The economic downturn we’ve experienced over the last several quarters has lead many companies to cut costs in order to retain cash and ultimately survive. One of the functions that has been severely affected by extensive cost cutting has been Human Resources (HR). The prevailing sentiment is ‘our company is too small to need HR, or, we are not adding headcount, so why spend on HR.’ That approach can lead to unnecessary expense in time and money later.

These reasons for not needing HR assistance may be justified for a company with only a couple of employees and absolutely no intention of growing. Regardless of company size, any company that is planning for the future should realize that as it grows, so too does the need for HR assistance.

Periods of economic slowdown are the ideal time to get your core HR practices in place. Policies, procedures, and job descriptions are just a few of the core tasks that should be implemented. A simple HR compliance audit can provide you with an outline of items that need to be in place to be compliant with the many federal, state & local laws.

During busier times, when many companies experience rapid growth and the attention of key personnel is focused on product development, the creation of uniform or cohesive company policies and practices are often postponed or ignored. Companies that don’t have access to an experienced HR professional may not realize the need for formal and comprehensive policies and procedures. Many companies experience times when effective workforce management is increasingly challenging and later regret not having established policies and procedures. Creating policies and procedures to correct past or existing problems is much more difficult and disruptive than if they were already in place before the situation occurred.
Employees have many avenues to resolve employment issues besides suing their employer when a conflict arises. Employment agencies such as The California Division of Labor Standards Enforcement (DLSE) for alleged violation of wage rules and The Department of Fair Employment and Housing (DFEH) for claims of harassment or discrimination are available to them.

Employees can take their complaints to these agencies if there are no written policies that address their concerns or the company has failed to publish polices and communicate them to all employees. If the agency finds in favor of the employee, in addition to any wages due, the agency can and will assess penalties that can be exponentially more costly than the actual wages in dispute. For instance, if a termination is found to be retaliatory or discriminatory, the penalty can be a large sum of money to cover the potential wages that a terminated employee could have earned in the future.

Like many small companies, ABC Co. had no written policies but had the practice of allowing employees to go negative in their PTO balance and allowed them to accrue the negative time back. Unfortunately, ABC Co,. like many valley firms, had to go through a painful and deep reduction-in-force (RIF) in order to dramatically cut costs and ride out the economic downturn. One of the casualties of the RIF was sales rep Cindy. Cindy had recently returned from a well-earned three week European vacation and had exceeded her accrued PTO. When Cindy received her final paycheck, the PTO overage was deducted from her final wages. ABC Co. did not have any HR professionals on staff and did not complete an exit interview with Cindy explaining the final payout. Cindy tried to reach out to ABC Co. but didn’t feel satisfaction with the answer she received.

Cindy filed a complaint with the California Division of Labor Standards Enforcement (DLSE). In the meantime, ABC Co. reconsidered and paid Cindy the PTO amount deducted from her final paycheck.
When it came time for the DLSE hearing, Cindy had been made whole on all wages, so ABC Co. thought that this issue had been resolved. But to their surprise they now had a $10,000 penalty to pay: 5 times more than the original wages in dispute!

To add insult to injury, ABC Co.’s actions were not illegal. It was the fact that the company had not communicated the policy in writing to the employees. Had ABC Co. implemented an employee handbook, this could have been avoided. The cost of implementing an employee handbook would have most likely been less than the penalty and ABC Co. would have had a tangible resource instead of a costly dispute with an ex-employee.

While we sometimes read the tragic stories of disgruntled employees returning to the workplace to commit heinous, irrational crimes against former co-workers, there are far more employees who leave sad and confused and looking for answers. With no one to turn to at the company for answers, and not wanting to incur (or unable to afford) the cost of obtaining an attorney, they are often turning to the Employment Agencies to explore their options.

Right or wrong, the employment agencies take all claims very seriously and pursue them vigorously on behalf of employees. Inevitably, this action leads to time spent by the executive team, billable hours for outside counsel and a potentially painful settlement to the plaintiff.

Companies should take advantage of this current slow period to develop policies, procedures & practices so that when they are busy and growing again they are prepared and don't have to focus on HR tasks when they really want to focus on growing their business - plus these items will be done well instead of rushed through. Don’t have a short-sighted view on the dollars when it comes to HR development now because if required to pay later it will be considerably more expensive.

The human resources function may be described at times as a touchy- feely, intangible cost center, but it should be viewed as a strategic partner necessary for every successful company.