Risk Management in HRM

 

Imagin everything’s going well at your organization. Colleagues are getting along with each other. Teams are hitting their goals. Employees feel inspired by leadership. And communication is direct and clear. 

That’s the scenario most businesses want for the workplace, but small issues with employees can often snowball into large problems if they aren’t dealt with quickly. Enter human resource risk management, which can help businesses be proactive in solving potential issues.

What is human resource risk management?

Human resource risk management identifies potential employee-related risks to your business so you can minimize any problems before they arise. If a business ensures all employees are satisfied in the workplace, this will protect the organization against possible issues. Not mitigating employee-related risk can negatively impact revenue, reputation, profitability, and other aspects of the business.

The role of a human resource risk management professional is to consider all of the possible outcomes of employee risks, which can be related to employee behavior, management styles, or salaries. 

What are the key HR risk areas?

HR professionals need to consider many HR risk management issues in their jobs. Here are seven examples:

Workforce risks

The complexities of employing people pose challenges for any organization. Matters such as turnover, employee burnout, employee relations, workplace conflict and harassment, and lack of employee engagement all have the potential to negatively impact the company and prevent it from thriving. 

Modifications in the way people work bring new risk factors. An example is offering remote/hybrid work setup. Employees may find this desirable, but a lack of in-person dialogue and connection can lead to feeling isolated and communication failures. This can decrease employee engagement and productivity.

On the other hand, not offering this might lead to employees leaving for organizations that do.

Employee data management

Cybersecurity and data privacy are crucial responsibilities for every organization. You must manage employee data collection and storage safely and ethically, as well as have a privacy policy in place. Additionally, you must hold employees who handle sensitive customer data to high standards.

Security breaches or misuse of personal information can leave companies vulnerable to lawsuits and brand damage. HR needs to ensure that the data is secure and used properly.

Compliance

Human Resources activities and policies need to be in line with many laws and regulations, often across states and countries.

To stay on top of HR compliance, you must remain current on workplace safety and labor laws that continually change. This includes ensuring that all employee contracts are in agreement with applicable statutes and regulations.

Ethics

HR is central in ensuring that organizations behave ethically regarding employees. Upholding ethical hiring and employment practices will help reduce the risk of employer-employee disputes. 

Here are just a few examples of ethical policies that employers should maintain:

• Equal opportunity hiring.
• A non-discriminatory work environment.
• Impartial termination procedures.

Learning & development

HR is responsible for ensuring the company has staff with the right proficiencies to achieve organizational goals. Employees also want to grow in their careers, and they look to broaden their skills within the workplace.

While learning opportunities are based on organizational capabilities and competency needs, HR must also ensure that all employees have equal access to them. Limiting who can attend may seem unfair to those who are excluded.

Compensation & benefits

Fair pay and benefits should be maintained throughout the entire workforce. HR needs to balance how to provide competitive and fair compensation packages that are in line with the market and the company’s financial interests. 

They also need to ensure pay equity and inclusive employee benefits offering. Doing so will support compliance with regulatory requirements and help employees feel like they are being treated impartially.

Common risks HR managers should recognize

Implementing human resource risk management into your business can be daunting if you don’t know what you’re looking for. Here are a few common scenarios HR managers should have on their radar:

• Software security breaches and the release of confidential employee information
• Employees working more than their agreed-upon hours
• Employees being paid less than their equals
• Employees not receiving accommodations granted by law
• Missing or incomplete background or reference checks for new hires
• Employee injuries due to lack of training or education
• Employees feeling like they can’t be honest about potential work issues

Follow these tips to reduce the number of potential employee-related issues in your organization:

• Develop a recruitment and hiring plan. Hiring new employees in a rush can lead to problems down the line. It’s best to plan for your hiring needs so you can take the time to properly vet all candidates. Missing a reference check could be damaging and costly to the business.

• Read up on industry and government compliance regulations. Be aware of labor laws, workplace safety rules, privacy laws, and industry norms. Ensure your organization’s policies reflect these regulations. 

• Follow the latest legal guidelines. It’s important to stay up to date on legal employment issues, especially regarding family leave, medical leave, and ADA compliance. If your organization has employees in multiple locations, be aware that laws can differ from place to place.

