Creating a Link Between Company Success and Employee Accountability
In America’s best-run and most-admired organizations, employee performance appraisal is a vital and vigorous management tool. No other management process has as much influence on individuals’ careers and work lives. Used well, employee performance appraisal is the most powerful instrument that organizations have to mobilize the energy of every employee in the enterprise toward the achievement of strategic goals. Employee performance appraisal can focus each person’s attention on the company’s mission, vision and values. And ideally, the process can answer the two fundamental questions that every single person in the organization wants the answers to: What do you expect of me? And How am I doing?
But most folks scoff at the idea that there might be a perfect system for doing employee performance appraisal. They think that since their organization is “unique,” then their system for analyzing employee performance must be unique, too. How foolish.
Don’t scoff — there is an ideal method for the assessment process. In organizations that take employee performance appraisal seriously and use the process well, the system functions as an on-going process – not merely an annual event – by following a four-phase model.
Phase 1 — Employee Performance Planning
At the beginning of the year, the manager meets with each person for discussion on the planning piece of the employee performance appraisal process. In this hour-long session they discuss the “how” and the “what” of the job:
How the person will do the job (the behaviors and competencies expected of the company’s members), and
What results the person will achieve over the next twelve months (the key responsibilities of the person’s job and the goals and projects the person will work on).
They also discuss the individual’s development plans. This discussion immediately generates improved employee performance because people know exactly what’s expected of them. And as the manager, you have just earned the right to hold people accountable at the end of the year by making your expectations of them clear from the start.
Phase 2 — Employee Performance Execution
Over the course of the year, employee performance should be focused on achieving the goals, objectives and key responsibilities of the job. The manager provides coaching and feedback to the individual to increase the probability of success and creates the conditions that motivate and resolve any performance problems that arise.
Midway through the year — perhaps even more frequently — they meet to review the individual’s progress toward the plans and goals discussed in the employee performance planning meeting. And the employee is responsible for certain elements of that progress – seeking out coaching and asking for feedback are two key examples.
Phase 3 — Employee Performance Assessment
As the time for the formal employee performance appraisal approaches, the manager reflects on how well the subordinate has performed over the course of the year, assembles the various forms and paperwork that the organization provides to make this assessment, and fills them out. The manager may also recommend a change in the individual’s compensation based on the quality of the individual’s work.
Best practice calls for the appraiser’s boss to review the completed assessment form before discussing it with the assessed employee. One key here is not falling victim to the “myth of quantifiability” — the erroneous belief that in order to be objective you’ve got to have numerical data to prove your assessments. Nonsense! An employee performance appraisal is a record of a manager’s opinion of an employee’s quality of work, so don’t shirk from candidly providing that opinion.
Phase 4 — Employee Performance Review
The manager and the subordinate meet, usually for about an hour. The employee performance appraisal form is reviewed with the self-appraisal that the individual created assessing her own performance. The manager and employee talk honestly about how well she performed over the past twelve months: Strengths, weaknesses, successes and areas needing improvement. At the end of the review meeting they set a date to meet again to hold an employee performance planning discussion for the upcoming twelve months, starting the process anew.
This four-phase performance appraisal process not only transforms employee performance management from an annual event to an on-going cycle, it tightly links the performance of each organization member with the mission and values of the company as a whole. And that’s the real purpose of employee performance appraisal in the organization. The real value is focusing everyone’s attention on what is genuinely important — the achievement of the organization’s strategic goals through demonstration of the company’s vision and values in each employee’s day-to-day behavior.
About Dick Grote (HTML)
Dick Grote has been a management consultant for almost thirty years, specializing exclusively in the field of employee performance appraisal and management. As a consultant, he has created employee performance management systems for several hundred of the world’s best known and most respected companies, including Texas Instruments, JCPenney, Miller Brewing Company, American Airlines, Macy’s, Raytheon, Burlington Northern Santa Fe Railroad, and Herman Miller. His company, Grote Consulting, specializes in employee performance appraisal, employee improvement and talent management.
For more information about Dick Grote and Grote Consulting, visit: http://www.groteconsulting.com/
Back to HR Article Directory
Thursday, July 26, 2007
New Goal for Human Resources:Establishing a Work Force of One
By Susan Cantrell
From The Wall Street Journal Online
When it comes to human resources, one size no longer fits all.
For years, companies used standardized human-resources plans for recruiting and managing workers. One set of rules dictated everything from the kinds of benefits and rewards the company offered to how employees were trained and evaluated. That approach made things easier for the human-resources department and ensured a degree of efficiency, equality and fairness.
Now some executives are finding that this model isn't adequate for getting the most out of existing talent or attracting and keeping new people. To be competitive in the marketplace and in the race for talent, companies must understand and address the diverse needs of their work force. In fact, they must treat each employee as a "work force of one."
Why is a new approach necessary? Competition for talent is tougher, and the work force is growing more mobile and diverse, in terms of culture, education and individual aspirations. Workers today, increasingly accustomed to more-tailored offerings as consumers, are more likely to be attracted to and remain at a company that provides more-tailored offerings to them as employees -- flexible schedules, for instance, or a customized career path.
In addition, the growing recognition that business results are largely attributable to employee performance is leading many executives to seek creative ways of significantly improving that performance.
Surveys and interviews with managers and human-resources executives at 51 companies showed four techniques that organizations are using to achieve high performance by better addressing employees' needs. Some companies group together employees with common needs and preferences and provide solutions that are tailored to each set, such as different schedules or compensation plans. Others give all their workers a range of options and let them choose what suits them best -- everything from their benefits to their work environment.
In some cases, these new plans involve replacing specific human-resources mandates with simple, broad policies that can be applied in a variety of ways to suit individual needs, such as flexible budgets that let line managers use their own discretion to set salaries. Other arrangements focus on general management practices that recognize the individual, such as coaching or mentoring.
What follows is a look at the four methods and how they can help companies -- along with a discussion of some of the hurdles companies may encounter as they put these plans in place. Some of the practices described here are now commonplace, and some are unique. But they are all examples of a growing trend toward a more individualized approach to people management. By applying one or more of the techniques, companies can create new and innovative practices that will keep employees satisfied and productive.
Segment the Work Force
Just as marketing departments organize customers into groups, human-resources departments can segment employees in different ways to boost worker productivity and satisfaction -- and make the organization more effective.
Segmenting takes a variety of forms. Procter & Gamble Co. uses segmenting when recruiting, crafting targeted messages for certain types of potential employees. Many companies, such as those in the consulting and advertising industries, provide customized offerings for employees -- consultants are often equipped to work remotely, for example, and writers and artists sometimes receive unique incentive schemes and work environments designed to elicit creativity.
In recent years, a number of employers have begun to segment based on the employee's value to the organization. Labeling certain employees "high potentials" or "A players" based on past or predicted performance has given way to segmenting employees based on their relative contribution to the company's performance. International Business Machines Corp., for example, offers specialized development opportunities to employees in critical job roles.
