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Hidden Cost Behind the Human Resources Department

The addition of millennials into the workforce has caused businesses to reevaluate how they manage and support their employees. This change has brought with it the belief that “human resources” is an outdated term which should be replaced with “talent management.”

But, what some fail to grasp is that true talent management is a revitalisation and extension of HR roles, and that HR’s core functions remain necessary for business success.

While talent-management programs may meet the varied expectations of a multigenerational business environment, HR operations must not be ignored. Mismanagement of these systems places you at risk of legal penalties and exposure to hidden costs that can damage your company’s reputation and profitability.

Lack of HR expertise

Entrepreneurs often underestimate the complexity of HR functions and the field’s requisite legal requirements. There are thousands of state laws employers must meet, or face significant penalties.

Certain employment act alone can trip you up in hundreds of ways. That’s why you need to hire or outsource this role to someone who understands these complicated laws and how they apply to your business. Otherwise, you could risk heavy fines.

Your HR system also performs critical employee monitoring, support and development functions. Today’s HR functions must be matrixed, yet fluid, to address the dynamic needs of modern businesses.

These multifaceted processes include individualized benefit options and career-development opportunities, to encourage employee satisfaction and retention. You need the ability to track and analyse employee data, including time sheets, vacation and personal days, bonuses and other personnel data functions that impact pay and document productivity.

Fortunately, resources are available to support these processes. So, reduce your costs by using these resources to identify your company’s inefficiencies or needed staffing adjustments. The data these resources help you collect also provides legal protection against unwarranted discrimination suits or employee-compensation challenges.

Employee turnover

Entrepreneurs have a reputation for being micromanagers, especially when they’re running startups; and without an effective HR/talent management system, they risk losing more than just employees.

If you’re one of those entrepreneurs, your belief that no one else can do the job as well as you may lead to a poisonous work environment, low morale and high stress, all of which will result in high employee turnover.

In fact, you can’t do it all, and that’s why you need an HR manager, or department, to help. After all, the cost of hiring a new employee includes advertising the position, staff time for interviews and the hiring process overall.

This is followed by training and a drop in productivity while the new hire learns how to function within your organization. Overall, the cost of employee turnover ranges from about 16 percent for an hourly, unskilled worker to as much as 213 percent for a skilled, highly trained employee.

This added cost can make it difficult to meet investor expectations or attract new ones. Your business might also gain a reputation as a bad work environment, which will repel qualified job applicants. While there is a growing trend of rehiring former employees, you may not have this option.

Talent management without strategic planning

Effective talent-management systems combine traditional HR functions with the newer key employee-valued components. The focus gets shifted beyond employee-onboarding, benefits management, and employee separation to talent development, employee satisfaction and long-term retention.

Because of this broader scope, talent management should become a recognized component of your own company’s strategic planning process.

Strategic planning, in fact, requires an unflinching evaluation of your business using data on your current resources and liabilities, as well as analyses of your market and competitors. This information can give your leadership a vision for growth, branding and market positioning and help leaders develop a plan to achieve it.

Meanwhile, corporate leaders must recognize that their employees are their company and not forget this important resource during a strategic-planning process; otherwise, the result can be costly.

Accordingly, talent management must have a seat at the planning table. Such talent management/strategic planning integration can save business money through scheduled hires and employee adjustments that support corporate goals.


Human resources is a vital business component that is too often undervalued by entrepreneurs. That’s unwise, because HR supports company growth, talent development and investor satisfaction.

Ineffectual or missing HR systems also carry high costs and potentially significant legal penalties. So, protect your own business and position it for expansion by prioritizing HR/talent management activities to take your company forward.


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