HR Debt: How It Builds Up and How to Pay It Down

Katrina Faessel:
Is HR debt crushing you? Explore the sources, causes, impacts and recommendations on HR debt with TriNet's Jacqueline Breslin, Executive Director, Client HR Consulting Services, and Rob Maresca, Lead HR Compliance Consultant.

Jacqueline Breslin:
Hello and thank you so much for attending our session today, HR debt, how it builds up and how to pay it down.

Rob Moresca and I are excited to cover this topic with you.

Let's talk about the causes of HR debt. HR debt can build up from a variety of weaknesses in a business. HR debt issues can cause large stumbling blocks as businesses try to scale. Let's look at some of the origins of HR debt. First of all, there can be poor HR processes, a lack of HR data and analytics, poor communication between HR and management, and let's look at some of the causes in better detail.

We all know what debt is. You solve today's issue by making it tomorrow's problem, but how can there be debt in a workforce or debt and morale? It's not as clear cut as an auto loan, but a workplace can accrue what's known as HR debt. HR debt can occur when companies skip the hard work of creating important data driven processes.

It can cause interpersonal issues in a workplace to fester. Problems can build up. Then there's risk exposure to claims and significant costs can increase. Good people leave in search of better treatment and clear opportunities. And then when people find new employers, the stories they tell about your company and about your workplace do not help your reputation.

The reality of HR departments is that they're really constantly facing new HR-related issues and the company's needs. If there's an issue with a payroll processing or time sheet that needs addressing immediately, they might be tempted to put employer relations on the back burner. 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 carry real financial costs for institutions. Borrowing in this sense, can result from insufficient conflict resolution, unresolved HR complaints and poor HR record keeping. And the interest rate is really high. By taking the easy route, HR teams and companies can face high turnover and poor team performance for years. Let's dive into HR debt and how to manage it and how to address it.

Rob:
Great, thanks Jackie. So let's start with the first cause of HR debt. Poor or vague HR processes. HR processes like onboarding, training, performance appraisals and offboarding are all 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 this structure, HR results can be random, inconsistent and remain non-strategic. So for example, if there is not a process in place to handle feedback and complaints, employees won't feel their voices are valued in the long term.

In the short term, a company might save time by handling performance appraisals in an informal manner, but could lead to poor or delayed productivity, making employees feel undervalued. It could also cause a perpetual stream of repetitive, non-strategic work for HR to backfill positions, handle employee performance, behavioral and HR compliance issues.

So with that, let's move on to the second cause of HR debt. When it comes to the second cause, what happens when we have lack of HR data? The lack of HR data or analytics is often at the heart of HR debt. As most systems and HR processes require data, the lack of data can hinder an organization's ability to make informed decisions about their workforce. HR departments may struggle to identify trends or patterns in the workforce, such as high turnover rates or skill gaps.

Lack of insight may make it difficult to develop effective strategies to retain employees or identify areas for improvement in recruitment, appropriate raises, promotions and future leadership candidates. On the other end of the scale, properly addressing a disruptive team member is challenging for anyone. This is another reason why HR needs to work with facts collected as data. If a problem employee needs to be dismissed, you can't look at the non-existing records of that employee. Had the company established the necessary policies, protocols and collected data about that employee, it might be easier to address certain HR issues.

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' efficiencies within the organization. Are they consistently late with their deliverables or are they ahead of schedule? Keeping tabs on details like this can also help an organization as it grows So now let's review the next cause of HR debt.

Poor internal communication. Poor internal communication can have some serious impacts on a company. Here are some of the most common communication problems companies face and ways to prevent them.

Using outdated communication methods. Email is one of the primary forms of communication because it's quick and efficient. However, it can also be a source of decreased productivity as employee inboxes can quickly get cluttered with trivial emails that hide important messages. That constant influx of new messages can also be a distraction from completing important tasks. Companies can try focusing on mobile-driven communications instead. Company apps such as G Suite, Asana and Slack offer a new way to communicate and engage employees via their smartphones or tablets. This is especially ideal as the workforce demographics are changing to include non-traditional employees like remote workers, contract-based workers and freelancers.

Also not having an internal communication strategy. Many times, companies place their focus on putting a solid strategy in place for external communications with their customers, but developing an internal communication strategy is just as important. So here are some tips to help you start building an internal communication strategy that works.

Assess your current internal communication and where do you want it to be? What has worked successfully and what hasn't? Identify and segment your internal audience. Not all communications need to go to everyone. Identify your communication tools. This can include email, face-to-face meetings, social media, and intranet, company apps and more. Pick the channel that works best for the audience and the type of message you are communicating.

And then lack of feedback. This can cause employees to feel like their voices aren't being heard and can have a significant impact on employee turnover. HR professionals and managers often communicate with employees about policies and procedures without taking the time to listen to them. If you want to implement a comprehensive communication strategy, it should include two-way communication. Not only does listening to employee issues and concerns improve productivity and build loyalty, but it's also an opportunity to learn about issues or concerns before they escalate into a formal complaint.