A number of employers are designing more unusual segmentation strategies designed to play to individuals' varied needs. One research-and-development group at a technology company created several distinct roles for its engineers based on their personality and interests. The standard role is designed for engineers who prefer to concentrate on one project at a time. But those who don't like that work style have a chance to become "parachutists," dropping in on projects and solving problems for short periods of time. Meanwhile, those who are good at representing the company's work to outsiders can become "ambassadors."
Although it is relatively easy to segment employees based on job characteristics, such as where they're located or how much they travel, companies must be careful when segmenting employees based on traits such as age or personality. Employment law protects many classes of people based on such traits. When segmenting people based on personal traits -- for example, giving special consideration to older workers who need flexible schedules -- companies should only suggest such considerations and offer employees options, never force them to make certain choices.
Offer Choices
An alternative way of creating customized employee experiences is to allow employees to choose from a standard set of choices defined by the human-resources department. In recent years, for example, a growing number of employers have provided full-time employees with "cafeteria" benefit plans, which allow people to pick the options they value most.
Now companies are becoming creative about offering choices in other areas. Sun Microsystems Inc. asks employees to identify the type of physical setting that suits them best -- a private office, team room, satellite center or their home office. Microsoft Corp. goes so far as to ask certain types of employees to design their own career paths. The company offers software engineers both a management-focused and technical-specialist career track and allows them to move back and forth between the two.
Be Flexible
Many companies are saddled with human-resources policies that are so specific that they are no longer relevant. They then become bureaucratic barriers to effective management and undermine performance. Increasingly, companies are creating more general human-resources policies that give workers greater discretion, within clearly defined limits, to apply the policies in ways that suit their unique needs.
"Broad-band compensation," used by Merrill Lynch & Co. and Nike Inc., among others, is a common example of such an approach. In this plan, companies use fewer, wider salary ranges rather than many specific job classifications and pay grades. This gives managers more latitude to compensate top performers, for instance, or to offer more money to land a star. Similarly, car-rental company Avis Budget Group Inc. allows department managers to control their budgets within pre-set limits. If managers want to reward one employee with a big chunk of that money, they are free to do so.
Some companies, meanwhile, are setting up loose, "cascading" performance goals for their workers. Clothing chain Men's Wearhouse Inc. establishes sales targets for its stores, but doesn't dictate how employees should reach those targets, as other chains may do. "There are a variety of ways that stores meet these goals," says Charlie Bresler, president of Men's Wearhouse. Some stores have a few "wardrobe consultants" who excel at selling, for instance, while other stores have their consultants sell in teams.
"Stores hit their goals in different ways, and that is not only tolerated but encouraged," Mr. Bresler says.
Some organizations are even redefining the norms around work. At Best Buy Co. headquarters in Richfield, Minn., about a third of the 4,000 or so employees are allowed to set their own work hours and to decide whether they work from the office or home -- provided they can get the job done on time. As a result, Best Buy says, it has seen job satisfaction and productivity rise.
Get Personal
The preceding options are all primarily driven by human resources. But employee performance can be improved just as much if not more by general management practices that recognize the individual. Managers might offer one-on-one coaching or mentoring, or redefine a job's focus to line up with an employee's strengths.
Men's Wearhouse has largely replaced traditional training methods with an apprenticeship model, which the company has found to be far more effective. Store managers are encouraged to demonstrate effective sales approaches and to coach employees to develop a personal style of their own.
Likewise, some companies are reconsidering how they approach performance reviews. In traditional settings, human resources controls how and when the performance appraisal takes place, and managers are directed to evaluate how well employees have mastered the fundamental requirements of the job. But as work becomes more team- and project-based, it is becoming more difficult to have a standard set of requirements.
So, many companies supplement traditional performance reviews with continuing discussions with employees about goals and progress. This has a number of advantages. Problems can be caught earlier on, and feedback can be much more specific than with a traditional annual review. And employees are more likely to learn from feedback if they receive it soon after a noteworthy event and in the context of their regular workday.
Microsoft, which has a similar program in place, supports it with an information system that lets managers and employees record informal feedback confidentially. The information isn't reported to human resources and doesn't follow the employee from job to job. Instead, employees and managers use the information for their own reference. This system makes it more likely that managers will say what they really think -- and thus provide helpful guidance to employees.
* * *
Of course, these approaches come with a number of caveats.
For one thing, implementing any of these practices will mean big changes for companies with traditional human-resources departments. In some cases, human resources' primary role will be to support the line managers and employees who have the responsibility for carrying out the new plans, encouraging and facilitating good management practices and building a culture and work environment that support them. Software company SAP Americas, a division of SAP AG, makes sure that human-resources professionals focus on coaching managers on how to provide informal feedback to their employees through coaching or mentoring. Corning Inc. seeds some of its best people-managers throughout the organization to model and teach effective practices.
These practices can also require a difficult balancing act. In environments where managers treat individual employees differently, maintaining a sense of fundamental fairness is crucial. Managers need to take workers' concerns seriously, recognizing that negative feelings can be extremely harmful to the business.
The best way managers can respond to employee concerns is to be as open as possible about how they make decisions, and to have a clear rationale for decisions and policies. It's also important to be consistent about how decisions are made and to respond to questions in a sensitive, respectful way. And management should take steps to ensure employees that the company is strongly committed to equal opportunity and that legal protections against discrimination remain in place.
Finally, these practices work better in some contexts than in others. Government regulation is one critical factor. Many countries, such as Belgium and France, have strict labor rules that may make more customized practices difficult or impossible to introduce. Even in the U.S., some customized practices may bump up against rules about equal opportunity or retirement-plan security. Therefore, many companies use flexible policies to supplement, rather than replace, established programs.
In addition, some industries are more open to customization strategies than others. Advertising, consulting, financial services and entertainment, for instance, need highly independent and driven people to be successful. In return, these industries have been more than willing to offer work arrangements tailored to individuals to attract and retain top talent. Indeed, even particular departments inside companies are better suited for work-force-of-one policies than others. Positions that are knowledge-intensive, such as copy writing, tend to be a better fit for these policies than those that are more routine, or location-based, such as call centers.
The culture and history of the company itself also matter. Small, younger companies often operate without formal human-resources structures as a matter of course. The four techniques are thus more appropriate for larger companies seeking a way to introduce customization and flexibility without abandoning control and structure.
It's difficult to make the change from a one-size-fits-all approach to a more customized one. Doing so requires senior managers to discard familiar policies and practices and adopt a new, more responsive system from the ground up. However, companies that do it right will have unprecedented opportunities to develop the talent they need to become more competitive, high-performance organizations.
From The Wall Street Journal Online
When it comes to human resources, one size no longer fits all.
For years, companies used standardized human-resources plans for recruiting and managing workers. One set of rules dictated everything from the kinds of benefits and rewards the company offered to how employees were trained and evaluated. That approach made things easier for the human-resources department and ensured a degree of efficiency, equality and fairness.
Now some executives are finding that this model isn't adequate for getting the most out of existing talent or attracting and keeping new people. To be competitive in the marketplace and in the race for talent, companies must understand and address the diverse needs of their work force. In fact, they must treat each employee as a "work force of one."
