Is HR Debt Crushing You?

In celebration of National Small Business Week, TriNet HR experts, Jacqueline Breslin, Executive Director, Compliance and HR Services and Rob Maresca, Lead HR Compliance Consultant, discuss the concept of HR debt. They cover the keys to success when it comes to HR debt as well as its cost, and finally, they address strategies for reducing HR debt.

Please note that these sessions are for educational purposes only. TriNet provides HR guidance and best practices. TriNet does not provide legal, tax or accounting advice. The materials in these sessions and the products, advice and opinions expressed in these sessions are solely those prepared by the presenter and not necessarily those of TriNet.

Jacqueline Breslin:
We all know what HR debt is. You solve today's issue by making it tomorrow's problem. And Rob and I are here today to introduce you to the topic and talk through some really important points. But how can there be debt in a workforce or debt in morale? It's not as clear cut as an auto loan, but a workplace can accrue what is known as HR debt.

Unlike the black and white clarity of financial debt or the software compromises that create technical debt, HR debt is more nuanced. It's a form of interpersonal or even psychological backlog or debt that can really be a true financial cost for institutions. Borrowing in this sense can result from insufficient conflict resolution, unresolved HR complaints and poor HR record keeping, and the interest rate can be quite high.

By taking the easy route, HR teams and companies can face high turnover and poor team performance for years. And our session today will dive into what HR debt is, how to manage it and how to address it.

Rob Maresca:
That's great information, Jackie. I'm so glad to be here today with everyone. The first thing that we're going to be jumping into is poor HR processes. So what are the keys to success when it comes to HR debt? So HR processes like onboarding, training, performance appraisals and offboarding are key to the success of a company.

If a company doesn't establish a standardized training protocol, new employees can feel thrown into the fray. Without a structure in place to handle feedback and complaints, employees won't feel their voices are valued in the long term. A company might save time and money in the short term by handling performance appraisals in an informal ad hoc manner, but it can make employees feel undervalued.

When they leave for greener pastures, it causes even more headaches for HR to fill those roles. So the first thing we're gonna look at is the lack of data and analytics. HR needs to work with facts. So laying off anyone is challenging, even when it involves a disruptive team member. This is just one reason why HR needs to work with the facts.

Let's say that XYZ company decides to take an HR debt by foregoing any process for tracking employee performance and development. One day a manager tells the company president, Rebecca Thompson, that a problem employee simply must be terminated. Thompson can't look at the non-existent records on the so-called problem employee.

Had the company paid to establish the necessary protocols, she could easily find things out like, how many complaints have come about this employee? How were those complaints addressed? Were they even addressed? Didn't the employee's performance change after there was intervention? So tracking this type of information can simplify the process of restructuring teams and removing poor players and help to confirm that employment separation is the appropriate next step.

But Thompson will have to pay off some of her company's HR debt by investigating this crisis. She might also increase XYZs HR debt by firing an employee who could have been a star with proper treatment. As we know, HR isn't all about complaints. We could tell a similar story to show how data collection and analysis helps award employees with good records.

A company can make better decisions about raises and promotions when it collects peer feedback and performance reviews. Beyond the individual, it can be vital to track different teams' efficiency within the organization. Are they constantly late with their deliverables or are they ahead of schedule? Keeping tabs on details like this can also help as an organization grows.

So what about poor communication between HR and management? HR can be essential to success. Where is the business scaling to? What is the five-year plan? How do we intend to make our institution's goals a reality? If HR doesn't know the answer to these key questions, it can't help as the business scales. The HR department can be essential in identifying areas of instability or potential growth.

And if the organization does require a massive reshuffling, HR can do much of the heavy lifting. We want to reward our most innovative and hard-set working employees and encourage them to stay and grow with the company. When a company's leadership develops regular, formal communication with HR, it helps to expand internal roots for career development.

Paying now to establish these communication channels instead of taking on HR debt helps a company to keep its best and brightest and be the employer of choice.

