HR — The $5 Billion Question

A recent Government Accountability Office report on Department of Defense (DOD) efforts to reduce overhead costs highlights the difficulty in achieving savings in administrative services. DOD was tasked by Congress to reduce overhead costs by $10 billion per year. HR is one of those overhead services that can consume a surprising amount of money. In DOD or any agency, the cost of operating HR offices is a significant line item.

How significant? Let’s take a look at only those jobs that are in the two primary HR job series (GS-201 for HR Specialists and GS-203 for HR Clerks and Assistants). At the end of March (the most recent available data) the federal government had 29,830 GS-201s, with an average salary of $90,648. There were 10,168 GS-203s, with an average salary of $46,135. Without fringe benefits, the GS-201s cost $2.7 billion per year and GS-203s cost $469 million. Add 30 percent for fringe benefits (health and life insurance, retirement, etc.) and those costs go up to $3.5 billion and $610 million (a total of $4.1 billion). We know that not every person in HR is a GS-201 or GS-203, so the actual cost for HR office labor is actually more than $4.1 billion. A reasonable estimate of non-HR series labor costs in HR is about 10 percent, so if we add another $400 million to cover those folks, we have total HR labor costs of about $4.5 billion per year.

These numbers do not include other costs of running HR, such as technology, contracts, office space, and other overhead costs. Most people use 80 percent as the amount of a typical budget that is direct labor, and 20 percent for those other costs. If we add that into our HR cost calculation, we end up with a conservative estimate of the total cost of running federal HR offices coming in around $5.6 billion per year. The costs are increased by duplication. Every time an agency has an abundance of HR offices, the cost of delivering services goes up. Salaries are the most obvious cost. For example, if an agency has too many HR offices, it will likely have far too many supervisors, administrative jobs, and other support jobs in HR. It will have duplicate costs for some information technology. It will have higher costs for office space. All of those add up.

One example of how much those costs add up is my experience in the Defense Logistics Agency. We reduced the number of full service HR offices in DLA from seven to two. In doing so, we reduced the need for much of the office space, eliminated duplicative IT contracts and licenses, and reduced the number of supervisors. The bottom line? A 28 percent reduction in the cost of delivering HR services, with substantially improved quality of service.

What we did at DLA was not rocket science. It was the basics of management. Reduce duplication, control overhead, get more resources focused on service delivery, and improve processes to get better results. That same approach can work in the Department of Defense or any other agency that has too many HR offices. I think that may mean most of them. Just look at the numbers. Two percent of the federal workforce are HR folks. The number should be significantly less than that. A servicing ratio goal of 1:100 is very attainable. When I left DLA we were at 1:102. The government wide cost savings for streamlined and consolidated HR services could easily exceed $1 billion annually.

How would that consolidation look? DOD is a great example. DOD has 730,000 civilian employees and more than 20,000 GS-203 and GS-201 employees. That does not include the non-HR job series folks who work in HR. Does DOD need 2.8 percent of its workforce to be in HR? At a cost of almost $2 billion per year? I think the answer is no. The entire DOD workforce could be supported by 20 – 25 HR offices that provided HR support to the Armed Services and the Defense Agencies. I would suggest that DOD consolidate all of its HR services into a Defense Field Activity, reporting to the Chief Human Capital Officer, that would be responsible for HR information technology, HR service delivery, and HR policy. If we use very conservative numbers and aim for a servicing ratio of 1:80 (about 9,125 operating HR jobs), and allow a very generous number (up to 20 percent, or 1,800 more jobs) on top of that for policy, HR IT and oversight positions, we would come up with a number of about 11,000 HR staff for the department. Even if we added an extra thousand jobs for whatever they might be needed to do, the savings would easily be in the hundreds of millions.

Would it be easy? No. It would require consolidation that DOD has resisted for many years, even after DLA proved it could be a successful approach. It would require significant changes in thinking, with the Armed Services and Defense Agencies moving to the role of customer of an HR organization rather than owner of those same organizations. It would be disruptive, and we know how much everyone loves big changes. But — the bottom line would be better HR services at a lower cost.

HR is an interesting case. Most managers and employees will tell you they are not thrilled with HR. They can almost always point to HR folks who they think are great, but they complain about timeliness and quality of HR services. While some of that is the result of federal HR rules, regulations and laws that are inflexible and outdated, much of it is the result of poorly managed and trained HR staff who are using bad processes and outdated technology. When DLA consolidated its HR services, reduced costs, and improved the quality of services, we did not do it with a new HR staff. Most of the same people who delivered poor service were able to deliver good service when they worked for a more effective and efficiently designed organization. The problem was not the workers, it was the management. I believe we might find the same thing is true in other parts of DOD and in other agencies.While we could continue lamenting the bad service, conduct wholesale outsourcing of HR work, or just do nothing, I would prefer to see what we can do with a smaller, better organized and better managed federal HR workforce. The results might surprise everyone.



Can Your Agency Force You to Relocate?

The Department of Agriculture announced in August that it plans to relocate two offices – the National Institute of Food and Agriculture (NIFA) and the Economic Research Service (ERS). The proposal has met with some resistance from the Congress and from employees and their representatives.