Why is a new approach necessary? Competition for talent is tougher, and the work force is growing more mobile and diverse, in terms of culture, education and individual aspirations. Workers today, increasingly accustomed to more-tailored offerings as consumers, are more likely to be attracted to and remain at a company that provides more-tailored offerings to them as employees -- flexible schedules, for instance, or a customized career path.
In addition, the growing recognition that business results are largely attributable to employee performance is leading many executives to seek creative ways of significantly improving that performance.
Surveys and interviews with managers and human-resources executives at 51 companies showed four techniques that organizations are using to achieve high performance by better addressing employees' needs. Some companies group together employees with common needs and preferences and provide solutions that are tailored to each set, such as different schedules or compensation plans. Others give all their workers a range of options and let them choose what suits them best -- everything from their benefits to their work environment.
In some cases, these new plans involve replacing specific human-resources mandates with simple, broad policies that can be applied in a variety of ways to suit individual needs, such as flexible budgets that let line managers use their own discretion to set salaries. Other arrangements focus on general management practices that recognize the individual, such as coaching or mentoring.
What follows is a look at the four methods and how they can help companies -- along with a discussion of some of the hurdles companies may encounter as they put these plans in place. Some of the practices described here are now commonplace, and some are unique. But they are all examples of a growing trend toward a more individualized approach to people management. By applying one or more of the techniques, companies can create new and innovative practices that will keep employees satisfied and productive.
Segment the Work Force
Just as marketing departments organize customers into groups, human-resources departments can segment employees in different ways to boost worker productivity and satisfaction -- and make the organization more effective.
Segmenting takes a variety of forms. Procter & Gamble Co. uses segmenting when recruiting, crafting targeted messages for certain types of potential employees. Many companies, such as those in the consulting and advertising industries, provide customized offerings for employees -- consultants are often equipped to work remotely, for example, and writers and artists sometimes receive unique incentive schemes and work environments designed to elicit creativity.
In recent years, a number of employers have begun to segment based on the employee's value to the organization. Labeling certain employees "high potentials" or "A players" based on past or predicted performance has given way to segmenting employees based on their relative contribution to the company's performance. International Business Machines Corp., for example, offers specialized development opportunities to employees in critical job roles.
A number of employers are designing more unusual segmentation strategies designed to play to individuals' varied needs. One research-and-development group at a technology company created several distinct roles for its engineers based on their personality and interests. The standard role is designed for engineers who prefer to concentrate on one project at a time. But those who don't like that work style have a chance to become "parachutists," dropping in on projects and solving problems for short periods of time. Meanwhile, those who are good at representing the company's work to outsiders can become "ambassadors."
Although it is relatively easy to segment employees based on job characteristics, such as where they're located or how much they travel, companies must be careful when segmenting employees based on traits such as age or personality. Employment law protects many classes of people based on such traits. When segmenting people based on personal traits -- for example, giving special consideration to older workers who need flexible schedules -- companies should only suggest such considerations and offer employees options, never force them to make certain choices.
Offer Choices
An alternative way of creating customized employee experiences is to allow employees to choose from a standard set of choices defined by the human-resources department. In recent years, for example, a growing number of employers have provided full-time employees with "cafeteria" benefit plans, which allow people to pick the options they value most.
Now companies are becoming creative about offering choices in other areas. Sun Microsystems Inc. asks employees to identify the type of physical setting that suits them best -- a private office, team room, satellite center or their home office. Microsoft Corp. goes so far as to ask certain types of employees to design their own career paths. The company offers software engineers both a management-focused and technical-specialist career track and allows them to move back and forth between the two.
Be Flexible
Many companies are saddled with human-resources policies that are so specific that they are no longer relevant. They then become bureaucratic barriers to effective management and undermine performance. Increasingly, companies are creating more general human-resources policies that give workers greater discretion, within clearly defined limits, to apply the policies in ways that suit their unique needs.
"Broad-band compensation," used by Merrill Lynch & Co. and Nike Inc., among others, is a common example of such an approach. In this plan, companies use fewer, wider salary ranges rather than many specific job classifications and pay grades. This gives managers more latitude to compensate top performers, for instance, or to offer more money to land a star. Similarly, car-rental company Avis Budget Group Inc. allows department managers to control their budgets within pre-set limits. If managers want to reward one employee with a big chunk of that money, they are free to do so.
Some companies, meanwhile, are setting up loose, "cascading" performance goals for their workers. Clothing chain Men's Wearhouse Inc. establishes sales targets for its stores, but doesn't dictate how employees should reach those targets, as other chains may do. "There are a variety of ways that stores meet these goals," says Charlie Bresler, president of Men's Wearhouse. Some stores have a few "wardrobe consultants" who excel at selling, for instance, while other stores have their consultants sell in teams.
"Stores hit their goals in different ways, and that is not only tolerated but encouraged," Mr. Bresler says.
Some organizations are even redefining the norms around work. At Best Buy Co. headquarters in Richfield, Minn., about a third of the 4,000 or so employees are allowed to set their own work hours and to decide whether they work from the office or home -- provided they can get the job done on time. As a result, Best Buy says, it has seen job satisfaction and productivity rise.
Get Personal
The preceding options are all primarily driven by human resources. But employee performance can be improved just as much if not more by general management practices that recognize the individual. Managers might offer one-on-one coaching or mentoring, or redefine a job's focus to line up with an employee's strengths.
Men's Wearhouse has largely replaced traditional training methods with an apprenticeship model, which the company has found to be far more effective. Store managers are encouraged to demonstrate effective sales approaches and to coach employees to develop a personal style of their own.
Likewise, some companies are reconsidering how they approach performance reviews. In traditional settings, human resources controls how and when the performance appraisal takes place, and managers are directed to evaluate how well employees have mastered the fundamental requirements of the job. But as work becomes more team- and project-based, it is becoming more difficult to have a standard set of requirements.
So, many companies supplement traditional performance reviews with continuing discussions with employees about goals and progress. This has a number of advantages. Problems can be caught earlier on, and feedback can be much more specific than with a traditional annual review. And employees are more likely to learn from feedback if they receive it soon after a noteworthy event and in the context of their regular workday.
Microsoft, which has a similar program in place, supports it with an information system that lets managers and employees record informal feedback confidentially. The information isn't reported to human resources and doesn't follow the employee from job to job. Instead, employees and managers use the information for their own reference. This system makes it more likely that managers will say what they really think -- and thus provide helpful guidance to employees.
* * *
Of course, these approaches come with a number of caveats.
For one thing, implementing any of these practices will mean big changes for companies with traditional human-resources departments. In some cases, human resources' primary role will be to support the line managers and employees who have the responsibility for carrying out the new plans, encouraging and facilitating good management practices and building a culture and work environment that support them. Software company SAP Americas, a division of SAP AG, makes sure that human-resources professionals focus on coaching managers on how to provide informal feedback to their employees through coaching or mentoring. Corning Inc. seeds some of its best people-managers throughout the organization to model and teach effective practices.
