Combating the tsunami of regulatory oversight and ever-emerging standards is a full-time job. You have to keep your eyes on local, state, regional, and federal guidelines in addition to the significant global standards that are slowly creeping their ways into your backroom.
According to research by RIMS, businesses are now spending ~$10 per every $1,000 in gross revenue on risk management. It's an expensive process. Luckily, your business doesn't have to go it alone. Professional Employer Organizations (PEOs) can help your business cut risk management costs while reducing your overall risk landscape.
What Is Risk Management?
The risk management process entails identifying, analyzing, and proactively responding to certain operational risk factors that businesses may encounter.
It comprises several main tasks, including:
- Identifying risk
- Risk analysis
- Risk mitigation
- Review control
The different types of risks that risk management helps mitigate could include those involving legal liability, financial instability, management errors, natural disasters and accidents, and technology issues, among others. By successfully identifying and managing risk, businesses can gain a better understanding of the specific risks they face and how they may impact the business. Additionally, risk management can help determine how certain risks will affect the company's strategic goals in the short and long term.
Many businesses practice enterprise risk management (ERM) to help them identify, assess, and ultimately accept or reject risks that could affect the entire organization. ERM specifically involves the management of positive risks, which are those that may either help or hinder business. ERM is about determining which risks are worth taking and which the organization should avoid altogether based on their potential impact.
A good risk management program will be intrinsically linked to the company's strategy. This will entail figuring out the company's risk appetite, the level of risk leadership is open to take to help achieve business goals. Following this step, business leaders define the risks that are acceptable as is and which require more management and precautions before the business can accept them.
With the right risk management strategy, businesses can more easily navigate risk and determine how to progress.
Risk Management Terms to Keep in Mind
If you're new to risk management and some of the specific concepts involved, the following are some key terms to understand:
- Risk Identification — This entails discovering and documenting all potential risks as you and your PEO come across them. Different risks will apply to specific types of jobs and tasks.
- Risk Management Plans — These plans will determine which areas of your business are at risk and the degree of risk.
- Risk Response — After assessing and identifying risks, the next step will involve developing solutions to help prevent risks and minimize the impact of potential issues arising from those risks.
- Risk Control — This process helps mitigate risks, keep track of new risks as they come up, implement a risk response, and gauge the performance of that response.
- Quantitative Analysis — Through quantitative analysis, you can determine how certain risks will affect certain costs along with the frequency of risks.
- Qualitative Analysis — With qualitative analysis measures, you'll be able to determine the likelihood of specific risks and determine how they'll impact your business on a financial level.
Why Is Risk Management Important?
Risk management is crucial because it provides businesses with the tools to properly conduct risk identification and mitigation. It also greatly assists with decision-making when considering steps to grow and optimize operational efficiency.
Every business will face certain risks, making it essential to implement an effective risk management plan that helps with risk assessment, mitigation, or avoidance. Otherwise, the company won't know which risks to look for and which route to take when encountering them. With the increased ability to accurately perform risk assessment and mitigation, business leaders will be able to secure their organizations' success.
Some of the specific benefits of risk management services include:
- The ability to see risks that aren't as readily apparent — Businesses frequently face certain risk factors that they may not anticipate, regardless of how much they know about their industry and how to run a business. Some risks will remain hidden until encountered, making it necessary to implement a plan that helps bring them into the spotlight, enabling businesses to properly address them.
- Reduced liability — Shareholders and regulators often consider litigation risk a potential liability, which means reduciculng liability through risk management will make your business more appealing to prospective investors.
- Increased protection against lawsuits — Integrating a risk management program can also help protect a business against potential litigation, including class action lawsuits. It can achieve this by showing that the company took steps to minimize risks, which could disprove negligence claims.
- Gain the favor of regulators — When companies are under investigation, regulatory agencies often favor businesses with a plan to manage risk. Although some risks are unavoidable and could culminate in certain issues, having a risk management plan will show regulators that these problems aren't the result of a breakdown within the organization and that steps are in place to work toward preventing them.
- Loss prevention — If companies allow for the possibility of employee theft, this could result in the loss of physical and intellectual property, along with other risks. Risk management processes will be able to keep track of areas that present the most risk, secure all property and data, and ultimately mitigate the risk of theft and its consequences. This will keep your business more consistently protected.