Start a feedback loop process through authentic and consistent communication between managers and employees. Providing feedback benefits a company by increasing engagement and helps to move the company forward. So with this in mind, we want to reward our most innovative and hardest working employees and encourage them to stay and grow with the institution. Paying now to establish these communication channels, instead of taking HR debt helps a company to keep its best and brightest.

So Jackie, now that we've covered some of the causes of HR debt, what about the costs of HR debt?

Jackie:
Rob, you said so many interesting things, I'm like just thinking about like the continued value of really retaining the best and the brightest. So unlike monetary debt, costs for HR go beyond simple interest. It can be vague and hard 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 into torture for everyone and potentially result in claims, costs and damages. Oh, the impact to morale is so great. HR debt can create a cycle of low morale, which leads to employees disengagement and then eventually to absenteeism and ultimately increased turnover. Employees who feel their concerns or well-being are not being addressed are really less productive and may be more likely to leave an organization.

HR debt can have a profound impact on an organization's productivity from top executives to the entry level worker. HR debt requires time and attention from management to resolve. If management is constantly dealing with HR debt, they're going to be distracted from other important tasks, such as strategic planning and overseeing the important operations.

It also creates an administrative burden for the HR staff, as they deal with the inefficiencies, which create a backlog onto their regular workload. This often may include slower hiring. It could be lack of a proper employee development. Onboarding may not be as quick as you would really want it to be. And then that creates loss of productivity for the HR team.

And then there's employee-related legal and HR compliance issues from HR debt. That can look like discrimination or harassment claims, which can arise from HR debt. These issues can be costly, and they're really time consuming to resolve, taking away resources that could be used for other more productive activities.

HR staff may not have the time or resources to keep up with the changing laws and regulations, and this can lead to non-compliance and which can also lead to fines and lawsuits, and other employment related legal issues, which may be very costly and time-consuming. Top-performing employees who become disengaged may become likely to leave, and these employees that are likely to leave have higher expectations and standards for their work in their workplace. And when they become disengaged, they feel unfulfilled and undervalued.

And moreover, top-performing employees often have a stronger sense of their worth and may be more confident in their ability to find new job opportunities if they feel unhappy. This may start to look like, they may start to look for other opportunities that better align with their needs and with their goals.

Rob:
That is so true, Jackie. When managers start to see that, that is definitely a red flag and can most certainly increase your HR debt. So, when we talk about negative employee morale, low employee morale can be attributed to a variety of HR debt factors, either directly or indirectly, such as job security concerns, dramatic changes, reorganization, limited opportunities for development or lack of fair compensation.

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 could feel more respected and heard. Seeing the company respond to their input, trust develops. What if a company doesn't take the time or the effort to create a safe environment?

If there's no workplace culture of sharing safely or trust in HR, with a compliant process that timely and thoroughly investigates complaints, as well as taking 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 coworker, employees’ frustrations will mount. It is only natural. Which company do you think will be more successful? The one that has channels reporting trackable complaints or the one that has built up its HR debt and left its employees to work things out on their own. And now I believe Jackie will talk about turnover costs.

Jackie:
I think I know that answers your last question about which company will be more successful, but let's see what we can talk about. Left unchecked, dissatisfaction eventually leads to high turnover rates. This in turn can cause financial losses. It costs more to bring on a new employee than to keep one on board.

Plus, a company that loses high-performing employees while keeping malcontents and bullies is really on a dangerous path. According to the Society of Human Resources Management, the average cost to recruit a new hire was nearly $4,700 and the process took about 41 days. When you work with a recruitment agency, that period may cut down significantly based on the available pool and qualified candidates.

But either way, the cost is high and the time is long for recruitment. The Society of Human Resources Management also estimates that the average cost of employee onboarding is around $4,100 per new hire. A non-existent or poor onboarding process can lead to lower productivity, higher employee turnover, and lower employee engagement, which can cost you more.

As you can see, we're really in a vicious cycle here. Employee training doesn't stop after onboarding. Approximately 67% of the cost of high turnover is soft costs. Things that are like human errors. The average employee makes 118 mistakes in a year. And it's safe to say that new employees who don't know what they're doing quite yet may be more likely to make mistakes and can negatively impact the bottom line.

And then there's lost knowledge. When an employee leaves, they take everything they know with them. And so all their expertise, the training, anything they've gained while working for you goes right out the door when you lose an employee. And this is where the interest on HR debt really spikes. With constant staff overhauls, HR must play a catch-up game of scouting, hiring and onboarding employees. Then there's your clients. They don't know who to turn to when they have questions. They begin to wonder how the turnover will impact the quality of the product and of your services.

New contracts may not come in the way that they used to and your HR debt is further multiplied by the effort required to hire and train new staff. It can cost anywhere from 40% to 200% of the position's annual salary, depending on the experience and the skills required.

Rob:
That's most significant when it comes to increasing HR debt with the employee turnover and then maybe some attorney costs.

Jackie:
That's next, right? After the high turnover, especially the reason for the turnover.

