A recent report by Accounting Management Solutions discussed the management of risk by Chief Financial Officers in an organization. The premise is that risk management typically falls to the CFO and such risk isn’t just financial, but can also be operational and reputational as well. Another risk that could be added to that list is “employee” or “human resource” risk. It could be argued that the risk associated with employing people is assigned to one of the previously described categories but that this risk has grown to be so great that it deserves its own category.
Within Human Resources there are significant risks that, if realized, could affect the financials through fines, lawsuits, and loss of employee productivity due to time and effort to research and defend allegations. Some common areas of HR risk employers should be aware of are:
Recruiting – Beyond the legal requirements for posting positions and selection decisions, many interviewers are not aware of the legal way to conduct interviews and ask candidates questions.
Job Classifications – The Fair Labor Standards Act (FLSA) is the federal act which imposes pay guidelines on employers and the way they pay their employees. Misclassifying employees as ineligible for overtime can open an employer up to treble damages and fines.
Termination – Unlawful termination can be easily avoided by taking the proper steps prior to termination and documenting the business reasons in advanced. Additionally, how the termination is handled could also pose further risks.
Discriminatory Treatment – No employer aims to treat employees unfairly, however, lack of knowledge about laws and fair employment practices can open up an employer to the risk of discriminatory treatment.
These are just a few of the common Human Resources areas where companies are at the greatest risk. In addition to the Operation and Reputational risk, taking a proactive approach to HR risk is both good business and financially prudent.