With insights from our experts, Flex HR is sharing four critical ways DIY HR can cost your business:

1. The Cost of Compliance Violations: $100,000+

Neglecting HR invites compliance issues. Compliance violations vary widely, and there are countless opportunities for business owners to get themselves in legal trouble. Some of these risks involve:

• Documentation violations: Improperly collecting and storing employee files or improperly completing Form I-9s. For example, some states require E-verification as part of the I-9 process, and failing to enroll in eVerify is an immediate compliance flag.
• FLSA violations: Misclassifying workers and failing to pay overtime or failing to follow federal and/or state wage and hour laws.
• Benefits violations: Failing to offer benefits if you meet certain thresholds, not notifying employees of certain benefits, like COBRA eligibility or state paid leave options.
• Payroll violations: failing to collect required payroll taxes.

Employers must also be aware of the different requirements at both the federal and state level. For example, California is a particularly tricky place to do business. Flex HR’s CHRO, Mary Schroeder, remembers a client in California who had multiple employees out on leave.  “There was no documentation on what type of leave was taken (FMLA, Disability or a State leave) or when the leave was to end,” shares Mary.  “By bringing in Flex HR, we were able to take this task off of leadership, do the research, provide the client with an update on each employee’s leave, and take over managing it to ensure compliance.” Handing this over to experienced professionals offered the client peace of mind that they were legally compliant and earned the trust of the employees.

These errors might seem innocuous, but business leaders, no matter how big or small, are rarely given the benefit of the doubt. The Department of Labor is particularly prudent when it comes to compliance. In FY2024 alone, the Department of Labor’s Wage and Hours division successfully recovered more than $273 million in back wages and damages for nearly 152,000 workers nationwide. Flex HR has seen this firsthand. Jim Cichanski, Flex HR’s Founder, outlines a time when misclassifying just 25 workers as “exempt” instead of “non-exempt” cost a company over $300,000.00 of back-pay, fines and penalties. “Be careful!” he warns. “You don’t know what you don’t know, but that is not an excuse you can use with the IRS or Department of Labor.”

2. The Cost to Company Culture: $8.8 trillion

Small business leaders know the truth: Every employee counts. Losing even one employee can cause ripple effects across the organization, impacting the bottom line through a loss of productivity. Reassigning responsibilities can be a challenge, and recruiting a new hire? Another headache entirely.

Many retention issues can be tied back to a single factor: Employee disengagement. Recent statistics show a more engaged workforce leads to higher profitability, increased productivity, and reduced turnover. But a poorly engaged workforce? According to recent analysis by Gallup, disengaged employees cost an estimated $8.8 trillion globally, or 9% of the world’s GDP!

Despite the knowledge that engagement is key to keeping employees, many small business leaders still take a chance on DIY HR.  According to a survey conducted by Secure Data Recovery, 88% of more than 1,000 respondents have worked for a small company with no dedicated HR person. What’s more? They found that half of Americans say the lack of an HR department contributes to a toxic workplace.

Flex HR Consultant Carolyn Hill agrees. “I’ve noticed that a patchwork HR setup (where duties fall to untrained staff) creates confusion and disengagement,” she says. “At a retail client, I saw employees feel overlooked with no recognition or grievance process, leading to a 20% turnover jump. Another firm’s messy leave management caused burnout, with absenteeism up 15% due to lack of support. These moments have shown me how vital a solid HR presence is.”

3. The Consequences of Poor Hiring (and Firing!): $100,000+

No matter the size, companies must recruit the right talent to execute the vision, serve the customers, and grow the business. Leaving recruitment responsibilities to an inexperienced leader – or multiple inexperienced leaders – is a recipe for chaos. Successful recruitment requires a consistent process and consistent messaging, ensuring practices are in place for effectively sourcing, interviewing, and hiring candidates.

Without proper HR practices in place, a company’s liability can increase significantly during the recruitment process. Prior to starting a search, hiring leaders must be aware of the legal protections in place for candidates. These include federal laws prohibiting discrimination based on factors such as age, gender, and sexual orientation, as well as state-specific regulations governing the use of background checks. Beyond the legal ramifications, failing to execute a fair, transparent hiring process can damage a company’s reputation. In today’s digital age, negative candidate experiences can be shared broadly on social media and employer review sites – potentially deterring future applicants and making it harder to attract top talent.

Why does this matter? Research shows hiring the wrong employee can cost a business upwards of $15,000. A bad hire costs an organization time, resources, and lost productivity. What’s worse? A bad hire can drag down existing teams who must manage poor performance, leading to dissatisfaction and disengagement among critical team members.

The headache continues once your organization makes the difficult decision to terminate an employee.  If a termination is executed improperly, or worse – illegally – your company may be the target of a lawsuit. Carolyn recalls a client that experienced a wrongful termination suit that cost more than $100,000 to defend. The financial impact is only the beginning.  “Beyond the expense,” she advises, “legal battles impede on leadership time, resources, and expose weaknesses.”

4. The Value of Lost Time: Up to 15 Hours per Week

DIY HR might sound cost effective and appealing, until “do-it-yourself” becomes “you-do-it-all.” Many well-intentioned leaders take on operational responsibilities outside of their purview in the name of fiscal responsibility. Yet, when leadership focus is interrupted by the demands of HR – be it hiring, firing, or employee relations concerns – the vision, clients, and profitability suffer. If HR demands are ignored, employees, and in turn retention, will suffer.

Flex HR Consultant Sonya Alexander has experience navigating this predicament with business leaders. “Strategic HR consulting isn’t just about compliance; it is about unlocking leadership bandwidth and creating conditions for growth,” says Sonya. She shares an example of a small startup who, despite receiving Series B funding, was overcome by HR issues that were interfering with success. The CEO made a pivotal decision to outsource HR, and a seasoned HR professional presented a plan to stabilize and structure the people side of the business. The leadership team, no longer drowning in HR issues, reclaimed 10–15 hours per week and began redirecting energy to fundraising, partnerships, and product vision. Voluntary attrition dropped by 25% in six months, proving just how impactful a quality HR experience is for a company’s most important asset: its people.

It’s not just business leaders taking on HR tasks – many small businesses also rely on administrative staff to manage HR responsibilities. While these professionals bring valuable skills, they typically lack formal HR training. Flex HR Consultant Alisa Kline recalls working with a client who had assigned HR duties to an already overwhelmed office manager. “An overloaded office manager is more likely to make mistakes to important functions like running payroll when their attention is spread so thin,” she says. “When mistakes are made, this increases financial/legal liability [and] employee dissatisfaction.” To address the issue, Flex HR stepped in, offloading critical HR tasks, resolving compliance concerns, and enhancing efficiency through HRIS implementation and improved PTO tracking.

Despite their best efforts, leaving HR to non-HR professionals is a no-win scenario, inevitably impacting the bottom line. Engaging professional HR support allows leadership to focus on strategic priorities while ensuring HR functions run smoothly and effectively for everyone involved.

 

 

The bottom line for your bottom line? Leave HR to the experts. What may seem like a cost-effective strategy now can lead to expensive consequences later – from legal fees and compliance fines to wasted leadership time. The risks of DIY-HR far outweigh the rewards. If cost is a concern, Flex HR offers customizable solutions tailored to your business and your budget. Skip the stress of doing it yourself and let the experts at Flex HR do it for you.

Ready to learn more? Reach out to us today!