Rob:
Exactly. So thank you, Jackie. Once a company recognizes its HR debt, it can begin to take steps to wipe it out. So we're going to look at some different strategies. The first step is teamwork between HR and management can be invaluable for resolving internal disputes. It's critical that behavioral issues within 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 everyone align with company goals and achieve 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 can 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.

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 here are some important statistics to share regarding the importance of effective workplace communication. Eighty-six percent of employees and executives cite that lack of effective collaboration and communication as the main cause of workplace failures. Up to 93% of employee creativity can improve with good communication. So you can see with those statistics, there's definitely an impact there.

And again, data changes everything. Although someone stuck in HR debt may need to wade through a backload of data. It's well worth the effort. And HR can use data to identify the most effective recruitment channels and analyze candidates' resumes to make more informed decisions to fill a particular role. In addition, HR can use data to help identify top performers and catch red flags early to retain employees. It is also useful to gauge ongoing employee sentiment and uncover where and how your employees may be struggling. This can help you diagnose causes of attrition in order to help reduce turnover or absenteeism.

Also, HR data can provide insights into diversity, equity and inclusion in order to help create a more supportive workplace culture. Did you know that equitable compensation ranks high on the list when it comes to how employees decide whether or not to separate from a company? Collecting data from pay equity review on an annual basis, of course, recommended with legal counsel guidance, may collectively impact culture, the employee experience and retention.

HR data can improve the entire employee journey from hired to retired. A positive, productive employee experience and engagement is important for talent attraction and as a retention tool. And best of all, there's an array of providers to help you with this process. From payroll processing to onboarding, TriNet offers comprehensive HR solutions. Leveraging HR data can help HR departments to focus on the bigger picture issues and visions. Back to you, Jackie.

Jackie:
Developing a culture of continuous learning and development is so important, because stagnation is one of the worst feelings in a work setting and is precursor to burnout. A key piece of job satisfaction is engagement. Are the staff being challenged? Do they have ways to develop themselves? Can they continually learn and grow their career? Even if an organization has limited opportunities for career advancements, employees can still feel like they're growing.

HR can accommodate this by setting up training opportunities and seminars and collaborations with local educational institutions. Retaining top talent is really crucial for an organization's success. Most employees want to improve their skills for a variety of reasons, including job satisfaction and advancement. We've already talked about the cost of hiring a new employee can range from, you know, we've heard 30%, 150%, 400%. It really depends on the role.

So, in order to invest in your current employees, you're saving on the other side of having to rehire. And one of the most obvious benefits is the existing employees are a known quantity. They've adapted to your culture. They understand your business needs. They have habits and abilities and the capacity for learning new skills. Investing in them is really important, because by investing in an employee's skill development, you're working on retaining them, you're demonstrating to the rest of the company that you invest in current employees.

You're not just looking for the next shiny object, objectively on the outside. This typically leads to an enhanced retention, increased innovation and better adaptability to change—all leading to greater organizational success. So looking at some stats, in fact, companies with a strong learning culture are twice as likely to innovate and companies that invest in comprehensive employee training have 218% higher income per employee than ones that don't.

So the bottom line, lean on a reliable ally to guide you through employment-related issues so you can minimize future HR debt. With TriNet, you have a proven foundation of HR expertise, access to benefits, risk mitigation, compliance, payroll and technology. ‘Cause HR debt can occur as we've talked about today, when companies skip the work of creating important data driven processes, it causes interpersonal issues in the workplace to fester. Problems really build up.

And when people find new employers, the stories they tell about your company don't help your reputation. The reality is that the HR department is constantly changing and they're facing new related company needs, and without that focus, HR debt happens. With so many moving pieces impelled at problems, getting out of HR debt can be daunting.

This is why TriNet offers HR support from time tracking benefits, administration, document management, talent retention. We help small and medium-size businesses by providing HR best practice guidance so your business can manage their HR debt and their healthy growth.

Rob:
That's great, Jackie. And to build on your point, TriNet is that reliable ally to help you reduce HR debt. And TriNet offers tools and resources to help customers engage their employees and create a positive workplace culture. For example, TriNet offers access to employee recognition programs, wellness initiatives and professional development opportunities. By investing in employee engagement, you can create a workplace that employees want to be part of.

So to help with data driven processes, TriNet can help with workforce analytics by providing applicant tracking, compensation benchmarking reporting, performance management, expense management, time and attendance, and TriNet's leading mobile app. To help you improve communication and culture, we provide access to tools and resources to help employees stay engaged. Employee engagement surveys, organizational assessments and DEI assessments. For continual learning and talent development, we provide access to learning management education programs and developing your future leadership.

And that's just a start on how TriNet can be a reliable ally to help you with your HR debt. So are you curious about possible HR debt in your company? Start by taking our free HR debt assessment by scanning the QR code with your phone. And we will also have the link in our resources so you can click the resources tab to connect to the link.

Looks like we're getting the signal to wrap up. Unfortunately, we don't have time for Q&A, but if you do have questions, please visit our information booth where we will have representatives to answer all your questions. We appreciate your time today. Jackie, it's always a pleasure to facilitate with you. Thank you for joining today and thank you everyone.

Jackie:
Thank you.