Uncertainty is widespread in the global market, with ever-increasing inflation and threats of recession causing economic concern. In addition, the global labor shortage is making it increasingly challenging to acquire the required skills for businesses.
In light of these ever-changing circumstances, companies must prioritize the safety and effectiveness of their most valuable asset - their workforce. To achieve this goal, you must first define the key areas for HR risk management, identifying potential threats and assessing risks within your sector. By doing so, you can develop practical and cost-effective solutions to mitigate possible risks.
The insights below can help you set up a resilient HR risk management program in your company that enables you to manage and prevent the challenges of today and tomorrow.
HR risk management and the HR department
We all manage risks in our personal lives to some degree, from relying on public transportation to deciding what to eat for dinner. However, when it comes to managing the HR risks for a company, the process is greatly complicated by the many ways in which people act and react to each other.
HR risk management looks at all aspects of employee behavior, determines its potential to cause harm to the company (including all employees) and provides a response should an adverse scenario occur.
The HR department is inescapably entwined in the lives and work of every employee from the moment they’re recruited to when they leave the company. As such, much of the responsibility for correct employee management and risk mitigation falls to human resources. Consider all the activities your HR team is involved with daily.
- recruitment
- onboarding
- annual or biannual reviews
- salary negotiations
- interpersonal conflict resolution
- employee engagement
- training and development
- promotion
- disciplinary action
- termination
One of the advantages of creating and maintaining an HR risk management program is that it can help you improve all aspects of human resources. For instance, removing bias from applications and interview processes also enables you to attract more diverse candidates, enhancing your workplace culture. Identifying ways to secure employee data makes a people analytics program more feasible.
why is an employee risk management plan necessary?
As much as you'd like to think that a crisis will never befall your company, it pays to be prepared for the worst. A preset course of action helps you and your team respond promptly and correctly, even when overtaxed physically or mentally. In addition, a robust strategic risk management plan can help prevent unwanted situations from occurring in the first place and more minor problems from escalating into larger ones.
Sometimes small companies, especially ones with long-time employees, may feel they don’t have to worry about employee risks. After all, their employees are like family; they would never abuse company policy, release personal information or misuse finances. Unfortunately, when the unthinkable occurs, leadership has no incident response plan to fall back on and often reacts hastily and to the company's detriment.
Larger companies, with thousands of workers, may require a great number of risk management strategies to cover all tiers of employees and all aspects of the employee experience.
learn more about building resilience and strategic risk management
get the guidekey areas for HR risk management
While each business will have a unique subset of risks based on its industry, mode of operation and location, human resource departments within those companies often have similar areas of risk. Here are the most common areas that need to be included in your crisis management plan:
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compliance with regulations
Your organization must follow all hiring and management laws, including federal, regional and local ordinances. You may be required to obtain identification documents from employees, pay quarterly and annual taxes and ensure fair and equitable hiring practices.
Failure to follow these laws can leave your company open to risks such as fines, lawsuits and even closure. Strict policies on promptly completing all documentation can help mitigate some risks. In addition, consider working with a knowledgeable HR solutions partner who can advise you on employment laws and facilitate payroll processing.
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recruitment
Having effective recruitment procedures in place does more than help you attract desired candidates and improve cost efficiencies in the hiring process. It also helps eliminate bias, leaving you less open to the risks of unfair hiring tactics.
Take the time to audit your recruitment processes for any liabilities, whether from unstructured interviews or out-of-date applications. Also, be on the lookout for over-promising during interviews, as it could lead to literal or psychological contract violations regarding job responsibilities and promotion opportunities.
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onboarding
Many of the risks employers face from subpar employees, including negativity, low productivity and refusal to follow procedures, can be addressed with an effective onboarding process. This process should provide a detailed and up-to-date handbook and a full explanation of company policies. Keep an eye on new recruits and watch for early warning signs, like inappropriate comments, attendance issues and over-sharing of company details on social media. A quick response from the HR team may help resolve problems before they escalate.
Providing a suitable mentor can also help you recognize employees struggling to adapt and may encourage the new employee to make positive changes.Also, pay attention to team and coworker dynamics during onboarding. If you spot any tendencies toward harassment or improper behavior on the part of the new employee or their colleagues, now is the time to address these risks.
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management
Your management team can help lessen HR risks in your company or escalate them. It’s up to you to discover any toxic managers on your staff. They will significantly increase your chances of employee attrition, legal retribution and loss of productivity.
Consider requiring training and development programs for all managers along with frequent monitoring of individual departments through surveys and personal chat sessions. By improving the effectiveness of your managerial staff, you can drastically reduce the chances of retaliation lawsuits. Requiring that an incident response plan be followed should any altercations occur between employees and between employees and management can also help mitigate risks.
