HR is Not a Cost Center

All too often, Human Resources doesn’t get the attention (or budget) it deserves because most people view HR as an expense—albeit a necessary one.

So, why is HR perceived as a cost center instead of a revenue generator? To start, there are a lot of costs associated with managing all facets of a company’s workforce.

  • The cost of hiring…
  • The cost of salaries…
  • The cost of benefits…
  • The cost of training…
  • The cost of payroll…
  • The cost of HR technology…
  • The cost of compliance…

There’s a pivotal keyword missing from the HR conversation. What if we started to look at HR not as a cost but a cost-savings center?

Imagine how your company would thrive by taking a proactive approach to HR. A shift in perspective and priorities can turn those initial expenses into opportunities to invest in your people and actually save money long-term.

Every day, companies are willing to make capital investments in areas such as product development, innovation, and sales and marketing, but when it comes to investing in their most valuable asset—their people—many companies balk at the cost. However, without the right people in the right roles, effective tools to collect and leverage data, or knowledge of state and federal compliance requirements, investments in those other areas would be far less effective and, ultimately, far more costly.

So, why do so many businesses view HR as an expense rather than an asset? Here’s why it’s important to start shifting that perspective.

Attracting and Retaining Talent

There are significant savings to your bottom line when you invest in hiring the right people and creating a positive company culture that supports them.

Company culture matters. It affects your ability to attract—and, more importantly, retain—great talent. If you don’t create a workplace that values your employees, those great employees will leave, and it will cost you…a lot.

Did you know that it can cost roughly a third of an employee’s annual salary to replace them? That’s $15,000 for an employee earning $45,000 a year—and the numbers are even higher for more specialized and skilled workers.

When you find ways to engage your workforce and reduce turnover, you not only save on recruiting, onboarding, and training costs, but you also help improve overall productivity and profitability of your organization.

That being said, not all turnover is bad. In fact, a certain amount of employee turnover is absolutely necessary.

There are many reasons to support the exit of employees who don’t fit the company culture or no longer bring value to their role or the organization. When unhappy or ill-suited employees are allowed to remain, they can negatively impact productivity and even become toxic to your culture and other team members.

Some companies, like Zappos, Amazon and DealDash, even pay employees to quit.

Interested in finding out how much money your company is losing on employee turnover? Check out this simple Employee Turnover Calculator. Plug in a few simple business metrics—the size of your team, your annual turnover percentage, etc.—to see exactly how much of your budget is lost on wrong-fit employees.

HR Technology

In a world where data analytics rule, you need Human Capital Management (HCM) technology to help you make informed decisions about your business. From improved workflows and reporting to greater overall efficiencies, clients have high hopes when they spend money on new HR systems.

But it’s not about investing in just any HCM technology. It’s important to take the time to find the right technology for your business.

At Rally Partners, we run into countless companies that have made an investment in technology and either cut corners in choosing a solution to minimize initial costs or have spent money on a robust platform and have no idea how to get the most out of their system. We partner with clients to help optimize and integrate the systems they have or help find a solution that better fits their business goals.

HCM technology provides a centralized information hub to help HR professionals leverage data for more efficient decision making and reporting. In today’s business environment, there is an increasing need for comprehensive record-keeping and reporting; having the right tools in place helps amplify the power and efficiency of your HR team.

Employee Benefits and Compensation

It’s time to stop looking at your total compensation plan solely as a cost and start looking at it as a strategy. Your company’s compensation package can be a differentiator to help attract top talent and enhance your team’s overall employee experience.

Other than payroll, employee benefits are the second largest cost to a company—but are they more than a necessary expense? Absolutely.

Benefits are more than a commodity—they can be a tactic. Designing a benefits plan and contribution strategy is crucial to controlling costs and maximizing value to your business and your employees.

Let’s be smarter about how we design our benefits and compensation programs. Whether it’s leveraging demographic data to develop plans tailored to our employee base or exploring alternative funding options while remaining ACA compliant, these decisions can impact your long-term costs and savings potential.

Employee benefits are far more than health insurance; they can include offerings that are not widely leveraged but are highly valued by employees, such as tuition repayment, flexible work arrangements, or well-being initiatives. Other offerings like voluntary benefits can also give your employees added peace of mind at no further cost to your bottom-line.

Plus, as more employees are looking for greater work-life balance and flexibility, HR professionals play a role in shaping the policies and programs that accommodate those added benefits. From unlimited vacation time to paid time off (PTO) banks with carryover, professional sabbaticals to paid volunteer days, there are countless opportunities to show your employees that you value them as people, not just for the role they fill in your organization.

While you’re thinking through this cost-cutting perspective on HR, be sure to review your sick-leave and paid time off (PTO) policies. With federal, state, and local laws changing all the time, it is crucial to remain compliant to proactively avoid costly penalties.

Strategic employee benefit initiatives can be a powerful attractor and motivator.

Training and Development

CFO asks CEO

There is a long-standing dilemma about the costs associated with training and developing employees. Peter Baeklund, a leading professional development expert, shared a very common C-suite conversation between a CFO and a CEO a few years ago.

CFO to CEO: “What if we invest in developing our people and then they leave us?”

CEO: “What happens if we don’t, and they stay?”

We’ve worked with clients who fall on both sides of this argument, but firmly take the position that investing in your employees is always the winning strategy. For however long an employee stays, they feel invested in which will generate dividends through improved work quality, productivity, customer service, and retention.

Training and development is not only a strategy for individual employees, but can also a serve as a catalyst for team building and growth. It will help you promote from within and facilitate succession planning. People who are engaged and feel cared for will be far less likely to leave—and even if they do, the quality of their contributions to your organization during their tenure will be far superior.

Compliance

Yes, there is value in investing in training and development as an HR strategy and tactic, but there are also state and federal requirements that necessitate it—and they are changing all the time.

From I-9s and W-4s to ACA and FMLA compliance, the stiff penalties and high fees associated with violations can seriously cost your organization. Did you know that companies can be fined anywhere from $110 to $1,100 for every missing I-9 form? Or that failure to comply with proper posting of federal, state and local labor laws can result in $500 to $10,000 per offense?

Additionally, lawsuits for discriminatory practices can set employers back tens of thousands, even millions of dollars. The average award for a wrongful termination lawsuit is $500,000.

You many never have been audited or sued, but is it really worth the risk? Stop hoping and start planning! Designing compliant policies and practices truly has the potential for significant cost savings.

Investing in HR Pays Dividends

Investing in your employees pays off. Employees who feel recognized, appreciated, fulfilled and cared for will go above and beyond to bring measurable value and results to your organization.

Whether you’re looking to bring in new talent or retain the talent you already have, a strategic and offensive approach to human resources is far more effective than a defensive one.

By failing to view HR as a valued business partner, you not only expose your business to risk, but you also miss out on opportunities to help your organization grow and flourish. Creating a better employee experience through a strategic HR lens better equips businesses to get a return on their investment in their most precious asset—their people—while also avoiding costly penalties associated with non-compliance.

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