Jackie:
Let's talk about the cost of HR debt. Unlike monetary debt, costs for HR go beyond simple interest; it's more nebulous and harder to add up. Problems that go unaddressed in one area of an organization lead to more problems elsewhere. For example, one toxic employee can turn work into torture for everyone and potentially result in claims, costs and damages.

We'll continue forward with more cost of HR debt. Let's get into the details. First, let's focus on loss of employee productivity. HR debt can have a profound impact on an organization's productivity, from really the top executives to an hourly worker. HR debt requires time and attention from management to resolve.

If management is constantly dealing with HR debt, they may be distracted from other important tasks, such as strategic planning or overseeing operations. It also creates an administrative burden for HR staff as they deal with the inefficiencies, creating a backlog on their regular workload. This includes delayed hiring, lack of proper employment development and onboarding challenges which amplify their own sources of lost productivity.

Then there's legal and HR compliance that create more HR debt, such as discrimination or harassment complaints that can raise the HR debt. These issues can be costly and time consuming to resolve. They take away from resources that could be used for more productive activities. HR staff may not have the time or resources to keep up with the changing laws and regulations.

This can lead to fines, lawsuits and other legal issues, which can be very costly and absolutely time consuming. Finally, HR debt can create the self-cycle of low morale, which leads to employee disengagement and eventually to increased turnover and absenteeism: employees who feel their concerns are not being listened to, but those who feel that their concerns are being listened to are more productive.

Those who feel like their concerns are not being listened to are likely to leave the organization. To make matters worse, top performers may be disengaged and they can resign without warning or without notice. And this means that because employees are likely to have higher expectations and standards like your top performers do for their work in their workplace, when they become disengaged, they feel unfulfilled and then undervalued.

Moreover, top performing employees often have a stronger sense of their worth and may be more confident in their ability to find new jobs. If they're unhappy in their current role, they'll start to look for other opportunities that better align with their needs and with their goals.

Rob:
Jackie, that is such great information.

I mean, if the HR debt there, which is gonna lead us right into negative impact on employee morale and, it's important that if HR can create a safe environment for employees, they might feel empowered and comfortable enough to start offering suggestions and complaints. Through that process, they can feel more respected and heard.

If they see the company responding to their input, trust develops. But what if a company doesn't take the time and effort to create a safe environment? If there's no workplace culture of sharing safely or trust in HR, discontent might be vented in unhelpful ways. Keep in mind that an unsafe environment or a toxic employee could result in unlawful conduct that may lead to claims, penalties, attorney fees, settlement costs or damage awards that can be significant.

So failing to provide employees with the complaint process that is timely and thoroughly investigates those complaints and takes appropriate action can also result in violations of employment laws and regulations. And of course, we want our teams to have social cohesion. We want them to be friendly and productive and feel socially satisfied by the collaboration they engage in.

Confronted with a difficult worker, employees’ frustration will mount. It's only natural. Which company do you think will be more successful? The one that has channels for relaying frustrations to human resources in the form of reported trackable complaints, or the one that has built up its HR debt and left its employees to work things out on their own.

Jackie:
Thanks, Rob. I think I know the answer to that, but we'll keep talking. Let's talk about financial losses. I mean, left unchecked, dissatisfaction eventually leads to high turnover rates. This, in turn, can cause financial losses. It costs more to bring in a new employee than keep one on board.

Plus, the company that loses high-performing employees while keeping malcontents and bullies is on a dangerous path. This is where the interest in HR debt really spikes. With constant staff overhauls, HR must play a catch up game of scouting, hiring, onboarding and it's just a cycle, you know, repeating, more scouting, more hiring, more onboarding.

Clients don't know who to contact and they begin to wonder how the turnover will affect the quality of your product or services. New contracts may not come in the way they used to and your HR debt is further multiplied by the effort required to hire and train new staff.

Rob:
So strategies for reducing HR debt.

Once you recognize your HR debt, you can begin to take steps to wipe it out. So here are some strategies for reducing HR debt. First, invest in data driven HR processes. Data changes everything. And although someone who is drowning in HR debt may need to wade through a backlog of data, it's well worth the effort.

