HR woes – how a broken HR System can cause serious damage to your bottom line

Our team: Tim Wright

The importance to enterprises of having accurate and up-to-date HR Systems was brought to the fore by a recent Sunday Times article.

Sabah Meddings, who writes the Databank ‘Inside the City’ column, reported that Capita, the FTSE 250 outsourcer, had reported a non-cash charge of £42.6m in its August 2020 interim results. A significant component of the charge arose because Capita, which employs some 60,000 staff, had been unable to calculate the proper rate at which the holiday leave of its employees had accrued. The accrual was compounded by Covid-19 with staff having accrued large blocks of unpaid leave as well as an increase in holiday allowance given to staff earning more than £70,000 per annum in return for a cut to their pay. Capita said that it had since invested in a new HR system.

Whilst Capita’s business is built around running call centres and outsourced IT services for government and private sector clients it appears to have paid insufficient attention to ensuring that its own systems were fit for purpose. The charge pushed it to a £38.5m loss in the 6 months ending 30 June 2020, compared with a £31.3m profit in the same period last year.

When looking to implement a new HR system, businesses should plan carefully to ensure minimum disruption. When developing a robust project plan, key activities include:

  • Establishing a project management office
  • Requirements gathering
  • Selection criteria
  • Demonstration rounds
  • RFP process
  • Reference calls
  • Commercial and legal negotiations
  • Down-selection and contract award
  • Stakeholder management
  • Sign-off and approvals
  • Migration planning
  • Implementation and training
  • Change management

As part of the selection process consideration needs to be given to the contractual components of the deal. Vendors will usually prefer to contract on their own terms and conditions; however businesses should consider whether its own form of contract might be a better starting point in order to reflect an appropriate balance of risk transfer as well as solution requirements, service levels and other important terms. Further, since employee data is involved, ensuring compliance with the GDPR and other applicable data protection laws is important, including where necessary carrying out a data protection impact assessment early on in the process. Lines of responsibility should also be considered, especially where another party is appointed to configure the system, and assist with implementation, training and ongoing support.

If you are considering moving to a new HR system and wish to discuss these issues further, please contact the author or your usual Fladgate contact.

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