency and fairness in your training programs for managers and staff. Create clearly stated company policies and document the message in employee handbooks.

Documentation gaps and record-keeping failures

The problem. Employers are required to keep certain payroll and other records for specified lengths of time. It’s easy for non-experts to miss a requirement.

The solution. HR outsourcing providers may offer storage solutions that automate the process of storing payroll records in the cloud, allowing you easy access when needed.

The Value of HR Outsourcing

In addition to the solutions just mentioned, other value points for risk mitigation from HR outsourcing services include:

• Review of your processes to identify potential compliance concerns, so you can address them.
• Training for managers and employees on compliance requirements. They can learn what is expected of them and how they should handle situations that might involve potential harassment, discrimination, or other unlawful practices.
• On-demand support that can include certified HR professionals to help address difficult HR challenges when they arise.
• Resources to support a company during crises such as natural disasters or worldwide, national, or industry economic shifts.

Industry-Specific Risk Mitigation

Some businesses need expert help because of what they do. Every industry comes with its own needs and challenges, but some have specific risks. It helps to have an HR outsourcing company with proven experience in your industry. Here are the specific risks faced by some industries:

• Healthcare. HIPAA compliance, credentialing, and patient safety considerations
• Construction. Worker safety, contractor relationships, and project-based staffing
• Financial services. Stringent background checks and regulatory requirements
• Hospitality. High turnover, wage and hour complexities, and seasonal staffing
• Technology. IP protection, non-compete enforcement, and global workforce issues
• Retail. Scheduling compliance, minimum wage variations, and multi-location management

Technology and Automation in Risk Mitigation

It’s challenging and expensive for a small company to choose, buy, install, maintain, troubleshoot, and update an HR technology system. An HR outsourcing firm or professional employer organization (PEO) brings economies of scale to the table. They generally offer advanced HR technological systems. This generates multiple benefits for the client companies, including:

• Gaining access to a system that is powerful and secure that they may not be able to access on their own.
• Reducing the vulnerability from human errors in manual processes that could also cause compliance concerns.
• Providing automated compliance support alerts.
• Producing analytics reports and performance metrics to identify risk patterns.
• Integrating employee benefits with other business systems.

Peace of Mind

TriNet uses a multi-pronged approach to help companies navigate compliance with employment-related rules and requirements. HR compliance experts provide personalized best practice guidance and HR technology automates processes. If a compliance concern does arise, TriNet can help support with HR expertise. Working with TriNet gives companies the peace of mind that comes from knowing they are mitigating risks while  optimizing costs of their HR operations.

For example, Abrams Media, creator of Mediaite and other popular and trusted sites, engages TriNet to help the rapidly growing company navigate compliance with employment-related requirements. The media company’s executives appreciate TriNet’s scalability and the way it offers best practice guidance, stays abreast of changing regulations, and helps them so they can implement sound practices.

“Knowing that there's a company whose responsibility is to help make sure that we are complying with employment-related requirements gives me and our company a sense of comfort," says Andrew Eisbrouch, COO and General Counsel at Abrams Media. "For a company like us, it’s very helpful to have a company like TriNet who can spearhead that aspect."

To learn more about risk mitigation for your business, download our free eGuide: HR Compliance Survival Guide for Small and Medium-Sized Businesses.