It'll inform best practices, empower high achieving staff, justifying letting go of poor functioning staff and alleviate HR burdens. Best of all, there's an array of software to help you with this process. From payroll processing to onboarding, programs like TriNet offer a comprehensive HR solution.

Streamlining data storage and training allows the HR department to focus on those bigger picture issues and visions. Next, improving management and HR communication resolves both small and large scale issues. Teamwork between HR and management can be invaluable for resolving internal disputes. It's critical that behavioral issues within the staff are addressed swiftly.

As we said earlier, serious issues can arise when HR and management staff aren't in good communication. HR is often the communication connection between employees and executives. This helps management and employees make better and more informed decisions on how to grow the organization. It also helps make sure everyone is aligned with company goals and achieves its objectives.

When HR is the trusted advisor to leadership, it can make significant leaps to the organization's growth. By building trust in internal communications, HR offer employees firsthand, accurate and reliable information about wages and benefits, organizational policies and rules, company news and other vital HR issues to support a positive company culture.

This helps management and employees make better and more informed decisions on how to grow the organization. It also helps make sure everyone is aligned with company goals. HR communication can increase employee creativity and motivation by engaging employees, maintaining good company culture, and boosting both the individual employees and the organization.

This can keep employees connected and lay the foundation for future growth and success. So good communication can improve employee creativity up to 93%, which can, in turn, contribute to improved productivity. So by creating more consistent dialogue between the HR department, employees and management, both small and large scale issues can be addressed.

Jackie:
That makes good sense, Rob. Yeah. Now let's talk about developing a continuous learning and development culture. Stagnation is one of the worst feelings in a work setting and it's a precursor to burnout. A key piece of job satisfaction is engagement. Are staff being challenged? Do they have the means to develop themselves and continue to learn within their career?

Even if an organization has limited opportunities for career advancement, employees can still feel like they are growing. And HR can accommodate this by setting up training opportunities, seminars and even collaborations with local educational institutions.

Rob:
So true, Jackie. So, HR issues can cause large stumbling blocks as businesses try to scale and how TriNet helps you reduce this HR debt, so with TriNet, you have proven HR foundation to alleviate your HR debt.

So starting with data-driven HR processes: on demand reporting across payroll, benefits and HR, personalized dashboards and visualizations for KPIs and trend analysis, compensation benchmarking reports can truly help with data-driven HR processes.

And moving to improved HR communication: HR platform to communicate policies and post notices, templates for communications such as welcome letters, employee handbooks and then benefit communications, including open enrollment.

And then also continuous learning and development culture: learning management application with hundreds of on-demand courses, performance management application for goal alignment, real-time feedback, and even more open communication, talent and organization consulting for expertise on complex organization needs. Once a company recognizes its HR debt, it can take steps to wipe it out.

Jackie:
So let's talk about really the bottom line here. You wanna lean on a reliable ally to guide you through employment-related issues so that you can minimize future HR debt. With TriNet, you have proven foundations of HR expertise, access to benefits, risk mitigation, compliance and payroll technology.

HR debt can occur when companies skip the work of creating important processes; it can cause interpersonal issues in a workplace to fester. Problems can build up, risk exposure to claims and significant costs can increase. Good people leave in search of better treatment and clearer opportunities.

And then those people find new employers and the stories they tell you about your company will not help your reputation. The reality of HR departments is that they're constantly facing new HR-related issues and their company needs. If there's an issue with payroll processing or time sheets that needs addressing immediately, they might be tempted to put old complaints that employees have brought up onto the back burner.

With so many moving pieces and piled up problems, getting out of HR debt can be daunting. This is why TriNet offers HR support: from time tracking and benefits administration to document management and talent retention. We help small and medium size businesses by providing HR best practices and guidance so that businesses can manage their HR debt with healthy growth.

Thanks, Rob, for all that good information. We have a number of questions coming in. We have a few minutes for questions. So we can go ahead and let's just get settled here for a second here. And we can start with this first, let's take this first one.

