Human Resource Management | Small and Midsized Companies See Big Compliance and Cost Challenges Ahead

ADP Research Institute®

Human Resource Management: Small and Midsized Companies See Big Compliance and Cost Challenges Ahead

This insight is from: "Competition, Cost Control & Compliance: Strategies to Navigate a Changing HR World"



For both small and midsized companies, effective human resource management is critical to success — especially in today’s competitive business climate. As you know, HR management is a complex, ever-changing discipline fraught with challenges that impact employee productivity, HR compliance, and ultimately, the bottom line. Our survey of HR managers at small (10-49 employees) and midsized (50-999 employees) businesses looked at current business issues, top HR management concerns, and levels of confidence related to HR compliance in six key areas: hiring, payroll, benefits, employee relations, risk & safety and employee relations. Since HR compliance lies at the heart of effective human resource management, it is alarming to discover that most HR managers surveyed express concern about their ability to comply with HR laws and employment laws today and into the future.

HR Managers Lack Confidence in their Organizations’ HR Compliance Capabilities

According to our survey results, locating and hiring qualified employees is a top business concern for many respondents — 48 percent of HR managers in small businesses and 39 percent in midsized companies, respectively. In addition, HR managers in midsized companies ranked hiring top talent first among their top strategies for maintaining a competitive edge; those in small companies ranked it third behind controlling overhead costs and focusing on employee productivity. The importance of these findings is underscored by the fact that roughly half of our survey respondents indicate having only moderate or slight levels of confidence — or even no confidence at all — in their ability to comply with important HR and employment laws, rules and regulations.

HR Compliance Challenges Are Expected to Increase Moving Forward

Half or more of responding HR managers expect the compliance landscape to become even more challenging over the next one to three years. Fewer than 10 percent of HR managers surveyed believe that the overall compliance burden will decrease. Given their compliance concerns — both today and looking forward — it’s not surprising that the vast majority of respondents seeks professional advice to address compliance issue and would even consider outsourcing their HR function entirely.

Where HR Managers See Room for HR Compliance Improvements

Our survey examined six HR compliance categories: payroll, benefits, risk & safety, hiring, employee relations and termination. On the positive side, results indicate that HR managers are confident they can comply with payroll and benefits laws and regulations. However, HR managers are less confident with regard to compliance in noteworthy aspects of hiring, employee relations, and risk & safety. Non-compliance in these areas could put small and midsized businesses in jeopardy of FLSA and OSHA violations, as well as employee grievances.

Taking Steps to Minimize HR Compliance Risks

Given the risks associated with non-compliance, companies should consider taking steps to address any HR compliance issues sooner rather than later. With employee litigation — and compensatory awards — on the rise, companies face major potential legal liabilities if they fail to comply with HR and employment laws, rules and regulations. Statistics compiled by Jury Verdict Research show that employment lawsuits have risen 400 percent in the last 20 years, with the average compensatory reward in federal employment cases now exceeding $490,000. For small to midsized businesses, these statistics highlight the need to address any compliance concerns, even if that means seeking guidance from third-party professionals or outsourcing the HR function entirely.

Addressing HR Compliance Issues is Key to Effective Human Resource Management

In order to achieve a competitive edge, today’s business are striving to operate as efficiently and cost-effectively as possible while maintaining HR compliance and attracting and retaining top talent. However, our survey finds that HR managers are recognizing the challenges of complying with complex, dynamic HR laws and employment laws. Since shortcomings in key areas of HR compliance can put businesses at a competitive and financial disadvantage, it only makes sense that small and midsized companies use the many effective tools and services available to become — and stay — compliant.

*A complete list of sources and citations can be found in the full report.

About This Report: Report data and conclusions are based on a 2011 ADP Research Institute survey of HR managers in 319 small and midsized businesses nationwide that looked at current business issues and examined levels of confidence related to key areas of HR compliance. See full report for details on research methodology. The ADP Research Institute is a specialized group within ADP that provides insights to leaders in both the private and public sectors around issues in human capital management, employment trends, and workforce strategy.

Keywords: Compliance, HR Management, Talent Management

Business Types: Research for Small Organizations, Research for Midsized Organizations

Roles: Research for Human Resources Professionals

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