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HR Cost Cutting

July 29, 2002
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Related Topics: Human Resources Management Systems (HRMS/HRIS), Featured Article
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In the race to the Internet, many organizations came to view HR technology as the right solution—at any price. The promise of each latest, greatest technology made it a must-have. The phrase “return on investment” rarely came up at the discussion table.

    Enough nostalgia. The latest economic downturn demands that any eHR initiative prove itself on the bottom line. The result? Employers are learning that effective use of technology can, as promised, dramatically reduce costs. But not through technology alone. Success comes from paying attention to the small things. Getting the basics right. Fine-tuning key processes. Those steps may not sound exciting, but when the cumulative effect produces cost-savings in the hundreds of thousands of dollars, people notice.

Get new-hire data right from start
    Let’s say an HR employee mistakenly records a new hire’s birth year as 1940 instead of 1970. Because of the company’s investments in eHR integration, that information is immediately, efficiently disseminated to health-care networks, the 401(k) provider, the actuaries that handle the pension, and the insurance providers. Premiums are calculated, various estimates are made, and trend analyses are produced including this “62-year-old.” The mistake is caught years later, when the 35-year-old begins receiving standard communications about her approaching retirement.

    It was only one digit of misinformation, but it created a mess that could cost the company hundreds or thousands of dollars to untangle. Multiply that cost by a factor of employee population and turnover rate. The result is an enormous sum routinely accepted as a cost of doing business—representing an ideal place for organizations to focus on process improvement.


The latest economic downturn demands that any eHR initiative prove itself on the bottom line.

    Automating dissemination of information across many vendors and groups is, of course, the right step. However, those initial errors (made before the “e” part of eHR kicks in) can wreak greater havoc than ever before. So the first step is to design a system with the processes to ensure perfect initial data entry. Three helpful approaches:

    • Have all potential hires provide information through automated self-service. People are much more accurate when inputting their own data.

    • Build quality checks into the process for particularly critical information. A prompt could say, “Please confirm that you were born in 1940.”

    • Once a potential hire becomes an employee, have the system transfer all the data from the recruiting process directly into the employee system. The less the data is handled manually, the lower the odds of an error.

    • Require all employees to review their personal information once a year via the Internet.

Anticipate changes, then automate them
    In another scenario, a candidate accepts a job offer and uses the self-service new-hire system to complete benefit selections. That information is sent to his health plan, and ID cards are sent out. The health plan covers the birth of his child, and physician visits that followed. The problem? This worker never actually showed up to start his job. Amid the confusion that day, HR employees deleted him from their new-hire list, but no one communicated the information beyond the company.

    This organization had an airtight system for initial data input, and for disseminating that information. What it lacked was an automated system for handling changes. As a result, the firm spent thousands in inappropriate benefit payouts. The answer:

    • Remember that all data can go through the four “CRUD” steps: create, retrieve, update, and delete. Make sure that all of your downstream systems handle all four steps cleanly. Many integration projects start with the “create” step and never get around to the others.

Use a single sign-on approach
    Most companies have added various new eHR technologies and applications at different times, resulting in each employee having a handful of passwords and user IDs. A simple inconvenience, until you consider the fact that every employee call to IT costs an average of $33, according to Forrester Research. That’s $33 every time someone forgets a password to access e-mail. Another $33 when he can’t sign on to the intranet. And another $33 when he realizes there’s an HR portal but has no idea how to get into his personalized information there. The answer is clear:

    • Create a single sign-on approach. One password and one ID for each employee. It reduces IT time, and it simplifies the creation and deletion of employee sign-on data.

    • Companies not ready to tackle a single sign-on project might start by adding a password-recovery feature to their Web-based applications, allowing employees to retrieve passwords by e-mail or other form of credential.

Provide self-service answers to frequently asked questions
    “What happens to my 401(k) money if I leave?” It’s a simple question. A five-minute phone call. And, if the company is big enough, that question can cost $100,000 in calls over a few months.

    Simple questions don’t require the individual attention of expensive professionals. Even some complicated questions don’t require that attention. Organizations can save significantly by using eHR to disseminate information effectively. For example:

    • Use the Web to post the answers to Frequently Asked Questions. Even regular updates will be less time-consuming than answering the phone.

    • Move from static answers to personalized ones by using a knowledge-based tool to categorize and deliver information in a self-service environment.

    • Put time-off activity and balances right on the pay stub. Put pay-stub information online, for 24x7 access. Leveraging an established communications vehicle like the pay stub for a seemingly unimportant detail like this can provide unexpected savings.

Automate employment verifications
    The call from the mortgage lender is routine: “Does John Doe work there? What is his salary?” In a large organization, that one simple call can cost a company thousands as HR employees stop what they’re doing, pick up the phone, and send out confirmation letters. Cut that cost significantly with the following approach:

    • Automate employment verifications. One way is to issue an employee a PIN that expires in 30 days. The employee can give the number out to various lending institutions, which can use it to get onto a Web site where they will find the appropriate information and generate their own letters.

Allow managers to initiate termination processes
    Employee turnover is expensive. Much more so when a terminated employee accidentally remains on the payroll. Or when no one sends her COBRA letter within the 14-day time frame required by law, resulting in a fine. Or when someone forgets to revoke her access to the intranet, and she shares confidential company information with competitors.

    The termination process is enormously complicated, and parts of it can and should be automated. While HR professionals are best suited to handling the communications required, they will not always be the first to know about a separation. The solution:

    • Automate the employee-termination process, and allow managers to initiate it. Managers should be able to confirm a termination in real time, and begin the cessation of benefits, removal from payroll, blockage from electronic systems, and so on.

Pay attention to privacy issues
    In the rush to provide top-notch managerial self-service, a company may make payroll information easily accessible to managers who have to create budgets, analyze trends, and predict future needs. Unfortunately, it is sometimes unclear who reports to whom—and it is always open to change. And if personal information finds its way into the wrong hands, that opens an organization up to a lawsuit. The remedy:

    • Devise a system to keep reporting information completely accurate and up-to-date, verified by only the manager and the employee.

    Similarly, a company’s wealth of employee data may end up where it does not belong. For example, sharing a list of employee names and addresses with a vendor—which used to be typical behavior—is now illegal and carries fines per incident/employee. For a company with thousands of employees, a list that ends up on the wrong computer can be a spectacularly expensive mistake in data management.

The bottom line
    Maximizing your company’s investments in eHR technology means keeping a focus on business goals and improvements to HR quality or efficiency. In most cases, the eHR solutions that have the greatest impact on the budget are the ones that affect the most people the most often—like shaving a few dollars off the transaction that is performed 1,000 times per month. Sticking to the small details like those cited above may seem dull, but the results are definitely exciting.

Workforce, August 2002, pp. 34-36 -- Subscribe Now!

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