We only have 10 employees. Do we really need HR?

Rob:
So Jackie, I have this question quite frequently with our clients and the one thing that comes to mind, the simple answer is yes. You do need to worry about HR. I mean, just for an example, if you have one employee in a state that may have a sick leave requirement, it could just take the requirement being having that one employee in that state.

So you do have to worry about things like paid sick leave when it comes to HR, whether you have one employee, 10, 500.

Jackie:
Right. So, so true. Right. And payroll, benefits, you need to report out data even on that one person. Depending on what state you're, there might be harassment prevention training requirements that start as low as one employee.

So you're sort of like, you're never too small to need HR.

Rob:
Right. Absolutely. So it looks like we have another question. And what are the most common HR questions you are currently receiving from your clients?

Jackie:
My gosh. Wait, the list is long. Where do we start?

I mean, gosh. Okay. So I think right now, I mean, we get a lot of questions around best techniques for recruiting. And then along with what are their compliance expectations around recruiting. And I think for us, that goes right to pay practice information, also is another one.

For example, what do I need to know about classifying employees as exempt or non-exempt? Are they an independent contractor? Are they an employee? How do I figure that out? What about pay transparency rules? Do I really need to communicate salary ranges and job postings?

Is that really true? I'm hearing about this, policy development every day, like what do I need to know about parental leave? What do I need to know about maternity leave?

Rob:
Absolutely. And circling back to recruiting, the question that often comes up is—I've never operated in this state before and I'm trying to recruit in that state. What are the laws that I need to know? What is the compliance? What do I need to know to operate in this state? And that comes up quite often as well.

Jackie:
I'm so glad you brought that up because I think, like our day often starts and ends with the questions such as—I'm hiring an employee in California for the first time. Tell me everything I need to know. I'm hiring an employee in New York for the first time. Tell me everything I need to know. And it's such a great question and it's a fantastic conversation with a client to be able to walk them through, you know, here are pay period information about that schedule. Here are important laws. Here are your training requirements. Here are your policy requirements.

It's a juicy conversation, ‘cause every state, some more than others have their requirements.

Rob:
Yeah. And I can say most of my conversations will always start with—okay, where is the employee located and what is the city?

Jackie:
Oh, because there's that trick too.

Rob:
That could be tricky too, right? So there could be requirements within the city that one would need to be aware of to be compliant. So it can be very tricky, and yes, I will say that conversation does happen quite frequently.

Jackie:
And I think one of the best things about, for our clients working with us, is that like we're ready to work in every state. So we have that conversation a lot with, we're hiring an employee in this state and city, to your great point. What do I need to know? And we help with the HR side, but we also can reinforce the fact that you'll have benefits available in that location.

We're ready to do payroll in that location, we can help them focus on onboarding this new employee well and helping them with the HR piece. They can worry about nurturing that worker like we've talked about, right, engaging them, that sort of thing. They're not gonna increase their HR debt.

They have us to take care of the compliance pieces and they can just really focus on that fantastic person that they're onboarding.

Rob:
Absolutely, great stuff.

Jackie:
Let's try if we can sneak in another one. We are growing rapidly and don't know where to focus our HR attention. Where should we start?

Rob:
That is definitely a question that does come up quite often as well with our clients and that we support with.

Jackie:
Growth is so fantastic, but it definitely brings growing pains.

Rob:
Absolutely. And again, it comes to your policies, right? Sometimes a smaller company may not have to think about certain policies, but as you grow, you have to start thinking of other areas that policies are super important to have in place for consistency.

And I also think there are other requirements that companies will start to think about. So if they grow larger, for example, 50 employees or more, now you're starting to have to deal with FMLA and that's not something you may have had to think about before.

Jackie:
Yeah. You know, I love having those conversations with clients where like, you're hitting a certain headcount mark. And so here are the things that you need and want to pay attention to. And policy is such a great one. The Family Medical Leave Act is an important one.

I think that's really like getting ready for a leave of absence before it's about to happen in your organization is a really important growth step because it's just inevitable. Somebody's going to need to take time off. It might be for a very happy reason, like a child coming in for either like birth or adoption.

