Reducing Liability through Outsourced Human Capital Management

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Guest post by: Tina Lockwood

Employment-related litigation has never been higher. While class-action lawyers have found labor law to be a key source for profits in recent years, many companies—big and small—have seen first-hand the detrimental impact labor lawsuits can have on a business.

Since 2007, companies across the United States have paid nearly $4 billion in wage and hour settlements. With wage and hour class and collective actions outpacing all other lawsuit categories in 2015, it’s critical that companies take their employer-related liabilities seriously.

Claims against employers run the gamut—unpaid overtime, misclassification of employees, failure to provide rest/meal periods, and failure to pay minimum wage. They can strike any size business in any industry. However, businesses that employ hourly workers are especially at risk.

Some companies assume they don’t need to dedicate resources to human capital management because they are not big enough, but the reality today is that HR functions are critical to maintaining compliance and reducing exposure to liability. Companies that fail to comply with employment laws and regulations face major potential financial consequences.

Indeed, the increasingly complex and quickly changing legal landscape has helped more businesses understand the importance of the human resources function to a company’s bottom line. Yet, many HR departments aren’t equipped to adequately manage the growing challenges of complying with HR and employment laws.

Budget-conscience businesses operating on tight margins typically cannot justify the costs associated with employing enough staff with the knowledge and expertise required to reduce liability exposures. As a result, more companies are outsourcing human capital management to effectively manage talent, benefits, and compliance. They find that outsourcing human capital management is a more convenient and cost effective way to deliver payroll, administer benefits and open enrollment, and manage FMLA, COBRA, and ACA compliance.

While not every business will need to outsource every aspect of its human capital management, outsourced HR administrative services in the areas of payroll, tax and benefits administration, new hire onboarding, performance management, COBRA administration/compliance and ACA reporting have become increasingly commonplace. Payroll service and HCM technology providers, administrative services organizations (ASO) and HR business process outsourcing organizations (HRO) can save companies a significant amount of time and money, allowing in-house HR professionals to take on more strategic roles and responsibilities that support the growth of a business and protect it from liability.

Help for HR Departments of Zero or More

Technology plays a large role in the efficiencies gained and reduced risks businesses see from outsourcing human capital management. With a seamlessly integrated human capital management system, companies can eliminate their HR data entry burden while maintaining a complete digital audit trail of employment-related records including personnel files, employee hours worked, and pay history. As businesses grow, tax filing processes and garnishment compliance become more complicated for HR departments. Software systems that manage multiple FEINs, calculate employee taxes across all states and jurisdictions, and factor in garnishment rules reduce a company’s exposure to potential fines.

Staying on top of compliance becomes less challenging and time-consuming when partnering with a vendor that stays up to date on things like tax regulations, wage and hour laws, and garnishment rules. With the significant administrative burden of new Affordable Care Act reporting requirements, it’s more difficult than ever for companies to manage everything in-house.

Outsourced human capital management vendors can help companies manage key areas of HR that require in-depth compliance knowledge by guiding them through areas with significant employment related liabilities such as payroll, tax, benefits, unemployment, COBRA, and workers compensation.

Tina is a writer living in San Francisco. With over seven years of experience in writing, she’s inspired readers from all over the world. During her downtime, you can find her reading a book at a local coffee shop, playing volleyball or staying up to date on the latest in human capital management.