Are Hidden HCM System Costs Hurting Your Company?

Human Capital Management (HCM) systems are supposed to streamline HR processes, increase efficiency and reduce costs. However, the HCM systems in place at many companies may be the source of damaging money leaks.

An inefficient HCM system can drain company profits because of payroll errors, noncompliance risks and paper-based benefits reconciliation. Here’s where HR needs to do some detective work.

Payroll Errors and HCM Systems

Compliance with the FLSA and tax laws is a crucial responsibility for HR. But an HCM system that relies on manual data entry can lead to unchecked payroll errors and potentially expensive regulatory violations.

How expensive? A study conducted in 2022 by EY (Ernst & Young) found that companies that faced lawsuits due to payroll errors were fined an average of 30 times per year, with an average cost of $5,200 per fine (not including legal costs). One company reported racking up $100,000 in payroll fines in a year. An unbudgeted expense like that would force many small businesses to close.

Switching to an HCM system that automates payroll functions and guides employees to identify and fix errors before payroll submission can reduce the risk of compliance violations, fines, legal costs and costly retroactive corrections.

HCM Systems and ADA, FMLA Compliance

A good HCM system can also help prevent costly violations of the Americans with Disabilities Act (ADA) and the Family and Medical Leave Act (FMLA) through:

Automated tracking and notifications. Your HCM system should be automatically tracking employee leave requests, intermittent leave usage and return-to-work dates. It should also be sending notifications to managers and HR when employees are approaching FMLA leave limits.

Consistent policy enforcement. A best-in-class HCM system can ensure consistent application of company policies related to the ADA and FMLA across all departments and locations of an organization. It can provide guidance to managers on proper procedures and documentation requirements, reducing the risk of inconsistent or discriminatory practices.

Audit trails and reporting tools. A good HCM system maintains detailed audit trails of all leave requests, approvals, denials and accommodations. This documentation can be crucial in defending against ADA or FMLA lawsuits or audits by regulatory agencies.

Employee self-service. An HCM system that allows employees to directly request leave and track their leave usage through a self-service portal reduces the risk of errors or miscommunications that could lead to staffing problems or even violations.

Benefits Reconciliation

Inefficient benefits administration processes are another hidden cost that can come from an outdated HCM system. A classic example: manually entering data from paper forms into your system. Online payroll and HCM provider Paycom came up with estimates for how much a manual benefits task costs per instance:

• Providing plan documents and summaries — $17.05
• Informing employees of plan changes — $20.38
• Comparing benefit plans — $21.18
• Processing plan changes — $17, and
• Adding dependents — $13.39.

These can really add up when it’s open enrollment time!

But if employees are enabled to enter their own benefits data into your HCM system, eliminating the need for HR involvement in minor changes, it streamlines the process, reduces costs and ensures accurate deductions are populated into payroll without data re-entry.

Is the Time Right for an Upgrade?

HR leaders need to carefully re-evaluate their HCM systems to identify and address the three potential profit leaks of payroll mistakes, compliance problems and manual benefits reconciliation.

By investing in solutions that automate HR processes, eliminate manual tasks altogether and empower employees to directly access and manage their own data, HR can increase efficiency, unlock significant savings, reduce compliance risks and even foster a culture of engagement.

Did you know that the right HCM system can increase employee retention and reduce turnover? To find out how, check out this HRMorning on-demand webinar.

A great resource for helping you research your next system is The Buyer’s Guide to HR & Payroll Technology.