It may be their own medical condition. It may be to care for a spouse, child, parent. So you know, getting in front of things like that, it's important. So we work with our clients on an HR checklist where we go through a number of important activities for them to think about really before they need to, to be prepared.

So yeah, growth is fantastic. And getting in front of it so you're not creating HR debt is an important task for growing companies.

Rob:
Absolutely. We do have another question. All right. So we have never had a handbook. I have drafted one, but cannot get the CEO to review nor the go-ahead on having our attorney to review. How can I get everyone on board to get this done?

Jackie:
The CEO. Okay, I think it can be a dollars and cents conversation. So the financial risk of not having an up-to-date handbook can create a risk, which can result in claims and liability and I'm sure you invested a lot to get that handbook ready. That's no small task, right? We help clients with handbooks. We know it's nothing small. And so good for you for investing it on that side of the creation of it.

Now the review and implementation is really important. I also think handbooks get a bad rap, right, Rob. They're like, here's HR telling us all the things we can and cannot do. That's not really it. Handbooks can express your culture. Employees like to know the framework in which they can work in.

We already talked about leave of absence a little bit, but an employee who gets like a medical diagnosis that knows they need to take some time off, may be sort of suffering in silence for a while before they're ready to come forward and bring that forward.

So the fact that they could open your handbook and see, okay, I get 12 weeks off, with job protection; it's unpaid, but I get this job protection. You have just lifted a weight off their shoulders that you didn't even know existed. But, I feel strongly about handbooks, so I mean, go for it. Talk about what good handbooks do and then also talk about the financial risk of not having one.

And best of luck to get that going with your CEO.

Rob:
Yeah, I agree. And you know, Jackie, I think you hit it on the head.

Speak in dollars and cents. I think that that will go a long way. So great question. So we have a final question.

I recognize that we have an employee that has been performing poorly for a number of years. We've avoided addressing it. What should we do now?

I think we've been in this position before in HR and if you're in HR, you've seen this come across your desk. And I think the bottom line is, it's never too late. It's never too late and you most certainly want to start having the conversations and start documenting and getting that employee back on track.

The goal is not to terminate them, but the goal is to really help the employee and get them back to where they need to be and give them the training that's necessary, the resource or the tools. There could be so many reasons, right, Jackie, why someone may not be performing. It can't just be like, oh, this employee is just poor.

Well, we need to find out, peel that onion a little. What's going on? Is there something that is personally going on that you may not be aware of? Or there could just be truly, maybe they don't have the tools to do their job. It could be simple things like that. So, I don't think that's something that you cannot fix, so to speak, but you most certainly need to bring attention to it and find out why this is happening and then take the appropriate steps going forward.

Jackie:
Yeah. It's so important to document all the hard work that you do once you get in, once you start coaching that employee onto a better path. But I like what you said, Rob, it's never too late to get an employee on the right track, or at least invest in them. So if you do have to go down the path of termination, which as you said, that's not the intention, you have done everything you can to try to help that employee turn things around.

Rob:
Yeah, absolutely. I mean, there could be other things that can help with solving the issue or solving the problem. Sometimes it could just be that they may not be a good fit for what they're doing and they could be a star in another position or, it could just be something along the lines of I mean, again, it's so hard, obviously when we always talk about this in HR. We are fact driven. We don't make assumptions. And it's just so important to have all the data, especially when it comes to HR debt.

We want to decrease HR debt. We don't want to increase it. And what's really, and Jackie, I think you'll agree when I say this—most times when it comes to issues or things that need to be solved in the workplace, HR comes to the table, right? We come to the table and again, we can do a lot of the heavy lifting, so it's a great partnership with being part with the HR team.

Jackie:
Absolutely. Well thank you so much, Rob, for facilitating with me. It's been a great session.

Rob:
Same here. Thank you.

Jackie:
Thank you and thank you all for attending. We hope you continue to attend other sessions with us this week. We appreciate your time. Thanks very much.