Without getting into the merits of this or any other proposal, the idea of directed reassignments to different commuting areas is worth discussing. Can the government force you to relocate or risk losing your job? Do they have to get congressional approval? Do you have to be on a mobility agreement? What options do employees have when their jobs are moving but they do not want to go with them?

The answer to the first question is generally yes – your job can be relocated and failure to relocate with it can be grounds for removal. Most federal workers know that members of the Senior Executive Service are subject to directed reassignments to different locations, but it is less well known that the same vulnerability exists for other employees. If the government wants to move you, it has to pay for moving expenses, including real estate fees, temporary quarters, and movement of household goods.

The fact that employees can find their jobs relocated does not mean it happens often. Large scale relocations tend to generate congressional interest because no Representative or Senator wants to see jobs moving from their district or state. Unions also weigh in against such changes, and local officials also oppose losing local jobs. That does not mean such moves do not and can never happen. They can.

One question I have gotten not this subject is about mobility agreements. Some employees have to sign mobility agreements as a condition of employment. If the employee declines a move, s/he can be fired for failing to satisfy a condition of employment. That leads to the misconception that only employees on mobility agreements can be ordered to relocate. Other employees can be ordered to relocate as well.

The right of an agency to force a move and fire the employees who refuse to move has been established in case law since 1980. When the employee is not covered by a mobility agreement, the agency has the burden to show that they are making the move because of legitimate mangement reasons that would promote the efficiency of the service and to give employees sufficient notice. If the agency can meet that burden and the employee cannot show that the reason is a pretext, the Merit Systems Protection Board (MSPB) will typically uphold the removal. If the employee is covered by a mobility agreement, the removal is even easier for the agency to defend.

Making a decision to accept a move is not easy and in today’s economy, it can be complicated. What happens if the employee is married and his/her spouse is employed as well. Whose job pays the most? What happens if the nongovernment spouse cannot find another job? Can they live on one income? Would a move derail the spouse’s career? Are there other family considerations such as child or elder care? Or a child who is in the last year of high school? Or a mortgage that is upside down because of the fluctuating home market? All of those are legitimate personal issues that many people would face. Sadly, the government does not have to consider such problems in making its decisions. In fact, considering some of them would put an agency in jeopardy. For example, if an agency decided it was easier to move Betty Lou because she was not married and lived alone, rather than moving Bob who is married, the agency would discriminate against Betty Lou based on her marital status. That means an agency cannot consider some of the very real human consequences of its decisions.

Another question is about the impact of geographic moves on an agency. What happens when an agency decides to move 100 or 1,000 or more jobs? How many employees relocate? How many find other jobs in the agency? And how many end up out of the agency or even out of government? Does the agency have the money to pay for moves that can easily cost $100,000 or more per employee? The best answers to some of those questions come from the Department of Defense (DOD). During multiple rounds of the Base Closure and Realignment Commissions, DOD made many decisions to relocate or consolidate organizations.

For a short move 40 miles away, Federal News Radio reported that 70 percent of employees relocated with their jobs when the Defense Information Systems Agency moved to Fort Meade, Maryland, while 15 percent found other jobs and 15 percent retired. The Department of the Army reported it expected about 30 percent of employees to relocate in BRAC-related moves. The Defense Logistics Agency had a similar experience. For the most part, employees made short distance moves, but were unwilling or unable to make big moves. The number of people moving with their jobs can be affected by the number of federal jobs in the losing area. The more jobs the area has, the larger the number who will stay put. Given the increased number of federal employees now eligible for retirement, I would expect to see even larger numbers of retirements than DOD experienced during BRAC.

When agencies are moving small numbers of employees, the effect is typically not severe. If an agent wants to move three employees and two say no, filling the jobs is not a big deal. When the moves involve large numbers, the problems can grow. If an agency has 1,000 jobs that relocate and only 300 people go with them, the impact on the mission can be significant. Filling hundreds of jobs can be too big a climb for some agencies and some types of jobs. Agencies can take steps to mitigate the damage by phasing moves over a period of years rather than months, and can increase telework for jobs that do not have to be in a particular location.

The last question is congressional approval. Does an agency have to get the blessing of Congress to relocate employees? It depends on the scale of the moves. If an agency wants to relocate a handful of employees, it can often be done entirely within agency appropriations and operating authorities. When the numbers get to the point where the agency needs big dollars to pay for relocation, or is moving dozens or hundreds or more jobs, there may be congressional notification requirements, reprogramming requests, or new money needed. In those cases, Congress will have a say and their questions will cover an agency’s reasons for the move, how it plans to deal with workforce issues, and how it will mitigate the risk to the mission that may be caused by large numbers of employees refusing to relocate.

So clearly you can find your job being moved to another location. Should most employees be fearful that their jobs may be relocated? No. Unless there is a large program like BRAC, the number of employees who are forced to relocate in any year is very small. It is not insignificant to the people whose jobs are affected, but most employees will never be asked to make a geographic move that they do not want.