These practices can also require a difficult balancing act. In environments where managers treat individual employees differently, maintaining a sense of fundamental fairness is crucial. Managers need to take workers' concerns seriously, recognizing that negative feelings can be extremely harmful to the business.
The best way managers can respond to employee concerns is to be as open as possible about how they make decisions, and to have a clear rationale for decisions and policies. It's also important to be consistent about how decisions are made and to respond to questions in a sensitive, respectful way. And management should take steps to ensure employees that the company is strongly committed to equal opportunity and that legal protections against discrimination remain in place.
Finally, these practices work better in some contexts than in others. Government regulation is one critical factor. Many countries, such as Belgium and France, have strict labor rules that may make more customized practices difficult or impossible to introduce. Even in the U.S., some customized practices may bump up against rules about equal opportunity or retirement-plan security. Therefore, many companies use flexible policies to supplement, rather than replace, established programs.
In addition, some industries are more open to customization strategies than others. Advertising, consulting, financial services and entertainment, for instance, need highly independent and driven people to be successful. In return, these industries have been more than willing to offer work arrangements tailored to individuals to attract and retain top talent. Indeed, even particular departments inside companies are better suited for work-force-of-one policies than others. Positions that are knowledge-intensive, such as copy writing, tend to be a better fit for these policies than those that are more routine, or location-based, such as call centers.
The culture and history of the company itself also matter. Small, younger companies often operate without formal human-resources structures as a matter of course. The four techniques are thus more appropriate for larger companies seeking a way to introduce customization and flexibility without abandoning control and structure.
It's difficult to make the change from a one-size-fits-all approach to a more customized one. Doing so requires senior managers to discard familiar policies and practices and adopt a new, more responsive system from the ground up. However, companies that do it right will have unprecedented opportunities to develop the talent they need to become more competitive, high-performance organizations.
Companies Beef Up Tech Security
By Katherine Wegert From The Wall Street Journal Online
Jane Terry has done more than her fair share of email policing.
As president of California manufacturer Ajax Boiler Inc., Terry has on two occasions caught employees breaching network security. While testing a new company software system, she stumbled upon a staff member bringing a rival's proprietary information into Ajax's system. Terry spent $6,000 fixing that problem, and hundreds more when a senior manager at the 100-employee company hacked into the network of a former employer, with whom he was involved in a lawsuit.
"We found him reading the HR manager's email," said Ms. Terry. "He was involved in a lawsuit and was probably looking for information on it. It was unbelievable."
Both staff members would have escaped notice if it weren't for a recent upgrade to Ajax's security software. The product, made by SpectorSoft Corp., a Florida company, essentially records everything employees do on their computers: what Web sites they have visited, how long they looked at a site, what emails they have sent, and more.
Nowadays, the greatest risk to company security comes from within, security analysts say. In the past, the threat had been mostly from spammers and hackers. These new threats are prompting companies to take their security measures up a notch. Employers are increasingly relying on advanced software to protect their systems.
Indeed, experts see the market for such security systems growing to $2.8 billion by 2010 from $919 million in 2005.
Even well-meaning employees can cause data-security problems. According to the Privacy Rights Clearinghouse, earlier this year the personal information of 302 households -- including names, addresses, birthdays and family-income ranges -- were posted on a public Internet site several times over a five-month period when employees at the U.S. Census Bureau tested new software while working from home. Employees breaching another company's network -- as in Ms. Terry's case -- also put businesses on the defensive.
A 2005 survey by the ePolicy Institute and the American Management Association polled 526 companies about their monitoring practices: 76% said they monitor Web connections, up from 62% in 2001, and 55% said they also look at email, compared with 47% in 2001.
"Monitoring is becoming more prevalent now than it has been," said Gartner analyst Peter Firstbrook, adding that both the insider threat and compliance issues are driving the growth. "People sending things to themselves or stealing intellectual property is a real concern."
There will always be people who try to beat the system. That is why analysts say that it is important for businesses to keep up with what is new and pick technology that can monitor, filter, block access to inappropriate Web sites and purge emails and instant messaging systems.
"You want to monitor your existing technology, but you need to stay up on what's new, especially if you have a young work force," said Nancy Flynn, executive director of the ePolicy Institute.
Software supplier Clearswift, with about $50 million in revenue a year, sells products that monitor email and Internet connections. Some applications can detect credit-card and Social Security numbers in an email message, a spreadsheet or an attached Word document; others limit accessibility of certain documents to a specific number or group of people.
"We can help stop the outbound threat," said Alyn Hockey, director of product management at Clearswift. "The real key thing about our product is that we can actually create policy rules that let people do their job without making security an inhibitor. We can encrypt mail according to policy and have different roles and responsibilities for managing the system, such as [by limiting access to] business managers and compliance officers."
Websense Inc., with $179 million in annual revenue, has a leak-prevention suite of software that discovers, monitors and prevents sensitive data from leaking out of the organization, either accidentally or maliciously, through common platforms, including email, instant messages, Web mail and network printers.
As monitoring technology becomes increasingly sophisticated and widespread, some argue that employers should respect their workers' privacy.
"Businesses have their concerns, and they're legitimate," said Jeremy Gruber, legal director at the National Workrights Institute. "But what we need is regulation. We need to see companies balance their concerns with their employees' privacy."
Email your comments to cjeditor@dowjones.com.
Wednesday, July 25, 2007
Human Resource Planning a Part of Early Growth Challenges
By Jeff Cornwall
Two young entrepreneurs came into our classes this week and talked about growth challenges they are currently facing in their businesses. Both focused quite a bit on the human resource challenges that come with growth.
Matthew Wilson and his father own Gateway Construction in Brentwood, TN. Gateway is a commercial real estate development company. They have seen significant growth in their business since they recovered from the huge hit that commercial real estate took after 9/11.
As they continue to grow, Matthew is finding the need to step back from the day-to-day aspects of construction management. That is, like many entrepreneurs he can no longer spend time "working in his business", but needs to shift to "working on his business." At the same time, his father is beginning to step away from the business—not retire, but clearly backing off from his role in the day-to-day operations of the business. So Matthew has to take on more of a strategic leadership role in Gateway, while hiring people who can handle managing the operational level.
"People say real estate is location, location, location. At this point in our business growth, I would say that the key has become people, people, people," Matthew told our class.
They have tried to keep their overhead low—a lesson learned over the years from riding out the ups and downs in their industry. And while their current growth creates the need for more people, they are trying to develop strategies that will keep all of the people they are adding busy and productive even when real estate takes its next downturn.
They are firm believers that the key is not just finding the best people, but finding the right people for the right job.
Matthew also is thinking about the need to some day expand his team to include more expertise in IT and financial management. They are not large enough now to support this type of an addition to the team, but may well get there some day soon.
Nicholas Holland, is Founder and CEO of a web design business in Nashville called CentreSource. Nicholas has also faced human resource challenges in his growth.