• Provide proper onboarding and training. Establish a detailed program to prepare new employees at all levels to work effectively and safely at your organization. Carefully track onboarding and training requirements to ensure all employees complete them. 

• Create a welcoming culture. Develop an organizational culture that encourages employees to ask for help. This way, those struggling with work or personal issues are aware of the resources they can use, so they don’t feel ignored or alone. This can reduce potential dissatisfaction with leadership.

Strategies to minimize HR Risks

• Understand local and the relevant international labour laws to follow the basic principles correctly.
• Regularly audit your HR processes to ensure you comply with these laws.
• Report on finances quarterly.
• Identify key HR risks within your organization.
• Assess the risks and prioritize your actions.

Creating an HR risk management plan

A successful HR risk management strategy must be intentional. Here are five steps to get you started:

1. Identify key HR risks within your organization

Conduct an HR audit to see which practices at your organization are lacking and what you need to prioritize improving.

Think about the general risks that every enterprise faces and also liabilities that may be unique to your industry/company. For instance, an in-home caregiving business must consider what could go wrong when employees work alone with vulnerable clients, or what would happen if they work with an expired license.

2. Assess the risks and prioritize your actions

Your list of risky areas may seem overwhelming, so you need to break them down. Start by assessing and ranking each one by asking certain questions:

• What is the probability or frequency of it occurring?
• Is it preventable?
• How severe would the consequences be?
• Can we minimize the impact of the damage?

You’re not going to be able to manage all risks at once, but they won’t be equally critical. Line up what you need to do first. For example, you might prioritize areas that put you at legal risk, such as compliance problems or pay inequity. 

3. Design and implement your solutions

Now it’s time to decide what to do to minimize the risks you’ve identified. Start with determining the right risk management techniques. Then, you need to come up with solutions and start implementing them. 

Here are two HR risk management examples of opting for the loss prevention and reduction approach:

Employee conduct

An employee who is untrustworthy in their duties or causes a hostile work environment for others can pose multiple risks for an employer. 

Preventative measures could include:

• Comprehensive candidate vetting in the recruitment and hiring process.
• A robust onboarding and training program for new employees. 
• A thorough employee handbook and signed acknowledgment from every employee. 
• Detailed position descriptions.
• Comprehensive policies and procedures with ongoing training.
• Manager follow-up, written records, and disciplinary action when job descriptions or policies are not respected.

Compliance

Weak cybersecurity or failure to comply with employment laws or industry safety regulations can result in breaches, fines, accidents, or litigation. Following all the guidelines is essential, but there is no guarantee that you’ll avoid all problems. 

Some deterrents to put in place include:

• Auditing all HR processes regularly for compliance.
• Designating an HR team member to be alert and keep an eye on new employment laws and high-profile legal situations.
• Educating employees and working with IT to ensure sensitive data is secure.
• Consulting with experts or an employment attorney to review your compliance/security procedures and documents.

4. Set up a continuous HR risk monitoring process

Human Resources risk management is an ongoing cycle. You’ll need a consistent risk assessment to be aware of everything your organization is exposed to. Setting up a process for this will ensure you can be proactive in evaluating and resolving risks as they arise.

Here are some questions to help you evaluate how well your HR risk management solutions are coping:

• Are overall risks being managed better?
• How well are we communicating our risk management plan?
• Have any risks altered over time?
• Have new risks emerged?
• Are employees observing risk management guidelines?
• Do employees need additional training?

5. Strengthen the risk management skills within your team

Developing your HR risk management skills will benefit your organization from a long-term perspective. What’s more, they’re increasingly important future HR skills that will help you stay relevant as an HR professional.

One way to improve these skills is to team up with another department that is more advanced in risk management for a workshop.

As you cultivate a risk management perspective, you’ll be able to act more strategically. Stay curious about developments going on within your particular business. Then you can anticipate how they might pose risks to HR and be able to stay on top of any changes that need to be made. 

conclusion

As the business ecosystem remains volatile, HR has to keep up. HR risk management enables HR teams to proactively approach issues within their area of expertise and make sure that the organization can function smoothly and effectively.

References 

https://www.aihr.com/

https://www.hrmanagementapp.com/