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remote work
Remote work is here to stay, and many companies offer employees a chance to work from home either permanently or as a hybrid model. If your company provides this perk, be aware of its associated risks.
- access to secure data from home
- feelings of overwork as the employee is ‘always on’
- lack of oversight, leading to productivity loss
- employees may get overlooked for promotion or miss receiving instructions or announcements due to their not being on-site
To safeguard against these potential hazards, it is imperative to establish a remote work policy and consistently revise it as the modern workplace undergoes changes.
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health and safety
Securing the health and safety of your employees is a critical component of HR risk management. Depending on your industry, you may have equipment requiring training and monitoring to keep employees safe while performing their duties. You may also need to provide personal protective gear and keep records of all hazardous materials.
The more automated you can make these procedures, the less chance you’ll have of slips ups. Placards and signs should be clearly visible and augmented with rails or taped-off areas if necessary.
In addition, you need to think beyond supporting only the physical side of a worker’s health. Mental stress is increasingly common among employees, with approximately 12 billion work days lost each year due to depression and anxiety. By ensuring your workplace is free from harassment, bullying, overwork and poor communication, you can help reduce risks associated with emotional distress.
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natural disasters
If you operate in an area where there's a likelihood of severe disasters like earthquakes or flooding, proper planning can help reduce risks and shorten business recovery times. Start with an employee emergency plan that details evacuation routes, communication procedures, and the location and operation of emergency equipment. Ensure all employees understand these steps and revisit them regularly.
Next, devise a business continuity plan that addresses how the organization will continue to operate — on a limited scale or at a different location, if necessary. As part of your business continuity plan, list disaster recovery steps designed to get your business back to normal operations as soon as possible.
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data
Whether your company is involved with big data collection or only uses a small business server, keeping that data secure is critical with the increase in cybercrime. The onset of digital transformation means these risk management strategies will need constant adjustments as more and more data is stored off-site and in the cloud. Not only do you need to keep digital data secure, but in most companies, you’ll still need to manage paper documents, storing them safely and securely.
Data breaches can significantly erode your company’s trust quotient, both among its employees and customers. It can also leave you open to legal repercussions. Regularly perform data audits to ensure your risk levels are acceptable and meet with a specialist if you need technical advice.
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brand
While risk planning can help reduce your chances of a hefty lawsuit or prevent unpleasant incidents, it’s also critical to maintaining a positive employer brand image. We’ve all seen headlines where an employee or company has been called out for significant misdeeds, such as a misuse of funds or a large data breach.
Once that news has aired, restoring the public’s trust is extremely difficult. Not only will this hurt your bottom line in terms of service or sales, but it will make it difficult for you to attract and retain the type of talent you need to regain your footing in your industry.
Additionally, employee-related troubles can damage the employer brand. Comments regarding a toxic work culture or employee harassment can appear on review and other social media sites. Make sure your employees understand the procedures for reporting a problem with a manager or coworker and the policies for sharing work stories or pictures on social media. Also, have someone regularly check employee responses to job reviews for inaccuracies or retaliation comments.
strategies for HR risk management
perform a risk audit
Your first step in managing HR risks requires a comprehensive look at what your company does, how it works and who it employs. The risks for a tech service company with 150 employees will completely differ from those of a manufacturing firm with 2,000 plus workers.
You can determine where risks lie by looking at the number and types of workers you employ and considering their daily actions. You can also analyze how significant these risks are in terms of liability and reoccurrence.
decide what level of risk your company can absorb
In most cases, you can’t remove all risks, but you can find ways to reduce their impact or the frequency in which they occur. You may use one or more of these standard risk management techniques:
- avoidance. For example, you may find that a particular hazardous chemical poses an unacceptable amount of risk and therefore choose to use an alternative material
- accepting and mitigating needed risks. If workers must use hazardous equipment, ensure safety precautions are fully implemented and monitored
- sharing risks. If you have to store a large quantity of private data, consider partnering with a cybersecurity firm
You'll need to apply the above techniques to every HR risk area of your company as you consider multiple scenarios. While this can seem repetitive, it’s essential to avoiding and curtailing risk within your HR department.
revisit key risk areas for adjustments
Amid changes in worker mindsets, the global business infrastructure and technological advancements, new risk areas may pop up at any time, while others may fade away. Also, by closely monitoring how individual solutions work, you can maintain continuous improvement within each area.
The decisions you make during a business crisis can have ongoing effects. That’s why focusing on resilient risk management is so critical. Adapting and moving forward at each challenge places your company at the leading edge of the market, perfectly poised for growth.