CentreSource has a business model that is driven primarily by billable hours. One challenge from the very beginning has been to have staff who have the skills to meet the latest technology need in the market. Finding the right people for his business can sometimes be a daunting task.
Nicholas said that managing key staff for a business like his when it grows can be difficult if it results in a power/dependency relationship. He recommends that all entrepreneurs have the mindset that no employee is irreplaceable, especially if you plan properly.
A challenge they faced as they grew was the expense hit that each of his early hires created had on the income statement. Expenses never grew in a straight line, but in significant steps as each new programmer was added. This created a major cash flow challenge. He met this by being very conservative in cash management. He never hired until he had the money already coming in to pay for the new employee. Also, he always keeps 90 days of cash reserves to cushion any unexpected downturn. During growth keeping this reserve took careful planning. Both of these tactics restricted his growth to some degree, but they also helped him to grow at a pace that he could afford to pay for.
Jeffrey Cornwall is the Director of Belmont University.
Two young entrepreneurs came into our classes this week and talked about growth challenges they are currently facing in their businesses. Both focused quite a bit on the human resource challenges that come with growth.
Matthew Wilson and his father own Gateway Construction in Brentwood, TN. Gateway is a commercial real estate development company. They have seen significant growth in their business since they recovered from the huge hit that commercial real estate took after 9/11.
As they continue to grow, Matthew is finding the need to step back from the day-to-day aspects of construction management. That is, like many entrepreneurs he can no longer spend time "working in his business", but needs to shift to "working on his business." At the same time, his father is beginning to step away from the business—not retire, but clearly backing off from his role in the day-to-day operations of the business. So Matthew has to take on more of a strategic leadership role in Gateway, while hiring people who can handle managing the operational level.
"People say real estate is location, location, location. At this point in our business growth, I would say that the key has become people, people, people," Matthew told our class.
They have tried to keep their overhead low—a lesson learned over the years from riding out the ups and downs in their industry. And while their current growth creates the need for more people, they are trying to develop strategies that will keep all of the people they are adding busy and productive even when real estate takes its next downturn.
They are firm believers that the key is not just finding the best people, but finding the right people for the right job.
Matthew also is thinking about the need to some day expand his team to include more expertise in IT and financial management. They are not large enough now to support this type of an addition to the team, but may well get there some day soon.
Nicholas Holland, is Founder and CEO of a web design business in Nashville called CentreSource. Nicholas has also faced human resource challenges in his growth.
CentreSource has a business model that is driven primarily by billable hours. One challenge from the very beginning has been to have staff who have the skills to meet the latest technology need in the market. Finding the right people for his business can sometimes be a daunting task.
Nicholas said that managing key staff for a business like his when it grows can be difficult if it results in a power/dependency relationship. He recommends that all entrepreneurs have the mindset that no employee is irreplaceable, especially if you plan properly.
A challenge they faced as they grew was the expense hit that each of his early hires created had on the income statement. Expenses never grew in a straight line, but in significant steps as each new programmer was added. This created a major cash flow challenge. He met this by being very conservative in cash management. He never hired until he had the money already coming in to pay for the new employee. Also, he always keeps 90 days of cash reserves to cushion any unexpected downturn. During growth keeping this reserve took careful planning. Both of these tactics restricted his growth to some degree, but they also helped him to grow at a pace that he could afford to pay for.
Jeffrey Cornwall is the Director of Belmont University.
Life With Blogs
By Perry Binder
Today, about 70,000 new Web logs—or blogs—are created every day, according to blog search-engine and measurement firm Technorati. In addition, a 2005 Pew Internet and American Life Project report indicated there are more than 32 million blog readers.
HR leaders may be stunned to read what some former employees, current employees, and even potential hires are saying on blogs about various companies. And depending on the size of their companies, such leaders may also be surprised at how many competitors and customers are blogging about their products or services.
The question then becomes what to do when unflattering or damaging comments are discovered, such as when:
• A health-care worker blogged about being able to surf the Web for three hours since the company's server went down; or
• An employee criticized his boss for not permitting the employee to go home sick one day.
In those cases, the employers opted to fire the workers.
Negative comments can affect competitive advantage, reputation, retention and recruitment. This is an evolving area that requires HR to step up and protect their companies. HR leaders need to assess the situation in their companies and create a business plan to respond to this complex, emerging arena in risk management.
Companies need to decide whether they want to take advantage of the buzz corporate-sanctioned bloggers can create as well as how to handle employees who blog without authorization. HR leaders need to assess the situation in their companies and create a business plan to respond to this complex, emerging arena.
Perry Binder is an Assistant Professor of Legal studies at The Robinson College of Business of Georgia State University.
Today, about 70,000 new Web logs—or blogs—are created every day, according to blog search-engine and measurement firm Technorati. In addition, a 2005 Pew Internet and American Life Project report indicated there are more than 32 million blog readers.
HR leaders may be stunned to read what some former employees, current employees, and even potential hires are saying on blogs about various companies. And depending on the size of their companies, such leaders may also be surprised at how many competitors and customers are blogging about their products or services.
The question then becomes what to do when unflattering or damaging comments are discovered, such as when:
• A health-care worker blogged about being able to surf the Web for three hours since the company's server went down; or
• An employee criticized his boss for not permitting the employee to go home sick one day.
In those cases, the employers opted to fire the workers.
Negative comments can affect competitive advantage, reputation, retention and recruitment. This is an evolving area that requires HR to step up and protect their companies. HR leaders need to assess the situation in their companies and create a business plan to respond to this complex, emerging arena in risk management.
Companies need to decide whether they want to take advantage of the buzz corporate-sanctioned bloggers can create as well as how to handle employees who blog without authorization. HR leaders need to assess the situation in their companies and create a business plan to respond to this complex, emerging arena.
Perry Binder is an Assistant Professor of Legal studies at The Robinson College of Business of Georgia State University.
Check the Web Before Hiring
By Perry Binder
As a college professor, a lot of my time is spent with students in the age range of 18-22 - individuals who grew up with e-mail, spell check, IM's, and blogs. The recent graduates entering your company are just as smart as those who graduated in the "old days." However, their modes of communication are vastly different.
If you've never been on MySpace or Facebook, the leading social networking sites and you have an HR function to your job, you need to become familar with these sites. My message to HR is that you can discover scary pictures or postings from the person you just interviewed in a suit and tie yesterday! Here are two actual examples, which I've watered down for the PG-13 crowd:
"What up pimpin?! Looks like somebody skipped school today...where were u huh? What did I tell u...stop smokin that...u wanna finish the rest? It ain't gonna get u no where!! LOL I love messin wit u!"
"F#@* yeah! Guitar hero + half ounce + water bong = good times."
Whether you outsource this search function or do it yourself, anyone can access information on MySpace. Facebook is supposed to be more private than MySpace because one has to be a part of a specific network for access. For example, a student at a university can join the college's network. But that also means that alums can join - if you interview at your alma mater, think of the information you may obtain on new hires.
I stress to my students that there are consequence to their web activity. HR is starting to wake up to this reality.
Perry Binder is an Assistant Professor of Legal studies at The Robinson College of Business of Georgia State University.
