WHAT’S IT ABOUT?  Outsourcing the role of human resources.

KEY TAKEAWAY: Human resources rather than support employees in times of crisis often time, protect bad organizations, leaving employees to fend for themselves.

INSIGHT:  Ditching the convention of having a traditional human resources department allows companies to be more nimble and responsive to employees needs.

HR Acts in the Best Interest of Management

Simply put, human resources is the management of an organization’s human capital. By its very nature, HR’s contractual obligation is to the company’s owners first and foremost. This immediately raises the issue of fiduciary responsibility when it comes to how HR handles employee complaints, particularly against higher-ups and corporate executives.

man sitting on gray arm chair using silver laptop computer on building balcony at daytime

When HR Allows Bad Things to Happen

In my previous article, The Ugliness of Racial Discrimination in the Workplace, employee complaints to HR at companies like Facebook, GM, Tesla and UPS went unresolved. At GM, when African-American employees complained to HR about racial tensions, the company responded by firing the offenders; however, the bad behavior continued long afterward. HR clearly failed employees.

Take the most egregious example of HR allowing bad behavior in the case of Uber. The company’s HR department turned a blind eye to sexist comments and bad behavior by then CEO Travis Kalanick and other executives. In a now infamous memo about Uber, former engineer Susan Fowler details how her complaints to HR went unheard. Ms. Fowler even details how the company retaliated against her and how it impacted her professional aspirations.

It is not uncommon for HR to look the other way when complaints about a high-level executive or an employee deemed to be critical to the success of the organization. This causes distrust, dampens employee morale and hurts the company in the long run.

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It’s About Corporate Culture

HR is an extension of management. As a result, one of its responsibilities is to maintain or enhance corporate culture. But what happens when the work environment is toxic as in the case of Uber? The truth is, HR is set up to protect the company and mitigate potential lawsuits.

The Edelman Trust Barometer, which has been studying trust in companies, people and institutions for almost 20 years found that most employees don’t trust their company’s management. Less than a quarter believe that their CEO is ethical. This places HR in the position of having to be the buffer between leadership and employees.

While the original mission of HR is worker productivity, it is limited when it comes to setting corporate culture, which comes from company leadership. This sets the tone for how HR will deal with crises as they arise.        

Is HR Worth It?

As a department within an organization, human resources is a cost center, meaning it doesn’t generate income for the company but is rather an expense. A such, companies are particularly interested in measuring HR costs and their return on investment (ROI).

One measure often used is the HR to Staff Ratio, which is the number of employees to HR staff. Typically, small firms will have a higher ratio compared to medium and larger organizations, which may have an HR to Staff Ratio of 1.22 and 1.03, respectively. In 2012, according to the Society for Human Resource Management, U.S. employers had a median of 1.54 HR professionals for every 100 employees. Other measures look at the percentage of HR staff in supervisory roles and HR staff to full-time employee ratios.  

The point is, more and more companies are looking into adequate staffing of their HR departments with a focus on ROI. According to a WSJ article, employers are finding new ways of managing their employees without having traditional HR staff. This is particularly true for companies looking to maintain flatter operating structures. Those in favor say that a decentralized structure fosters better communication between management and employees.

The thought of jettisoning the HR department, particularly in large companies, is pretty much unheard of. The thinking goes that not having an HR department exposes the company to litigation and strategic risks. Those in favor of keeping HR staff say that management is not trained to handle difficult employee relation issues.  

A Very Radical Approach

As mentioned earlier, HR serves as an extension of management. As such, it is not ideally suited to handle employee complaints against management because of a natural conflict of interest. In many large organizations, HR departments operate remotely, reducing interaction with employees.

Today, many of the functions performed by HR can be outsourced. For example, Insperity offers full-service HR solutions. Some of its services, which can be bought individually include recruiting services, retirement 401(k), and performance reviews. The company can handle companies from five to 5,000 employees. While large corporations may want to keep an in-house HR department, many of the administrative functions can still be outsourced, leaving a smaller HR staff to handle strategic initiatives. 

Now let’s go radical. Traditionally, the HR function has always been subsidized by the organization. In a paradigm shift, rather than have the company pay for HR services, employees would pay for such services. Blasphemy you say. Well, hear me out. We’ve already established that HR has an inherent conflict of interest and that many of the functions that HR performs can be outsourced.

Having employees pay for HR services does a few things. First, it ensures that the outsourced HR provider works in the best interest of the employee. Second, it removes a layer between management and employees, allowing for more direct communication. Lastly, it removes the tension of employees to share their concerns with an impartial third party.

How It Could Work

Since the idea is so radical, the approach of how to get employees to pay for HR services needs to be creative. One way is through a monthly subscription fee. Consumers are already used to paying for subscription services anyway. In this particular case, since it is work-related, the subscription can be tax deductible.

Another way can be to have employers deduct the expense on a pre-tax basis from an employee’s pay. The expense can also be bundled with 401(k) deductions and other employee benefits like health and life insurance. When an employee is terminated, the expense goes away.

Training & Support

One of HR’s main functions is training and career development. This too can be handled by an outside service. There are a number of third-party apps such as Bravely that connects employees with professionals to help them work through difficult work and personal-related matters. These services can also be priced into an HR subscription. 

What about training and support for management? That can also be handled by the HR solutions provider as well. Ideally, one that understands the business, processes, jargon, industry protocols, and best practices. Obviously, this would be paid by the company.   

Do I expect companies and workers to suddenly embrace such a radical approach to HR? Probably not. However, the time is ripe for opening a discussion surrounding the role of HR, particularly in the changing dynamics of the workplace.

As always, feel to share your thoughts by dropping me a line at randolf@cognitre.com.

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