For organisations, gaining a lucid understanding of human capital costs has never been more essential. Not only does regulatory compliance increasingly demand it, but with many companies restructuring their workforce following the coronavirus pandemic, employers are left blind without a full grasp of employee costs, writes Ken Charman.
This is mainly due to the increasingly siloed data sources where human capital costs lie – making it incredibly difficult for organisations to get an effective data overview. And then there’s the issue of contingent workers.
These integral cogs are often excluded from employee costs altogether. Instead, they’re often reported on the balance sheet, alongside production costs. As a result, they too can get lost in legacy systems.
It needn’t be like this, however. Modern technology has evolved to a point where this data can be quickly and efficiently collated—and soon, this will be demanded of all organisations.
Regulatory readiness and pandemic preparation
As a result of a piece of legislation known as IR35, UK-based organisations will soon have to report remuneration for all employees, including contractors and contingent workers. While the deadline has since been pushed back a year due to Covid-19, some companies may wish to get a jump on the cut-off point.
Countless companies have been forced to make difficult spot judgments on their workforce structure as a result of lockdowns
After all, complying with the rules is no simple task, especially given the legacy finance and accounting systems some businesses have to work with.
However, the onus to collate this essential data shouldn’t be on compliance alone. Without a full understanding of employee costs, companies are making important decisions practically blind — acknowledging only a third of tangible human costs.
A prime example is being seen in the wake of the coronavirus. Countless companies have been forced to make difficult spot judgments on their workforce structure as a result of lockdowns.
Now, let’s imagine an organisation without access to globally indexed total reward data or a total pay management system is suddenly forced to reduce 20 per cent of reward spend. It may seem the most logical course of action is to simply reduce headcount based on salary, instead of making it fair and/or impactful. But employees who survive the chop may have large long term incentives or pensions so overall total reward cost isn’t reduced the way you would think.
Reliance on contingent workers
What if organisations subsequently need to cut their reliance on contingent workers who are all too often omitted from company human resource information systems (HRIS)? How can an organisation determine where to make changes, and are you at risk of losing immense experience and skills from your organisation.
According to reports, 40-50% of the workforce of silicon valley tech firms are made up of contingent workers – gaining an accurate insight into this labour cost is vital.
It’s also been shown that greater investment in employees reflects considerably on a company’s bottom line.
More often than not, information pertaining to contingent workers doesn’t even exist within the company HRIS
According to a report from KPMG, companies with employee experience strategies exhibit a three-fold higher growth in profits. This, according to the research, is based on employee innovation, illustrating that factoring in contingent workers may prove to benefit the company as a whole.
The mounting pressure of Covid-19
With organisations having to restructure their entire workforce in the wake of the coronavirus, gaining a complete understanding of costs down to the level of every individual employee, is more critical than ever. The savings made when reducing their workforce cannot be understood without a comprehensive set of data.
And, more often than not, information pertaining to contingent workers doesn’t even exist within the company HRIS as the pay relationship is managed through the purchase ledger.
This blind spot makes company modelling and forecasting an impossible task. Companies restructuring the workforce may inadvertently let go of highly skilled employees as a result of incomplete details.
They also run higher risks. Arguably the coronavirus is one of the most unprecedented events to strike businesses since the global financial crash in 2008. It raises concerns ranging from employee health to supply chain continuity as well as compliance with reactive regulatory updates. Without consolidated data showing employee level detail on all workers, permanent and contingent, companies cannot know the human capital risks arising from the coronavirus.
However, with collated data, organizations can quickly react to adverse impacts of Covid-19. This might include being pliable enough to allow employees to customise their remuneration packages. Employees may wish, for example, to temporarily offset their flexible benefits with a discounted cash option or delay their pension contributions, in order to make up for the loss of a partner’s income, for example.
Unfortunately, prevailing HR Reward systems don’t give employees a real-time individual breakdown of their personnel costs and data, or the facility to make adjustments across all the different types of reward.
The pressure is now on to account to a granular level of detail for individual people and to allow employees to have a greater say in how their employer invests in their reward.
Thankfully, out-of-house alternatives exist, that provide employers with a single source of aggregated data on payroll, pensions, benefits, shares, and other data sources to give a comprehensive and much-needed overview of company costs and these same systems give employees more power to prioritise how they take their reward.
Ken Charman is CEO of uFlexReward, a consolidated HR and rewards data platform.