As a college professor, a lot of my time is spent with students in the age range of 18-22 - individuals who grew up with e-mail, spell check, IM's, and blogs. The recent graduates entering your company are just as smart as those who graduated in the "old days." However, their modes of communication are vastly different.
If you've never been on MySpace or Facebook, the leading social networking sites and you have an HR function to your job, you need to become familar with these sites. My message to HR is that you can discover scary pictures or postings from the person you just interviewed in a suit and tie yesterday! Here are two actual examples, which I've watered down for the PG-13 crowd:
"What up pimpin?! Looks like somebody skipped school today...where were u huh? What did I tell u...stop smokin that...u wanna finish the rest? It ain't gonna get u no where!! LOL I love messin wit u!"
"F#@* yeah! Guitar hero + half ounce + water bong = good times."
Whether you outsource this search function or do it yourself, anyone can access information on MySpace. Facebook is supposed to be more private than MySpace because one has to be a part of a specific network for access. For example, a student at a university can join the college's network. But that also means that alums can join - if you interview at your alma mater, think of the information you may obtain on new hires.
I stress to my students that there are consequence to their web activity. HR is starting to wake up to this reality.
Perry Binder is an Assistant Professor of Legal studies at The Robinson College of Business of Georgia State University.
Retaining Employees
By Jeff Cornwall
Several recent surveys of small business owners have found that finding qualified workers is one of the top challenges facing entrepreneurs. In times of growth, employee recruitment becomes even more of a concern. We are not just trying to fill new positions, but also replace openings created by employee turnover. Although it is usually easier and almost always less expensive to retain an existing employee rather than find a replacement, we often fail to take necessary steps to reduce employee turnover.
There are several steps that can be taken to do a better job of meeting employee needs and reducing employee turnover:
Opportunity to advance as company grows. Growing companies can offer ample opportunities to promote existing employees. Make sure to not just offer the opportunity, but the training and development to make such advancement possible.
Positive work environment. The positive culture of a small business is what draws many employees to work for you in the beginning. The stresses of growth can often change this part of the culture of a business. Take steps to maintain the culture you intended to create in the early days of the business.
Achievement and personal satisfaction. Although these are intrinsic factors, they are related to how we design jobs. Keep these things in mind as jobs evolve as your business grows.
Rewards. Although money is important, it is not the only reward we have to offer. Recognition, status, respect, inclusion, and so forth, are all important rewards to most employees.
Community. Many small businesses have a sense of "family" about them. Don't underestimate the power of these bonds to retain employees.
Clear vision that is openly shared. Keep employees informed of where you are headed, and remind them often. The chaos of growth can become overwhelming. Vision can help calm these feelings and help get everyone focused on the tasks at hand. I spent much of my time during our rapid growth traveling throughout our various locations communicating to our staff about our vision and why we needed to grow.
Security of place in firm as it grows. Many employees leave because they are worried they will not fit in as the business expands. Provide career plans for each employee to help them understand their place in the firm.
Opportunity for balance in their lives. Although growth may create the need for long hours from every employee from time to time, be sensitive to the strains this can create in employees home lives. Don't take advantage of employees' willingness to pitch in during busy times by making it a standard expectation of their jobs all the time.
Jeffrey Cornwall is the Director of Belmont University
Several recent surveys of small business owners have found that finding qualified workers is one of the top challenges facing entrepreneurs. In times of growth, employee recruitment becomes even more of a concern. We are not just trying to fill new positions, but also replace openings created by employee turnover. Although it is usually easier and almost always less expensive to retain an existing employee rather than find a replacement, we often fail to take necessary steps to reduce employee turnover.
There are several steps that can be taken to do a better job of meeting employee needs and reducing employee turnover:
Opportunity to advance as company grows. Growing companies can offer ample opportunities to promote existing employees. Make sure to not just offer the opportunity, but the training and development to make such advancement possible.
Positive work environment. The positive culture of a small business is what draws many employees to work for you in the beginning. The stresses of growth can often change this part of the culture of a business. Take steps to maintain the culture you intended to create in the early days of the business.
Achievement and personal satisfaction. Although these are intrinsic factors, they are related to how we design jobs. Keep these things in mind as jobs evolve as your business grows.
Rewards. Although money is important, it is not the only reward we have to offer. Recognition, status, respect, inclusion, and so forth, are all important rewards to most employees.
Community. Many small businesses have a sense of "family" about them. Don't underestimate the power of these bonds to retain employees.
Clear vision that is openly shared. Keep employees informed of where you are headed, and remind them often. The chaos of growth can become overwhelming. Vision can help calm these feelings and help get everyone focused on the tasks at hand. I spent much of my time during our rapid growth traveling throughout our various locations communicating to our staff about our vision and why we needed to grow.
Security of place in firm as it grows. Many employees leave because they are worried they will not fit in as the business expands. Provide career plans for each employee to help them understand their place in the firm.
Opportunity for balance in their lives. Although growth may create the need for long hours from every employee from time to time, be sensitive to the strains this can create in employees home lives. Don't take advantage of employees' willingness to pitch in during busy times by making it a standard expectation of their jobs all the time.
Jeffrey Cornwall is the Director of Belmont University
Hiring in the Internet Age
By Darryl Ohrt
We just completed a new hire at our firm, and we haven't even met the new employee yet.
There's a lot of press out there about the dangers of the internet as it relates to employees. "What if your employer finds your MySpace page?" But what about the employer side? As it turns out, using new internet tools for hiring employees can be amazingly productive. We just completed a new hire at our firm - and we haven't even met the candidate in person. We'll shake hands for the first time on his first day. Here's how the internet helped us find the perfect fit in a new employee:
The potential employee pool is now international. As a small business owner, it's a great feeling to get a resume from Iran. We're instantly international. By placing an ad online, you'll increased your potential market a thousand fold. In the old days, the local classifieds were your only tool. Maybe you'd spring for a more expensive ad in a bigger paper, like the New York Times. With ads online, you're reaching a worldwide audience in one fell swoop.
Results are immediate. In the old days, resumes (on paper) would begin to roll into the mailbox about five days after the first ad hit. Today, resumes begin hitting the inbox seconds after the ad is published. This has cut the timeline for screening potential candidates dramatically. For a recent position at our firm, we received hundreds of resumes from across the globe. And only two of them came in the mail.
Interviews. Not just for the boardroom anymore. Our first interview with Rob, our newest hire, didn't take place in my office. Or our boardroom. Or even our building. He was sitting at home in front of his computer, and I in front of my laptop. We used the popular iChat feature now standard on the new Mac products. Our first interview was done through a video chat window. When he became a finalist for the position, we interviewed Rob again, this time with a larger group of people on our side. But again with an iChat camera. Rob interviewed twice at our firm, and never left his house. I've even heard of firms using Second Life in the same way - but you lose the non-verbal part of the interview, which of course, is extremely important to the process.
