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Is it now affordable for
smaller companies?
By R. D. Oberst
President’s and CEO’s of small companies spend 45% of their
time on employee related matters, according to a report by
the Small Business Administration (SBA), with up to 25% on
employee administration alone. A major contributor to this
burden is the barrage of employment legislation over the
last 25 years. This legislation is represented in the bowl
of alphabet soup to the right. As a result, employing people
has become evermore complex.
An average of 450 employment lawsuits are filed in the U.S.
every day with 57% of companies named as defendants in at
least one over the last five years. Executives now worry
that they may be called into court for the most obscure
violation, facing high legal fees, fines, and lost time. For
example, a single OSHA violation can cost up to $75,000 and
sending COBRA notices out late incurs a $110 a day penalty.
To avoid possible violations and comply with the myriad of
regulations, requires an inordinate amount of time and
expertise. The President/CEO, Controller /CFO, and managers
are all involved in this effort. In larger companies, such
activities are handled by the Human Resource department,
which also became mired in administration, thereby hindering
it from spending more time on higher value tasks like
controlling spiraling healthcare costs.
The Web to the rescue
Larger
companies often grapple with such problems earlier, creating
solutions that are adaptable to smaller companies. So what
have larger companies done to reduce costs and legislative
risk? Starting in the mid-nineties, the very large companies
took two major steps to address the problem. These companies
centralized employee administration and deployed employee
self- service systems over the Web.
Before
the 90s, such companies relied on HR managers and
generalists at each division to handle employee matters. As
a result of the legislative barrage, these jobs constantly
demanded more time and became more complex; therefore
requiring more and more staff. Companies were also
experiencing added legal headaches because of this
complexity and of the inconsistency of the divisional staff.
By centralizing much of the employee administration, the
mega-company could apply information technology, realize
economies of scale, and provide consistent results
The other action larger companies took was to rely on the
latest Web-based technologies to deploy employee and manager
self-service. Using this approach, employees and managers
would enter events such as address changes, benefit
enrollments, and salary changes over an internal network or
the Web rather than on paper forms. The earlier forms
required much more labor to process and were error prone.
Some of the first national companies to develop an extensive
self-service capability were BP America and Key Corp. These
first systems cost millions. By the late 90s, vendors such
as Employease supplied a limited number of self service
processes to larger companies over the Web.
As a
result of these efforts, large companies pay half as much as
small companies for employee administration (according to a
study conducted by the Institute of Management Accountants (IMA)).
An argument can be made that these companies realize such
savings, because of economies of scale. This is true, but
like smaller companies the mega-companies had performed the
bulk of the processing at the divisional level. The
companies only realized dramatic savings after centralizing
the administration, and applying self- service technology.
Like any technology such as PCs, self-service has become
much more affordable. It is now possible for a group of
smaller companies with 50 to 500 employees each to band
together and centralize employee administration through the
Web. These companies can, therefore, realize the economies
of scale and risk reduction similar to the divisions of a
mega-company. A few companies such as the HR Service Bureau
are starting to provide such a comprehensive service. |