- The implementation of substance abuse programs — If employees face substance abuse issues, it's important for companies to put programs in place to help with these problems. Substance abuse programs may help prevent potential incidents that may otherwise result from an impairment, whether the cause is alcohol or other substances.
- Meeting workers' comp needs — Risk management could also help ensure that workers' compensation insurance is in place that meets employees' needs. This could entail finding the right coverage and ensuring that employees and employers comply with existing policies. This could also involve handling the claims process in the event of a work-related incident.
- Compliance with Occupational Safety and Health Administration (OSHA) — Risk management will keep businesses consistently compliant with OSHA rules and regulations, often through certain updates that maximize the safety and well-being of employees in the workplace.
- Reduced administrative burden — Effective risk management with a dependable PEO can leave you with fewer administrative tasks. Your PEO would be able to handle workers' comp claims and more, keeping you in control of your business while giving you more time to focus on other essential business areas.
These and other advantages illustrate the importance of risk management to help a company gauge its risk tolerance and take the right steps to mitigate and avoid various risks. With the right PEO risk management plan in place and the help of a dependable PEO by your side, you can adequately manage risk and facilitate your business's growth.
PEO Risk Management Optimization
Here are just a few ways that a professional employer organization can help with risk management:
Enhance On-Site Safety
Onsite safety is crucial to creating a happy, healthy, and productive workforce. Every year, there are a reported 3 million workplace accidents in the United States, which costs businesses billions of dollars to remediate. Creating a safety-first culture and workplace isn't just an effort to avoid OSHA fines; it helps your business run smoothly.
PEOs can perform critical onsite safety reviews and consultations to ensure that your workplace is going above-and-beyond compliance standards. They can also manage your overall workplace safety portfolio and provide onsite training to employees.
Optimize Workers Compensation
Workers' compensation is a notoriously expensive and time-consuming process for employers. There are many granular details to consider when you handle your workers' compensation workload:
- Should you be focused on lowering rates or boosting your Experience Modifier?
- Are your class codes optimized?
- Are you using the right class codes for your jobs and business description?
- What is your claims management process?
- Do you use a Return to Work (RTW) program for injured workers?
A PEO will answer all of those questions. One of the first things best-in-class PEOs do is check codes. PEOs will optimize codes, reduce claims burdens, and create best-in-class workers' compensation workflows to expedite claims and perform in-depth claims management procedures.
Ensure HR Compliance
The "HR Compliance" bucket is massive. A PEO should help you tackle all of the following compliance needs:
- Family and Medical Leave Act (FMLA): On the surface, FMLA may seem simple. Qualifying employees get up to twelve weeks of unpaid time off per year. But on the employer side, things are more complicated. You have to inform employees of their rights, meet posting notices, accurately detail FMLA leaves and report on them, fill out forms, create unique FMLA leave processes, and provide eligibility notices.
- Fair Labor Standards Act (FLSA): This is another wide-reaching law. FLSA doesn't just impact hiring decisions; it directly impacts payroll. You need to make sure that your payroll classifications are FLSA-compliant. Otherwise, you'll be hit with fines and reputation damage. Your PEO handles payroll, so they will ensure that your classifications are correct. This gives you some breathing room on the payroll end, and it prevents you from mixing onboarding headaches with payroll headaches.
- Occupational Safety and Health Administration (OSHA): There's plenty of nuances to OSHA. PEOs will help you stay compliant across those safety standards. OSHA violations carry massive fines, public reputation damage, and serious risk to your employees.
- Americans with Disabilities Act (ADA): PEOs will also help you stay compliant with the ADA. Twenty-seven percent of civil rights cases and 4% of all civil cases (over 8,000 a year) are ADA cases. No business wants an ADA civil suit on their record.
- Poster requirements: From OSHA to FLSA, many laws have posting requirements. Your PEO will ensure that all of your posting requirements are visible, up-to-date, and compliant with stringent regulatory code.
In addition, PEOs help you stay compliant on a local, state, and federal level. A reputable PEO will be abreast of new laws, regulations, and policies the minute they become public.