Learn more. We hear of the horror stories of an employer finding pictures from a drunken frat party, on sensational news reports everyday. But photo collections can also be a fantastic way to learn more about a potential employee, or for the employee to learn about the company. It turns out that both Rob and our firm have Flickr photo sets. So before Rob ever sent his resume, he had a pretty good idea of what life was like as a member of our team. Because he's shared some of the high moments, through our photo collection. He's even seen our offices. At the same time, when we wanted to get to know Rob better, he shared his Flickr photo set. You learn a lot about a person (or a company) when looking through their photos.
Certainly, this isn't something that every employee would be comfortable with - but in our business, we work closely together. We know our co-workers better than some of our family members. Rob picked up on this, and was eager to share his photos. This was probably a key factor in his hiring decision - as it took away potential doubts about the unknown. "What if he's an axe murderer, that eats little children?" We're pretty sure that's not the case, after getting a picture of Rob's personal life. (Pretty sure, anyway.)
Save the details for email. When it was time to make an offer, we laid out all of the details in an email. No potential mis-understandings. Everything in black and white. Both parties knew exactly what was on the table. Email is awesome for detailing the nitty gritty specifications of money, benefits, and company policies. We made our offer to Rob via email. We didn't play phone tag for two days, but instead laid everything on the table, so that he could respond on his own schedule. (Turns out, he accepted the same day.)
So we're about to meet Rob for the first time in person. And yet, I feel like we already know him. Welcome to hiring in the internet age. Isn't it wonderful?
Darryl Ohrt is the founder of VIA and the chief contributor to
BrandFlakesForBreakfast.com.
We just completed a new hire at our firm, and we haven't even met the new employee yet.
There's a lot of press out there about the dangers of the internet as it relates to employees. "What if your employer finds your MySpace page?" But what about the employer side? As it turns out, using new internet tools for hiring employees can be amazingly productive. We just completed a new hire at our firm - and we haven't even met the candidate in person. We'll shake hands for the first time on his first day. Here's how the internet helped us find the perfect fit in a new employee:
The potential employee pool is now international. As a small business owner, it's a great feeling to get a resume from Iran. We're instantly international. By placing an ad online, you'll increased your potential market a thousand fold. In the old days, the local classifieds were your only tool. Maybe you'd spring for a more expensive ad in a bigger paper, like the New York Times. With ads online, you're reaching a worldwide audience in one fell swoop.
Results are immediate. In the old days, resumes (on paper) would begin to roll into the mailbox about five days after the first ad hit. Today, resumes begin hitting the inbox seconds after the ad is published. This has cut the timeline for screening potential candidates dramatically. For a recent position at our firm, we received hundreds of resumes from across the globe. And only two of them came in the mail.
Interviews. Not just for the boardroom anymore. Our first interview with Rob, our newest hire, didn't take place in my office. Or our boardroom. Or even our building. He was sitting at home in front of his computer, and I in front of my laptop. We used the popular iChat feature now standard on the new Mac products. Our first interview was done through a video chat window. When he became a finalist for the position, we interviewed Rob again, this time with a larger group of people on our side. But again with an iChat camera. Rob interviewed twice at our firm, and never left his house. I've even heard of firms using Second Life in the same way - but you lose the non-verbal part of the interview, which of course, is extremely important to the process.
Learn more. We hear of the horror stories of an employer finding pictures from a drunken frat party, on sensational news reports everyday. But photo collections can also be a fantastic way to learn more about a potential employee, or for the employee to learn about the company. It turns out that both Rob and our firm have Flickr photo sets. So before Rob ever sent his resume, he had a pretty good idea of what life was like as a member of our team. Because he's shared some of the high moments, through our photo collection. He's even seen our offices. At the same time, when we wanted to get to know Rob better, he shared his Flickr photo set. You learn a lot about a person (or a company) when looking through their photos.
Certainly, this isn't something that every employee would be comfortable with - but in our business, we work closely together. We know our co-workers better than some of our family members. Rob picked up on this, and was eager to share his photos. This was probably a key factor in his hiring decision - as it took away potential doubts about the unknown. "What if he's an axe murderer, that eats little children?" We're pretty sure that's not the case, after getting a picture of Rob's personal life. (Pretty sure, anyway.)
Save the details for email. When it was time to make an offer, we laid out all of the details in an email. No potential mis-understandings. Everything in black and white. Both parties knew exactly what was on the table. Email is awesome for detailing the nitty gritty specifications of money, benefits, and company policies. We made our offer to Rob via email. We didn't play phone tag for two days, but instead laid everything on the table, so that he could respond on his own schedule. (Turns out, he accepted the same day.)
So we're about to meet Rob for the first time in person. And yet, I feel like we already know him. Welcome to hiring in the internet age. Isn't it wonderful?
Darryl Ohrt is the founder of VIA and the chief contributor to
BrandFlakesForBreakfast.com.
Flexible Payroll Solutions Meet the Diverse Needs of Small Businesses
By Don McLoughlin
A friend of mine who owns a small business once comically lamented, “I have more hats than heads.” If you can relate to that sentiment, chances are great that you not only own a small business, you handle the back-end functions as well. You are not alone.
According to ADP research, 71 percent of small businesses still prepare payroll in-house, while 29 percent outsource (15 percent use a service bureau, and 13 percent use an accountant’s services).
Payroll and tax compliance can be time-consuming and burdensome for any business. However, a U.S. Small Business Administration (SBA) study, “The Impact of Regulatory Costs on Small Firms,” showed that America’s small businesses are the hardest hit financially. The study found businesses with fewer than 20 employees faced a 45 percent greater federal regulatory burden than their larger business counterparts. Small businesses annually spend $1,304 on tax compliance per employee, 67 percent more than larger companies with 500 employees or more.
Luckily, technology is transforming the day-to-day operations for small businesses. Today, there are a variety of tools available to help small business owners manage payroll in a cost-effective and simple way. Some seek a do-it-yourself software solution while others prefer to have an outside provider handle it all. In this article, we will review how companies select their payroll method, and the benefits of each type of payroll solution.
In-house Payroll
A 2006 national payroll survey by the National Federation of Independent Business (NFIB) Research Foundation found that the most common reason given for doing payroll in-house was that it is the cheapest way. Without dedicated administrative staff, many small business owners run the business during the day, and then spend evenings and weekends catching up on everything else, including bookkeeping, payroll and taxes.
However, many business owners don’t realize that there are “hidden costs” of payroll. Doing payroll in-house is both error-prone and time-consuming. According to ADP research4, companies with 20 employees or more spend upwards of half a day per pay period. On a weekly payroll schedule, that averages out to two full days a month dedicated to payroll.
Then there are risks. Given that local, state, federal tax laws are subject to change, remaining up-to-date and compliant is a formidable task. And the failure to deposit payroll-related taxes in a timely fashion is a frequent cause of tax penalties.
Lastly, when calculating payroll by hand, simple math errors are more common, which can cause employee dissatisfaction – endangering the success of your small business.
Do-it-Yourself Software
In increasing numbers, small businesses are turning to technology for help with their payroll to speed-up processing and improve accuracy.
