HR departments of one, in which a single person manages all aspects of a company’s HR processes, are often the first to say they need some kind of technology to do their jobs. However, many also say their business’s owners typically hate to spend money on HR—and that’s why the HR professional is often asked to rely on the technology and software the company already has to manage all HR functions.
That can create some problems.
“If you haven’t experienced a lawsuit because something wasn’t done properly, it’s hard to be aware of the dangers,” said Holly Payne, SHRM-CP, a compliance manager who also oversees HR for K&L Freight Management in St. Charles, Ill. So while tracking employee work hours on spreadsheets or cutting paychecks using accounting software is both convenient and financially attractive, it also exposes companies to legal and tax issues.
“A lot of companies that are smaller may have an office manager who’s moved into HR, so that person doesn’t necessarily have knowledge about what’s compliant versus not compliant,” or what confidential information needs to be carefully documented and saved, said Payne.
“One misstep, even an unintentional one that you’re completely unaware of, can get you into some big trouble very quickly,” said Dennis Kilfeather, a tax accountant and small-business advisor in New Jersey.
While spreadsheets and accounting software “are definitely a good start,” they can’t prevent you from incorrectly classifying employees, improperly tracking Family and Medical Leave Act (FMLA) cases, or overlooking other compliance issues, said Lorry Parker, SHRM-SCP, principal of the Chicago HR consulting firm HR Advisement.
HR shouldn’t consider the templates and built-in processes that come with small-business software as HR solutions. Regulations vary by jurisdiction and are ever-changing, and departments of one often need help to make sure their HR activities are compliant.
Finding Help When Help Is Needed
Even if some spreadsheets can be programmed to help with many issues, Parker pointed out that most people use software at its most rudimentary level. They aren’t inclined to dig in to the help function to teach themselves how to link cells and spreadsheet tabs to create an HR tool.
Moreover, creating technical solutions and HR solutions are two different things, noted Greg Baber, an Overland Park, Kan., technical consultant. When HR issues arise, he steers customers toward getting the right kind of help. While he and clients have talked through how they might use Excel or Outlook to address certain HR needs, he said, “we never get down to the nitty-gritty of how that spreadsheet might work for you.”
Parker, on the other hand, regularly has such discussions. On several occasions, she’s created an Excel-based applicant tracking system for clients or instructed them on how to use their calendar to track FMLA cases.
“There are resources that are far less expensive than hiring a full-time HR person to help make sure that you’re in compliance,” Parker said. “But at the very, very least, you want to have a handbook or guidelines for your employees so your basics are met to help mitigate risk.”
In Payroll, So Many Dangers and So Little Time
Although financial software allows business owners to generate paychecks on their own, Parker and other business advisors warn against the practice.
“The quickest way to get yourself into a regulatory headache or problem is by processing your own payroll,” said Kilfeather. “And it’s very easy to screw up.”
Businesses that aren’t using a payroll service should, at a minimum, review their work with somebody who’s had hands-on experience with payroll processes and payroll tax returns, Kilfeather said. Many companies start out trying to manage payroll on their own, but then end up engaging a payroll service “because they received a ‘love letter’ from the IRS or the state and decide they’re just going to sign all responsibility for payroll over to a processing company,” he said.
“Tax laws are constantly changing, and it’s not your business to stay on top of them,” said Parker. But at the same time, she noted that each approach has its pros and cons. Engaging a payroll service may bring you peace of mind, but it could also be pricey. She believes business owners must understand the advantages and disadvantages of doing some work in-house rather than outsourcing, and then decide which approach is best by weighing the costs against the benefits.
The stakes are enormous, said Kilfeather. He recalled one client, a small home-repair company, that found itself in hot water after its owner improperly classified and incorrectly paid an on-call employee who covered the weekends. The worker would be at home, receive a text message reporting a service call, go directly to the customer’s location and spend whatever time was needed to make the necessary repairs.
“The employer, because they’re asking their employee to be on-call after hours, has to pay time and a half for portions of that labor,” Kilfeather explained. “But they weren’t and hadn’t been for three or four years.” As result, “they’re going to owe massive back pay to employees, and they’re going to owe penalties to the state.” In addition, “they have disgruntled employees at a time when a service industry’s biggest asset is its workers.”
Making matters worse is that states aggressively hunt for such mistakes, because fines mean revenue. “The state loves these,” Kilfeather said. “I mean, they usually come out and investigate within three business days.”
How Confidential Is Confidential?
Confidentiality is another issue to consider, said Tracy Burns, CEO of the Northeast HR Association, a Society for Human Resource Management affiliate in Concord, Mass. “There’s a lot of risk inherent in keeping confidential, sensitive information either on your desktop or in the cloud.”
For one thing, unless HR takes strict precautions, fired employees could help themselves to files on their computer, office network or cloud service. “I think there’s exposure in and of itself when you have information in a nonsecure place,” Burns said. Not only could a terminated employee exploit it, but sensitive information could be leaked within the organization.
HR departments of one often “don’t know what they don’t know,” added Burns. And since many business owners think anyone can handle HR, “the complexities have evolved immensely in recent years.”
Even a basic HR information system is worth having, Payne said, because it will have at least some compliance built in. With such systems, “you can track personnel files with their fair employment data and all of those components,” she said. “You can pull a report that will protect the data for you, versus you having to worry about the spreadsheet and whether you put the data in.”
Payroll information, health records—the kind of material that was once stored in locked filing cabinets, Burns observed—can be protected only when HR makes sure basic security precautions are in place. The problem is not all of them do. “When you’re small, there’s a need to save money,” Burns said. “But there comes a point where the risk overrides that.”
In recent months, that point is arriving earlier, Burns believes. “Where once hiring their 50th employee led owners to pay more attention to HR, today companies with relatively few workers are turning to outsourcing for even basic tasks.” Besides being more cost-effective, she said, “from a risk standpoint, it keeps you out of harm’s way.”