Plug the Leaky Dam: Manage Unemployment Risk

Are you tired of watching small losses eat away at your organization’s profits? While major issues like industry scandals and economic downturns get all the attention, the truth is much more money is lost in small ways. Like a leaky dam, these small things add up. And many of these small leaks exist in human resources, like unemployment costs.

In tribal HR management, you have a lot of responsibility. You have to manage your organization’s limited budget in a way that brings in the right employees for the right positions at the right times. And there’s little that’s as frustrating as watching those hard earned gains erode due to poor risk management.

Unemployment risk is one of the most overlooked human resource risk factors. Many organizations understand the need to manage risk in hiring, onboarding, and training. However, the entire employee lifecycle is often forgotten.

It doesn’t have to be that way. Fortunately, you can create big wins by managing unemployment risk.

The Cost of Unemployment

When someone leaves your organization, that may not be the last you hear from them. In fact, there’s tremendous cost risk associated with someone filing and winning an unemployment claim. Employer costs average 0.5% – 6.2% of wages for tribal organizations, which cumulates to liabilities between $10,000 and $3 million per year.

What many human resource managers don’t realize is that 25% – 50% of these liabilities are avoidable with the proper unemployment risk management. Unfortunately, with 54% of organizations we recently surveyed managing unemployment on their own, this risk management isn’t taking place.

Besides the direct financial costs, there are also administrative burdens associated with handling unemployment in-house. You have to spend money from the staffing budget to manage these tasks instead of using the money to hire the right people. It’s a waste, especially when it can be avoided.

How to Get the Right People in the Right Positions

The first step in managing unemployment risk is getting the right people in the right positions. The very beginning of the hiring process is the first line of defense against unemployment claims.

While many tribal organizations use interview questions, qualifications, and job descriptions to find the right match for their job openings, very few use actual personality or FIT testing. In fact, of the organizations we recently surveyed, only 7% said they used any personality testing at all.

What these tribal organizations fail to realize is that they are setting themselves up for failure when it comes to unemployment. They are at a high risk of making a bad hire or having a poor employee/job match when they don’t take into account the full personality, motivations, and attitude of their potential hire.

Training and Development Help Reduce Unemployment Risk

Another vital part of handling unemployment risk is to have a robust training and development program. This helps you avoid having poorly equipped employees, high employee turnover, employee dissatisfaction, and of course, terminations that end in unemployment claims.

Many tribal organizations don’t realize how much money they could save simply by reducing turnover. Turnover costs in tribal organizations range from 40% of salary for entry-level positions all the way up to 400% for executive leaders. Improving your employee FIT and training programs can go a long way toward saving your company this money.

Having a great training and development program takes time and money, but the benefits outweigh the cost. Having these programs in place is cheaper than the cost of turnover and unemployment claims. Budget for training and development by determining the hours required and the cost of training, and make it standard for every employee.

Now is the time to understand the costs of your current unemployment program. Once you’ve assessed your needs, you’ll need the right tools to carry them out. These tools include FIT testing, customized online training and development, online employee handbooks, electronic personnel files, and unemployment risk management tools.

S3 Management Group can help you determine how you can further reduce your unemployment costs and protect your organization against unnecessary exposure. It’s time to stop the leaky dam. Contact us today.