Why Every Business Owner Needs an HR Risk Assessment (even if HR isn’t your thing)

You started your business to build something great—innovate, serve customers, grow revenue, and maybe change the world. But with every new hire and step forward, there is a quiet, often overlooked side of business operations that can either support your success or quietly unravel it: Human Resources (HR). 

If you are a business owner who has never thought much about HR beyond payroll and onboarding, this one is for you. HR teams play a crucial role in managing and adapting to evolving risks within organizations. They regularly update risk analysis frameworks and adopt innovative solutions to ensure smooth operations and compliance in a dynamic business environment. 

But there is something critical that many small and mid-size businesses ignore until it is too late, even among HR professionals: the HR Risk Assessment.  

What Is an HR Risk Assessment? (And why should you care?) 

An HR risk assessment is a systematic review of your company’s HR practices, policies, and procedures to identify potential risks (legal, operational, cultural, and reputational) that stem from managing people. 

The purpose of a risk assessment is not about catching errors in a handbook or fixing outdated contracts, but it is HR at a higher, more strategic level. It includes proactively uncovering issues that could lead to lawsuits, employee turnover, compliance penalties, toxic culture, or data breaches. 

Is HR Risk Management Important? 

Introducing an HR risk management plan is crucial as it involves identifying, analyzing, and prioritizing HR risks, as well as developing mitigation strategies to ensure compliance and protect employee well-being. 

Think of it like a health check-up for your people operations. You might look fine on the outside, but there could be serious internal risks brewing. Tools for employee feedback, such as surveys and pulse polls, play a vital role in uncovering these internal risks by providing insights into employee sentiments regarding HR policies. 

Defining HR Risks 

HR risks are the potential threats or hazards that can impact your organization’s human resources, including employees, workplace culture, and overall operations. These risks can stem from various sources, such as noncompliance with employment laws and regulations, ineffective employee relations, and inadequate workplace safety measures. 

A small oversight in understanding employment laws could lead to significant noncompliance risks, resulting in hefty fines or legal battles. Similarly, poor employee relations can foster a toxic work environment, leading to high turnover and low morale. Inadequate workplace safety measures not only endanger employees but also pose risks to your business’s reputation and financial health. 

HR professionals play a crucial role in identifying and assessing these risks. By developing effective HR risk management strategies, they ensure compliance with relevant laws and regulations, which minimize potential negative consequences. This proactive approach helps maintain a productive and safe work environment, ultimately supporting your business’s growth and success. 

When You Need an HR Assessment 

As a business owner or decision maker, consider if any of these apply to you: 

• You have grown past 10 employees. 
• You are hiring quickly or entering new states/countries. 
• You do not have a dedicated HR person. 
• You have received employee complaints or high turnover. 
• You have never looked closely at your employee handbook or policies. 

If so, it is time to conduct a human resources risk assessment. 

Implementing effective risk management techniques is crucial for growing businesses. These strategies help anticipate potential pitfalls and prepare tailored solutions to mitigate risks related to hiring, retention, and overall employee management. 

What Is Actually Involved in an HR Risk Assessment? 

A typical assessment includes reviewing the following: 

• Hiring and onboarding practices 
• Employment classifications (contractors vs employees) 
• Payroll and benefits compliance 
• Anti-discrimination and harassment policies 
• Record keeping and data privacy 
• Workplace safety 
• Performance management and termination procedures 

It often includes interviews with leadership and HR staff, surveys, policy reviews, and sometimes even culture audits. From there, you create a plan to proactively address potential HR risks by identifying, prioritizing, analyzing, and mitigating them. 

A clear, prioritized report will show: 

• What you are doing well 
• Where your legal/noncompliance risks are 
• What gaps could hurt employee engagement 
• Actionable recommendations 

Ensuring compliance with anti-discrimination and harassment policies is essential. Businesses must adhere to equal employment opportunity laws established by the Equal Employment Opportunity Commission (EEOC) to avoid potential civil or criminal penalties for non-compliance. 

