“To err is human; to forgive, divine” wrote Alexander Pope. While forgiveness is a virtue to strive for in life, in business, HR errors can be quite costly.
“To err is human; to forgive, divine” wrote the poet Alexander Pope. Two centuries before the release of Microsoft Excel, Pope couldn’t have possibly imagined the types of errors that would one day fill the popular software’s tidy columns and rows. While forgiveness is a virtue to strive for in life, in business, errors can be quite costly.
Luckily, the top 5 HR errors are preventable. Read on to learn how to find and fix them.
Error #1 – Costly spreadsheet blunders
Spreadsheets, by their very manual nature, are prone to human error. In fact, spreadsheets are so error-prone that they’ve got their own dedicated watchdog group: European Spreadsheet Risks Interest Group. EuSpRIG’s audits show serious errors in 90% of spreadsheets. These errors pose significant business risks, including: lost revenue and profits, poor decision-making due to incorrect information, difficulties demonstrating regulatory compliance, and fraud.
EuSoRIG maintains a database of cautionary tales, including one that involved a spreadsheet error at TransAlta, a Canadian power generator. “It was literally a cut-and-paste error in an Excel spreadsheet that we did not detect when we did our final sorting and ranking bids prior to submission,” said TransAlta chief executive Steve Snyder. That simple error caused the company to purchase too many US power contracts at a higher price, ultimately losing the company $24 million.
It’s logical to think that “another pair of eyes” would be the solution to minimizing spreadsheet errors. However, EuSpRIG found that even experienced spreadsheet users were only able to catch errors half the time. To actually eliminate this problem, we need to move away from manual data entry and embrace data automation through tools and services that safeguard against manual entry errors.
Solution: Fortunately, there’s no shortage of data collection and automation software these days. Look for a solution that’s automated, integrated, and easy to set up. The goal is to reduce human error (and thus, significant risk) by eliminating repetitive labor-intensive tasks.
Error #2 Regulatory compliance catastrophes
Regulatory compliance is a really broad area, or, in other words, a big can of worms. Many small businesses, strapped for resources, focus exclusively on growth and product/service—leaving no infrastructure to support their human resource compliance. There’s a trove of acronyms to keep up with—ACA, ADA, EEO, FMLA, COBRA—but the requirements are anything but abbreviated, causing many HR professionals and those managing human resources to forget steps and make costly mistakes.
One such costly mistake? Last year, a court awarded statutory penalties of $2,500 to each of 741 former employees of Visteon, an automotive supplier, who failed to receive their COBRA election notices. The total cost to Visteon was $1.8 million—and all because the company failed to send out their COBRA election notices.
Solution: If they’d been using a tool to manage this for them, this most likely wouldn’t have happened.
Error #3 Wage and hour misclassification
Many employers misclassify their employees (particularly managers and independent contractors) as exempt from FLSA (Fair Labor Standards Act) guidelines, when they’re actually non-exempt from the law. This is usually done in an attempt to avoid paying overtime wages—though it can also be an honest mistake.
Although even Lady Gaga is not “exempt” from this law, Walmart wins the award for losing the most money to misclassified employees. Between 2007-2009, the company paid over $700 million in Department of Labor settlements for cases involving employees who were misclassified as exempt and denied overtime pay.
Last year, a Papa John’s franchise in New York was ordered to pay nearly $800,000 when a state judge ruled the business underpaid employees and failed to pay overtime. “This Papa John’s franchisee brazenly violated the law, shaving employees’ hours and avoiding paying overtime by various means, including giving managerial-sounding titles such as ‘head driver,’” said NY Attorney General Eric Schneiderman.
Giving an employee a managerial title doesn’t in and of itself exempt the employee from the FLSA. Similarly, IT workers shouldn’t be labeled “independent contractors” if they don’t have the experience or discretion to act independently.
Solution: Get familiar with the types of employees who are considered exempt by the DOL. Make sure your time and attendance software not only tracks employees’ hours, but also applies state overtime regulations. If you’re uncertain about exempt vs. non-exempt classification, consult a wage and hour lawyer.
Error #4 Weak leadership ethics
Lots of errors can bring down a company, but none quite so publicly as a lapse in leadership integrity. Acting with integrity means acting honorably—without compromising the truth—to customers and employees alike. While riding a wave of success, it may be easy to get caught up in feelings of being “untouchable” or above the law. At such times, bear in mind the old saying: “the higher they rise; the harder they fall.”
When the “Dieselgate” scandal broke last year, it came to light that Volkswagen had spent years cheating EPA tests by installing covert software in its vehicles. As many as 11 million cars could be affected. CEO Martin Winterkorn resigned, and the DOJ is seeking up to $48 billion in penalties.
In another recent incident, Martin Shkreli was arrested for misrepresenting key facts about hedge funds, falsifying reports, and then spending the money on lavish personal expenses. If found guilty of securities fraud, he faces up to 20 years in jail. No one was surprised (or saddened) to hear the news of Shkreli’s arrest. As CEO of Turing Pharmaceuticals, Shkreli had raised prices on a life-saving drug by more than 5,000% a pill.
Solution: The best way to demonstrate strong ethics is to lead by example. If leaders and managers consistently show integrity in their behavior, these values spread through the workplace. Solicit feedback from employees, and keep those communications open. Let customers know they’re heard (and valued) by joining the conversation. Encourage professional reporting and open, honest performance reviews. Most importantly, learn from mistakes.
Error #5 Looking backwards, not forwards
Today’s leaders understand that using analytics to influence future performance—not just report on past performance—is key to success. (A move toward being proactive vs. reactive is a prediction for HR and finance teams in 2016.) Other business roles have long been acquainted with the role of analytics. It’s now HR’s turn to step up to big data.
Time refers to BlackBerry’s plummet from popularity as “a consequence of errors in its strategy and vision.” BlackBerry failed to see the data and anticipate that consumers would drive the smartphone revolution, and the company was “blindsided by the emergence of the app economy.” Within four years of being named Fortune’s “fastest growing company in the world,” BlackBerry would cut 4,500 jobs, absorb $1 billion in unsold inventory losses, and see its co-CEOs step down.
Solution: Too much data can be overwhelming—the right analytics tools are those that are easily navigated by their users. The rest of the solution is time. If you’re already adequately capturing information, you probably don’t need more data—you need more time. By taking the time to carefully study data, patterns emerge. These patterns can be used to predict everything from the habits of your customers to the turnover of your employees.
Now that you know which HR mistakes to avoid, how does your business stack up? Use the Zenefits HR Grader to see how well you’re doing with three core areas of HR: administration, reporting, and compliance.