The Impact of HR Policies on a Business

For many, HR can be a boring topic, but the scenarios HR departments and business owners can face in their day-to-day operations can be the stuff of daytime dramas.  However perception is often a reality, and so thoughts of HR policies and procedures are often left to the wayside when setting up a new small business.

We’ve all heard the adage “Failing to plan, is planning to fail.”  This logic applies to businesses, which fail to have proper HR policies in place.  Although these scenarios won’t happen to everyone, all businesses have the potential for these situations to surface.

Please note, the following real world examples have been modified to protect the identities of those afflicted.

Real World Example 1: The Ransom

The situation: a small wholesaler needed to hire a sales representative to boost sales.

The hiring process went smoothly enough.  The owner placed some ads, received plenty of resumes and seemed to find just the right candidate.  When it came time to make an offer the Owner downloaded an offer letter template online and figured it would work.

Unfortunately, it didn’t take long for both parties to realize they weren’t right for each other.  The employee’s sales performance was poor and he refused to produce the sales reports the owner asked for.  After a short-time went by, the sales rep resigned from the position and demanded to be paid his salary and the small amount of bonus he had earned; threatening to keep sales materials and the company laptop which contained confidential sales data the owner needed returned.

The owner was understandably upset and felt the employee had no right to make such demands since he had performed so poorly.  However, the owner was obliged by ESA to pay final monies owed to the employee, and when the property was finally returned a number of items were missing or damaged.  In particular the laptop’s hard drive had been completely erased – including the confidential sales data the owner desperately needed.

Proper pre-screening might have prevented this hire in the first place, but particularly a properly crafted offer letter customized for a Sales Representative position would have given the owner greater leverage in the situation.  For example:


  • Include compensation details on how and when compensation and bonuses would be paid.  i.e.) bonus payments only for active employees at the time of payout, and salary paid once a sales activity report is submitted
  • Include a clause regarding company property and requiring it must be returned in full working order
  • Include a confidentiality and non-compete clause to protect your customer data from being taken and/or used
  • Lastly, include terms and conditions of employment to outline your expectations.  This can include expectations for communication; and failing to comply is a breach of duties and could result in disciplinary action including termination for cause.

The best way to prevent employee issues is to have a comprehensive employment contract, which leaves nothing to chance.  An offer letter customized to the specific situation can help you avoid these pitfalls.  Your HR practitioner or outsourced provider can help guide you to include the necessary clauses in your offer letter that will minimize your risk.

Real World Example 2: The Absent Absenteeism Policy

In the HR world we like to say, “Policy is Prevention.”  Having solid HR policies in place provide business owners and managers the footing needed to take actions against poor performing employees and avoid wrongful dismissal claims.

Not having an absenteeism policy can cost businesses big time, by forcing you to terminate without cause instead of being able to rely on policy to manage performance issues.  It’s important to have policies to cover items like needing a doctor’s note after a specified amount of time, because ESA legislation only addresses about a quarter of workplace issues and so company policy thus prevails.

For one company in the GTA, implementing an Absenteeism policy reduced overtime and increased productivity and resulted in the company saving nearly $180,000 in the first year.  Costs like this are not an obvious line in your budget; it’s hidden and often gets overlooked as Owners focus on budgets.  However, a company lacking smart HR policies can be bleeding money needlessly and not even know it.

These are just a couple of real world examples to highlight the importance of smart HR policies your business must implement.  The effect of HR on the bottom line might not be as obvious as the effects of supply prices, but the impact is there if you look for it.

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