Human Resource ROI

Human Resources is generally an overlooked part of small businesses but is a critical part of the company.  Human resource functions are generally associated with hiring/firing, employee retention and compliance.  All these functions are vital to the success of a business to create a productive workforce while protecting the company from employee lawsuits, unemployment and workers’ compensation claims.

The biggest function for an HR department is recruiting and retention of employees.  Having the right workforce is critical to the success of a business.  So how do we track the ROI of this process?  Very simply, look at the effectiveness of who is hired.  Do they fit the skills of the position and the “personality” of the company?  How effective are they in their job?  How much turnover does the company have?  While recruiting the right people is the first step, retention of employees is a key to positive ROI.  As mentioned in a previous article.  Studies have shown that turnover can cost 2-3 times of the employee's salary, so a lot of money can be wasted on a bad hire.  But retention goes beyond hiring the right person.  The right person can leave the company because of other reasons such as inadequate pay, lack of benefits or not feeling engaged by the company.  These are the top reasons employees have given as reasons to part ways with their employer.  It is the Human Resources’ responsibility to be in tune with the wages and benefits that are being offered by similar companies.  HR also plays are vital role in engagement by creating effective on-boarding procedures.

Lastly, HR can protect you from various liability concerns.  Whether it be unemployment, workers’ compensation claims, lawsuits or compliance penalties, comprehensive HR guidelines and procedures can greatly limit your liability.  There are many do’s and don’ts when it comes to having employees that most small businesses are not aware of or overlook.  This can be quite costly in the long run because it opens your company to a lot of risk.  Employee handbooks, job descriptions, workers’ compensation procedures, employee reviews and warnings are just a few of the things a strong HR department can use to limit liability.

Most small businesses have a very small HR department, if any.  Having a strong HR presence within your company whether it be in-house or a consultant can be a great ROI.  The old adage “you are only as good as the people who work for you” is the primary focus of Human Resources.