The Innovative Workplace

HR risk management: Let's get serious

Smart strategies to get your clients on track

By Don Phin

As president of the HR That Works program, I work with approximately 80 highly professional agencies. I've been co-editor of IRMI's EPLiC Journal for more than 10 years. I've had the opportunity to speak to more than 250 CEO groups about their HR practices—the very CEOs you would love to get an appointment with. Based on my years of practice and observation, I've come to a disturbing conclusion: The vast majority of opportunities to provide HR risk management services are being left on the table.

How many of the prospects you are pursuing have a qualified human resources director who is committed to implementing great HR practices? My guess: maybe 1 out of 10 at best!

In a majority of organizations, the people who hold this title do not have a formal HR background and have been handed the role so they can manage new hires, payroll, and benefit administration functions. In these organizations, HR is viewed as a necessity but not as a strategic opportunity to generate revenue. Among the companies that do have an HR executive, many are burdened with the same administrative tasks and lack the time to think beyond the needs of the moment.

As Roger Sitkins, Randy Schwantz and other respected consultants have taught for years, when working with prospects and clients, we have to consider their total cost of risk. The case can be made that the greatest risks faced by most of your prospects and clients are directly related to their HR practices. For example, many work comp, cyber-liability, EPL, theft, and property damage claims are the result of poor HR practices. And those are just the risks that can be insured.

The greatest risks, however, may be those that are not insurable. For example, Jim Collins, the author of Good to Great, Built to Last, Why the Mighty Fall, and Great by Choice, has said that the single most important factor in building a great company is making sure that your managers hire great people. Note that he didn't say the best product, service, or marketing plan. He said the best people. First who; then what.

How many of your clients make hiring great people their top priority? (Is this your agency's top priority?) How many have HR directors who possess the training, strategies, and tools to recruit, hire, and retain great employees? The likely answer is: Not many. Of the 3,000 or so companies that use our program, more than two-thirds had never implemented an HR program of any kind before using ours!

Ignorance is not bliss

After having spoken to thousands of CEOs, I've concluded that the main reason HR receives so little attention is that many business owners don't know how to manage the function. They understand their product or service, know how to market it profitably, and have a firm grasp of their company's finances, operations and sales, but the human resources function is often uncharted territory. Most CEOs have recruited and hired employees, but few have the training or experience to implement great HR practices. Likewise, many CEOs aren't aware of the vital role that a qualified HR executive can play in managing risk and improving bottom-line results.

Recognizing their weakness in this area, many business owners have thrown up their hands in surrender and fall into the arms of PEOs who imply “we'll do it for you.” From my experience, what those PEOs do for companies is very limited. They take away the administrative functions and then do what I consider to be “level 1” HR. They give them a poster, sexual harassment training program, and poor employee handbook template—and they're done.

While PEOs imply there are all these great resources at the disposal of their clients, few of those employers ever benefit from them. In part because PEO arrangements are “capitated”; using razor thin margins, they get paid on a per employee basis, like a physician gets paid on a per-patient basis. This generates a disincentive from delivering great service because you stand to lose money when you do.

What few recognize is that the bottom-line impact of poor HR practices is staggering. In my calculation it is at least 10% of total payroll. Meaning a company with 25 employees and $1,000,000 in payroll leaves at least $100,000 on the HR table annually. Since there is no H&R Block for HR, many service providers have jumped into this overlooked opportunity. There are the payroll and PEO companies like ADP, Insperity and Paychex; financial and business services groups like CBIZ and BizAssure; HR consultants; and many of the agencies who are competing directly with you. But what I've noticed is the results are usually the same—what I refer to as “Level 1 HR.” Nothing is done that really helps to grow a business, which is the single greatest risk you, your prospects and your clients will ever face.

Whether you use our program or another program to meet your clients' HR-related needs, your support is essential. This applies to wellness initiatives, benefits enrollment, safety, cyber-liability concerns, and basic HR functions like recruiting, hiring, and retaining good employees. If you tell a business owner that you can help with these risk management concerns, be sure that you can deliver on your promise.

You can support your clients' HR initiatives in a variety of ways. Here are a few:

• At the lowest level, you simply monitor the client's use of its HR program (every program should allow you to do so). If the client is not using the program, call and find out why. If the point person comes up with nothing but excuses, call the business owner.

• You charge them for coaching. Remember, the business owner does not know how to manage the HR function and has no desire to either. So do it for them. They will gladly pay a reasonable fee. When you coach someone you touch base with them at least monthly and make sure they get things done. When they get things done you make sure that gets reported to the owner. When an owner sees things getting done they are happy. When they are happy they will gladly spend even more money to get more things done!

• You do it for them. Known in some circles as “fractional HR.” That means you need to either hire or work with someone who has done HR consulting. Many of our partner firms who have been honored as Rough Notes Agencies of the Month—The Flanders Group; Ramsey, Krug, Farrell & Lensing; Litchfield Insurance Group; and Slaton Insurance—have someone who is full time HR on board who spends roughly half the time working within the agency and then the other half of the time with clients. Others have grown the opportunity to where they work with full-time consultants. Either way, it doesn't need to cost you a cent until the prospect or client says “yes.”

• You can charge separately for HR services or include them in a risk management package that includes all three areas mentioned above.

• Make sure your producers know how to present the HR services you offer. Train them to handle questions about fees. Make sure they know how to conduct the conversation about total cost of risk.

You also need to be aware of some problems that could emerge and monitor your program to make sure they don't crop up. These problems include:

Handing the program over to an “implementer” and then losing. Not good. Make sure you get a monthly report on how the program is being used. Don't take “they aren't using it” as an excuse. What is the blockage to usage? Is it on your side, or theirs, or both?

Not knowing the lingo. Most brokers don't know how to talk about HR or other value-added services. They know insurance. Make sure your brokers know how to present these services and know how to have the total cost of risk conversation.

Not charging enough. If you don't properly charge for these services, you won't have the funds to support them properly. All of these services should be charged for and it should be viewed as an independent profit center.

Summing up

People, not things, grow a business. And it is people who cause the most risk as well. From an operations standpoint, HR is the forgotten stepchild of business, which means there are plenty of opportunities for you to serve your clients and add to your bottom line.

The author

Don Phin is president of the Employer Advisors Network, Inc., and author of the “HR That Works” series of compliance and management products. He is the editor of “Employment Practices Liability Consultant” (EPLiC), published by IRMI. He can be contacted at www.donphin.com or at www.hrthatworks.com.