Key Areas of Focus in an Assessment 

When it comes to HR risk management, there are several key areas to prioritize. These include compliance risks, operational risks, strategic risks, and HR-related risks. 

Compliance Risks 

These arise from non-compliance with employment laws and regulations, such as Title VII or the Americans with Disabilities Act. Failure to adhere to these laws can result in severe penalties and legal actions. Ensuring compliance is not just about avoiding fines, but fostering a fair and equitable workplace. 

Operational Risks 

There may be potential threats to your organization’s daily operations that are considered operational risks. High employee turnover, for instance, can disrupt business continuity and increase recruitment and training costs. Workplace accidents, on the other hand, can lead to injuries, lawsuits, and a tarnished reputation. Effective HR risk management strategies can help mitigate these operational risks, ensuring smooth business operations. 

Strategic Risks 

These involve the potential consequences of inadequate HR planning and management. For example, neglecting employee growth and development can result in a lack of skilled talent, hindering your business’s long-term success. By focusing on strategic HR management, you can foster employee engagement and drive organizational growth. 

HR-Related Risks 

Other HR-related risks encompass a broad range of issues, from data breaches and social engineering hacks to poor performance management. Each of these risks can have significant implications for your business. 

By focusing on these key areas, HR professionals can develop comprehensive HR risk management strategies. This proactive approach not only minimizes potential negative consequences but also supports a healthy, productive, and compliant workplace. 

How Long Does an HR Assessment Take? 

The time commitment for an assessment depends on your company’s size and complexity: 

• Small businesses (under 50 employees): 1–2 weeks 
• Mid-sized (50–250 employees): 2–4 weeks 
• Large organizations: 1–2 months or more 

Much of this time is on the assessor’s end. You will need to provide documents and participate in a few interviews or meetings. 

Who Performs HR Risk Assessments? 

There are several options for who can assess your HR risks, from internal to external providers. 

Your Internal HR Team (if you have one) 

With the right tools, your internal HR team can perform the assessment. There are software tools and templates that can be of help, although they will be less tailored. 

Tip: If you are new to this, start with a consultant or firm. They will explain the results and guide next steps. 

HR Consulting Firms 

Consulting firms are ideal for comprehensive, expert-level assessments, often guided by HR managers who can identify and assess various workplace risks. 

Employment Law Attorneys 

If legal compliance is your biggest concern, an employment law attorney may be your best option.  

Advantages vs. Disadvantages of an HR Risk Assessment 

As with every business decision, there are pros and cons to conducting an assessment. Here is how it stacks up: 

What Is the ROI of a Risk Assessment? 

While it is difficult to say how much the ROI of an assessment is for every business owner, here is some simple math:  

• If an assessment costs $5,000 and prevents one $25,000 lawsuit, it has paid for itself five times over. 
• When an assessment helps you retain just two great employees for another year, that is tens of thousands of dollars saved in recruiting and training costs. 
• If an HR assessment helps you sleep better at night knowing your business is compliant, ethical, and healthy, the value is priceless.  

The more that you regularly conduct assessments and detect/manage emerging risks, the further you will enhance the ROI of your investment. 

Bottom Line: HR Risk Management is Ideal for Preventative Measures 

You would not operate a restaurant without health inspections or drive without insurance. Conducting a risk assessment is the business owner’s version of due diligence. They help protect what you have built and set you up for positive growth. 

Detecting and managing emerging risks within HR processes is crucial for continuous improvement. Organizations need to consistently evaluate their risk management strategies and adapt to new threats to ensure alignment between HR practices and executive leadership goals. 

Whether or not HR is your favorite topic, understanding why HR risk management is important might just be one of the smartest moves you make this year.  

For help with your HR risk management strategies, please contact your certified HR expert. If you are not a current Stratus HR client, please contact us today for more information.