Do-it-yourself payroll programs are ideally suited for small business owners who seek full control over their payroll processing and tax filing. Software solutions are typically cost-effective and give an “in-control feeling.” Once you input your payroll information, the software automatically calculates net pay for each employee. Product features are typically available 24/7, so you can process payroll whenever it is most convenient.
Outsourcing Payroll
Another option for small businesses is to outsource payroll. By outsourcing, small business owners pass on the responsibility of payroll to either an accountant, bookkeeper or third-party service provider, so that their time can be redirected to other strategic initiatives.
Once you are set up with your payroll provider, the owner simply submits hours worked by each employee. The provider calculates your payroll, including the deductions and withholdings for all relevant tax jurisdictions. Then professionally printed checks, pay vouchers and reports are delivered to your door on payday. Many service providers also manage W-2 creation at the end of the year, allowing seamless integration with accounting.
By working with a national payroll service provider, you can feel confident that payroll will be accurate, on-time and fully compliant with federal, state and local tax regulations. Based on ADP research5, the reasons companies decide to either change payroll processing method or the vendor used for the service delivery are to: save time (33 percent), effort (25 percent) or reduce costs (20 percent). Other reasons cited were tied to customer service, internal issues and familiarity.
Choosing the Right Solution
Ultimately, payroll is a task that every business needs to get done, but each business owner must decide the best approach. With the technology available today, many are choosing to evolve from manual pen and paper to either software or outsourcing – depending on how involved the owner wants to be in the payroll process.
Before moving forward, it is important to evaluate goals. Are you willing to dedicate time to payroll, but want to increase accuracy and compliance? Or do you want to lessen the burden of payroll administration completely?
No matter which payroll method you choose, it’s important to select a software package or outsourcing provider that best meets your needs. Evaluate your options, determine what is most important to your organization, and ask for references from your peers. This is especially important when selecting an outsourcing provider. Your success is based on the expertise and reliability of your partner – it’s essential that your goals and values are aligned.
A friend of mine who owns a small business once comically lamented, “I have more hats than heads.” If you can relate to that sentiment, chances are great that you not only own a small business, you handle the back-end functions as well. You are not alone.
According to ADP research, 71 percent of small businesses still prepare payroll in-house, while 29 percent outsource (15 percent use a service bureau, and 13 percent use an accountant’s services).
Payroll and tax compliance can be time-consuming and burdensome for any business. However, a U.S. Small Business Administration (SBA) study, “The Impact of Regulatory Costs on Small Firms,” showed that America’s small businesses are the hardest hit financially. The study found businesses with fewer than 20 employees faced a 45 percent greater federal regulatory burden than their larger business counterparts. Small businesses annually spend $1,304 on tax compliance per employee, 67 percent more than larger companies with 500 employees or more.
Luckily, technology is transforming the day-to-day operations for small businesses. Today, there are a variety of tools available to help small business owners manage payroll in a cost-effective and simple way. Some seek a do-it-yourself software solution while others prefer to have an outside provider handle it all. In this article, we will review how companies select their payroll method, and the benefits of each type of payroll solution.
In-house Payroll
A 2006 national payroll survey by the National Federation of Independent Business (NFIB) Research Foundation found that the most common reason given for doing payroll in-house was that it is the cheapest way. Without dedicated administrative staff, many small business owners run the business during the day, and then spend evenings and weekends catching up on everything else, including bookkeeping, payroll and taxes.
However, many business owners don’t realize that there are “hidden costs” of payroll. Doing payroll in-house is both error-prone and time-consuming. According to ADP research4, companies with 20 employees or more spend upwards of half a day per pay period. On a weekly payroll schedule, that averages out to two full days a month dedicated to payroll.
Then there are risks. Given that local, state, federal tax laws are subject to change, remaining up-to-date and compliant is a formidable task. And the failure to deposit payroll-related taxes in a timely fashion is a frequent cause of tax penalties.
Lastly, when calculating payroll by hand, simple math errors are more common, which can cause employee dissatisfaction – endangering the success of your small business.
Do-it-Yourself Software
In increasing numbers, small businesses are turning to technology for help with their payroll to speed-up processing and improve accuracy.
Do-it-yourself payroll programs are ideally suited for small business owners who seek full control over their payroll processing and tax filing. Software solutions are typically cost-effective and give an “in-control feeling.” Once you input your payroll information, the software automatically calculates net pay for each employee. Product features are typically available 24/7, so you can process payroll whenever it is most convenient.
Outsourcing Payroll
Another option for small businesses is to outsource payroll. By outsourcing, small business owners pass on the responsibility of payroll to either an accountant, bookkeeper or third-party service provider, so that their time can be redirected to other strategic initiatives.
Once you are set up with your payroll provider, the owner simply submits hours worked by each employee. The provider calculates your payroll, including the deductions and withholdings for all relevant tax jurisdictions. Then professionally printed checks, pay vouchers and reports are delivered to your door on payday. Many service providers also manage W-2 creation at the end of the year, allowing seamless integration with accounting.
By working with a national payroll service provider, you can feel confident that payroll will be accurate, on-time and fully compliant with federal, state and local tax regulations. Based on ADP research5, the reasons companies decide to either change payroll processing method or the vendor used for the service delivery are to: save time (33 percent), effort (25 percent) or reduce costs (20 percent). Other reasons cited were tied to customer service, internal issues and familiarity.
Choosing the Right Solution
Ultimately, payroll is a task that every business needs to get done, but each business owner must decide the best approach. With the technology available today, many are choosing to evolve from manual pen and paper to either software or outsourcing – depending on how involved the owner wants to be in the payroll process.
Before moving forward, it is important to evaluate goals. Are you willing to dedicate time to payroll, but want to increase accuracy and compliance? Or do you want to lessen the burden of payroll administration completely?
No matter which payroll method you choose, it’s important to select a software package or outsourcing provider that best meets your needs. Evaluate your options, determine what is most important to your organization, and ask for references from your peers. This is especially important when selecting an outsourcing provider. Your success is based on the expertise and reliability of your partner – it’s essential that your goals and values are aligned.
Charleston Partners In The News
Jill Krumholz Joins Charleston Partners as Principal
Press Release
By Richard F. StolzHuman Resource Executive
by John RossheimMonster.com
Cover story written by Richard F. StoltzHuman Resource Executiveฎ Magazine
Published by the Workforce.com
What Employers Are Seeking In Human-Resources Executives
By Suzanne McGee
HR Career Tips From Recruiters
Top Story byHuman Resource Executiveฎ Magazine
You Can Spot and Hire Stars - But Why Can't You Keep Them?
Published by HR-21
U.S. Companies Send Fewer Workers Overseas
By Kathy Chu Dow Jones Newswires
“Tremendous Optimism” for Human Resources Jobs
Published by the Workforce.com
How To Stay On Top Of Your Profession
MedZilla: Recruiters
Employers Seek to Trim Pay for U.S. Expatriates
By Perri Capell
Insurance Executives Face Churn Amid Industry Turmoil
By Suzanne McGee
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