For years, I've been in a cat-bird seat understanding human resource risk management. One message I’ve preached to clients and readers is that uninsurable risks in HR dwarf the insurable ones (for example, employment practices liability claims).
What Companies View as Their Greatest Human Resource Concerns
- Hiring people you can trust
- Getting people to produce
- Retaining good employees
- Training them to become more productive
- Team building and motivation
- Discipline and termination
- Compliance
One of the challenges we face as HR executives or risk managers is the “if all you have is a hammer, everything looks like a nail” problem. When I left my litigation practice after seventeen years, I initially preached that employers should be deathly afraid of employment practices liability claims. While that warning is valid, it wasn't a motivating subject for business owners, who are naturally focused on growth and rarely risk averse.
What I finally recognized is that the greatest risk facing any business owner is not growing their business; every other risk is a distant second. The HR risks listed above are arranged in order of the most important factors required to grow a business. Below I touch on each one in more detail.
Hiring
Who you hire is the tipping point in the employment relationship. Most HR risks can be solved by an effective hiring process, yet for many small to mid-sized companies, hiring is something to “get done quickly” rather than a measured, systematic process. There is wide variance in hiring effectiveness among these firms.
What an employer can do:
- Make sure you have a formalized hiring process.
- Take a checklist approach with key hiring elements, including skill testing, personality assessments, extensive background checks, thorough interviewing, pre-hire fit-for-duty exams, and drug tests.
- Ask revealing interview questions such as: “Tell me what felt unfair to you at your previous jobs?” This question often uncovers red flags that help avoid risky hires.
- Study the best companies in your industry and adopt proven strategies to attract and hire top talent.
Productivity
Once you've hired someone you can trust, it’s time for them to produce. Research shows the typical employee works at roughly 72% of potential productivity, meaning about 28% is left on the table each day. In a competitive environment, that shortfall is a major risk to growth.
What an employer can do:
- Examine your performance management process to identify what works and what doesn’t; use surveys and focus groups to gather input.
- Create standard operating procedures (SOPs) for key activities and hold regular process improvement meetings.
- Establish benchmarks of good performance tied to processes or results.
- Reward results, not mere activity; don’t mistake busyness for productivity.
Retention and Turnover
After hiring someone trustworthy and productive, you want them to stay and help grow the business. Ask yourself: “If they were to quit, would you be relieved or upset?” If you’d be relieved, it’s time to let them go; if upset, invest in retention.
Turnover can be contagious. Losing an effective manager or top salesperson often leads others to leave as well, sometimes taking entire teams with them.
What an employer can do:
- Analyze how current resources are spent on retention—benefits, training, incentives, bonuses—and ask whether those expenditures deliver the best return.
- Train managers; many employees leave because of a poor relationship with their manager.
- Consider tools that help rank retention ideas by cost, ease of implementation, and likely impact to prioritize investments.
Training
We work in an information-driven environment, so learning is essential. Training increases trustworthiness, productivity, and retention by showing employees paths for career growth. Without training and follow-up, knowledge rarely translates into sustained performance improvements.
What an employer can do:
- Offer training resources—books, courses, seminars—and provide follow-up coaching to ensure implementation of learned skills.
- Combine training with practical coaching and accountability so new knowledge is applied on the job.
Playing Team / Motivation
Team building and motivation shape organizational culture. For example, some companies pay employees to quit after training if they aren't a cultural fit; this reduces long-term churn and strengthens team cohesion. Motivation is best directed at employees’ needs—survival, security, belonging, esteem, and self-actualization.
What an employer can do:
- Help team members identify the three most important things they do daily, then ask how others can support them in doing those tasks better.
- Motivate people by addressing their needs, not just company goals.
- Demonstrate that you care in simple, tangible ways.
Discipline and Termination
When a manager would be relieved if an employee quit, it’s time to address the situation. Common reasons poor performers remain include long tenure, undocumented processes, or fear of a claim because performance wasn’t documented.
The cost of keeping a non-performer is high: they underdeliver and drain productive coworkers’ time and energy. The longer poor performance goes unaddressed, the riskier it becomes.
What an employer can do:
- Ensure managers set clear performance expectations and that systems aren’t the problem.
- Require documentation of substandard performance.
- Use performance improvement plans; if there is no meaningful improvement, move to termination so it does not become a surprise.
- Conduct exit interviews whenever possible to learn what needs fixing.
Compliance concerns
Compliance is a common worry because HR and risk managers are trained to avoid loss. That said, careful workforce management and following the recommendations above will reduce most compliance issues. People who trust each other are far less likely to file claims.
For related resources on HR risk and workers' compensation, see Workers' Compensation, HR Risk Management, and Demonstrating HR Value.
Conclusion
The uninsurable risks inherent in HR practices dwarf the insurable ones. There is an opportunity for employers and advisors to improve HR practices and grow the bottom line by focusing on hiring, productivity, retention, training, teamwork, and decisive performance management.
Don Phin, Esq. is VP of Strategic Business Solutions at ThinkHR and has decades of experience as an HR expert, author, and speaker. For more information, visit ThinkHR.
For additional context on industry-specific insurance topics, see Insurance for Humane Societies.
Frequently Asked Questions
How can better hiring reduce HR risk?
A formal hiring process with skill tests, background checks, and targeted interview questions reduces the chance of risky hires and cuts long-term costs.
What is a reasonable first step to improve productivity?
Begin by documenting key processes with SOPs and setting measurable performance benchmarks to identify gaps and opportunities for improvement.
When should an employer use a performance improvement plan?
Use a performance improvement plan when a manager documents substandard performance and wants to give the employee a structured opportunity to improve.
How can small companies afford ongoing training?
Start with low-cost options such as books, online courses, internal coaching, and targeted workshops tied directly to business goals.