Manage Unemployment Claims
Like HR compliance, unemployment claims are a massive burden for employers. PEOs can help reduce this stress in a variety of ways, including:
- Unemployment Claims Fraud Prevention: Fraudulent unemployment claims happen. In fact, they're relatively common. Recently, the FBI put out a memo, warning employers of rising unemployment claim fraud in today's hectic ecosystem.
- Unemployment Claims Processing: Your PEO can help you accurately process unemployment claims within the specified regulatory timeframe.
- Unemployment Court Case Management: Do you have to go to court over an unemployment claim? Your PEO can help you gather evidence, file paperwork, and prepare yourself.
- Employee Turnover Consulting: You may have the hippest workplace culture in town; you're still going to deal with turnover. Seventy percent of turnover is voluntary, and around 3% of the workforce quits each month. Your PEO can help you prepare for the inevitable and mitigate any disruptions resulting from turnover.
Maintain Error-Free Payroll
Payroll errors impact fifty-four percent of workers, and 49% of them start looking for a new job after just two of said errors. Your PEO will maximize your payroll systems, handle payroll for you, calculate and withhold payroll taxes, and provide W2s and 1099s. In addition, reputable PEOs will establish self-service systems to help employees navigate the ever-complex world of workplace payroll and taxes.
Support During Investigations
What happens if you end up in an investigation by a regulatory agency? Whether it's a wage claim or an OSHA audit, your PEO can help you remediate the issue. PEOs can do mock audits and stay with you during real OSHA audits. PEOs can also connect you with prominent legal firms.
Of course, prevention is the best medicine. PEOs will walk your company through the steps you need to stay out of litigation territory. Your PEO is your knight against these types of investigations.
Consult on Employee Relations
In-house HR managers spend up to 60% of their day dealing with employee relations issues. Often, these issues start during the hiring or discipline process. Your PEO can help you establish best-in-class hiring policies that help you hunt down best-fit, culture-driven candidates. And they can help you establish discipline and firing strategies.
PEOs can also help with Form I-9 reviews to ensure compliance with USCIS and DHS regulations, act as an "agent of record" for E-verify, and perform background checks on your must-have candidates.
Another potential risk businesses face is employees' use of drugs and alcohol in the workplace, putting employees and others at risk while reducing productivity and motivation among staff. Additionally, drug and alcohol abuse can lead to certain healthcare claims that contribute to higher costs that companies can otherwise avoid.
To help mitigate the risk of drug and alcohol use among employees, consider implementing a drug-testing program with a PEO. Having a drug-testing program offers numerous benefits for organizations, such as:
- The prevention of hiring employees who use or abuse illicit substances
- Protection of the general public
- A consistently healthy and safe workplace
- Compliance with federal and state laws and regulations
- Identification and assistance for employees who are addicted to drugs or alcohol
Generally, you'll be able to maintain a more efficient and safer workplace for your employees, which will help further fuel your company's growth.
Keep in mind that your drug-testing program must also adhere to certain ethical practices. For example, a properly integrated drug testing program will require informed consent. In addition, these programs should respect employees' privacy with confidentiality. They also must lead to repeat tests in the event of positive results, provide resources for employees to get the help they need if experiencing drug or alcohol problems, and provide support and the possibility for employees to transition to other roles. To help make sure your drug testing program meets these and other requirements, your PEO will work with you to properly develop a drug free workplace.
How to Find the Right PEO for Risk Management
If you're looking for a PEO to equip your business with risk management policies and solutions, it's essential to know how to find the ideal company.
As you search for a PEO and research, there are certain items to consider. First, ask about specific training materials, safety manuals, drug and alcohol programs, emergency response procedures, and other elements of the PEO's services that it developed and implemented. Also, request a review of the PEO's history of record-keeping, OSHA compliance, investigation processes, and loss prevention.
Another step to take when interviewing a PEO is to determine the reliability and integrity of the company's workers' comp response. A good PEO will know how to optimize workers' comp and handle claims with consistent efficiency and dependability.
Once you've found two or more potential PEOs, compare them. Find out which is the most promising option based on your unique needs and the company's history. You can then make a more informed decision when selecting the right PEO for your business.
Are You Ready to Reduce Your Risk Landscape?
Risk is growing for businesses across the globe. Local, state, and federal regulatory agencies constantly create new laws, rules, and policies that your business needs to follow. If you want to survive reputation damage, liquidity issues, and never-ending pressure, PEOs are there to help.