As a business owner, what’s better than successfully growing and expanding your business? Well, probably not much, except for growing and expanding your business after having previously grown and expanded your business. Of course, growth isn’t necessarily the most important thing when it comes to running a business, but growth can be beneficial not only for business owners but for clients as well. A healthy, growing business often means better customer service and service offerings. For a business owner, though, expansion can also bring about new sets of challenges, including an influx of new tasks that would typically fall to a human resources department. This may prove troublesome, as your current HR department may be too small to handle the influx of new compliance tasks or employees, or you may not have an HR department at all and may be looking for workarounds in this regard.
Either way, growth is great, but without a capable human resources department, growth can also be a challenge. At Payday HCM, we’re very familiar with the unique challenges that come with either operating a growing business with new HR needs or running a smaller business that may not be sure whether or not hiring an HR officer is necessary. We receive questions from clients on the necessity of HR quite frequently, especially as it relates to the size of a business.
So, in this article, we’ll be covering what size a business needs to consider creating an HR department. We’ll first briefly go over the various situations in which a business might find itself that would necessitate this kind of discussion. Then, we’ll go into the importance of having an HR presence at all business sizes, and how HR can help your business improve compliance and the employee experience. Finally, we’ll cover the differences between creating an in-house HR department and outsourcing to an HR service provider.
In this article, you will learn:
- When Businesses Might Consider Creating an HR Department
- From Small Business to Large Enterprise: The Importance of Human Resources
- HR Solutions: Differences Between In-House HR and Outsourcing HR
When Businesses Might Consider Creating an HR Department
Before we get into the specifics of business size and the necessity of an HR department, we’ll first look at the situations when a business might be considering creating an HR department or outsourcing its HR functions.
Mid-Size Businesses With Growing HR Needs
As your business grows, so will your HR needs. For business owners who have experienced some amount of growth, whether it’s been quick or over a long period of time, this growth has likely been accompanied by an increase in administrative workload. While this can include many tasks, oftentimes, these tasks fall under the purview of human resources.
Of course, it may be that your business has been getting with someone who’s unofficially been designated as your internal HR officer, or perhaps you’ve been performing these duties yourself. Regardless, it’s clear that as your business grows, you’ve also outgrown your current setup, leading you to turn to other possible solutions.
New Businesses With A Small Number of Employees
Not necessarily on the flipside of the situation described above, but still relatively different is a newer business with a small number of employees. For those working with anywhere from one to ten employees, there may not appear to be any immediate need for an HR department. However, it’s still likely that you’ve encountered scenarios where the presence of an HR expert would have proved helpful.
Even for established businesses without a large number of employees, it’s likely you’ve been in situations where having access to a human resources expert would have proved beneficial. Here, the biggest question is cost: For a business with a small number of employees, does the cost of forming a whole HR department justify itself?
From Small Business to Large Enterprise: The Importance of Human Resources
Now that we understand the circumstances in which one might find themselves looking for an HR solution, we’ll dive deeper into the importance of human resources and how it relates to business size.
HR and the Employee Experience
While HR is typically associated with things like workplace safety and conflict intervention, human resources really encompasses many different functions that impact the employee experience. Hiring, onboarding, performance management—these are all things that an HR department can assist with.
For businesses of all sizes, HR can help you maintain compliance with federal and state labor laws while also improving employee retention and satisfaction. A dedicated HR presence, whether that’s a whole department or an individual HR officer, can also help strategically allocate resources, helping to ensure one person isn’t wearing too many hats in your business.
The HR Staff-to-Employee Ratio
The big question for many businesses is how many HR employees do you actually need for each member of your organization? Now, human resources isn’t an exact science, therefore there isn’t a super easy answer to this question. However, if you’re feeling the stress of performing onboarding tasks, performance reviews, and other functions, it may mean it’s time to consider bringing on a new or additional HR expert.
When it comes to staff size and HR, there are some important factors to consider:
- Compliance: HR can help your business stay compliant with things like the FLSA and FMLA.
- Hiring and Recruiting: Has your business seen an uptick in hiring? If so, an HR department can help streamline the hiring process and attract top talent.
- Complexity of Employee Roles: As your business grows, so does the number of departments. An HR presence can help you keep track of expanding departments.
- Employee Count Milestones: Once your business surpasses a certain number of employees, you’ll have more compliance obligations. For example, the ACA’s applicable large employer requirements for businesses with 50 or more full-time employees.
- Current or Anticipated Growth: Businesses that have seen rapid growth or are planning to grow should establish a dedicated HR presence.
HR Solutions: Differences Between In-House HR and Outsourcing HR
Now that we understand how business size relates to HR needs, we can get into the different solutions businesses have at their disposal when it comes to HR.
What If I Can’t Afford To Hire A Dedicated Human Resources Officer?
The biggest questions for smaller businesses that may not currently have an HR presence in the workplace are cost: just hiring one HR professional can cost your business anywhere from $75,000 to $100,000 on average for salary, as well as additional costs for benefits and other overhead costs.
For businesses in this kind of situation, there are other options available. Choosing to outsource your HR functions can be a great balance between cost and performance, giving you access to an HR expert without breaking the bank. Outsourcing also provides a certain level of customization when it comes to what HR functions you need, whether that’s simple HR consultation or more full-scale onboarding, hiring, and performance management assistance.
The Question of HR Software
Software becomes a big question, too, in the HR debate. Is HR software enough to make up for the lack of a dedicated HR department? Not really, but strategically employing certain software can help alleviate the administrative burden and make it easier to introduce an in-house HR professional or outsource certain HR duties.
There are a few different segments in which businesses can opt for software solutions to help perform certain duties, including:
- Payroll and Compensation Management: Having software that handles employee payments, payroll tax, and compliance can help with the day-to-day operations related to payroll.
- Time and Attendance Tracking Tools: Monitor employee hours, manage schedules, and keep track of time-off requests within Excel or tools like When I Work.
- Recruitment Software: Track applications and manage job postings with software from Workable, Zoho Recruit, and Greenhouse.
- Employee Onboarding: Simplify getting a new hire trained and all the paperwork filled out. BambooHR and Sage HR are good options.
- Performance Management Tools: Set and track employee goals and facilitate career development for employees with tools like Culture Amp and Leapsome.
Of course, many software vendors offer all of these tools in an all-in-one software package. For example, Payday partners with isolved to offer clients a comprehensive software solution that combines payroll, timekeeping, recruiting, onboarding, and performance management into one platform.
HR Solutions for Businesses of All Sizes
Growth can be an exciting thing for a business, but it also can bring about its own challenges. This includes additional tasks relating to compliance, onboarding, performance management, and many other sectors within a business. For some business owners, you may find yourself suddenly overwhelmed with an influx of HR-related tasks and questions with no reliable resource available to you for help. Simultaneously, creating an entire dedicated HR department may still not be in the cards for your business, leaving you feeling lost and unsure when it comes to solving your business’s HR problems. Luckily, with the information provided here in this article, you’ll have the knowledge you need to find the solution that best fits your business’s needs.
Whether your business consists of one employee or 100, having an HR presence can prove vital when it comes to maintaining compliance and ensuring a smooth process across the employment cycle—from the initial job posting to onboarding and throughout an employee’s tenure. Luckily, businesses don’t need to create a twenty-person HR department in order to accomplish this: many HR providers can serve the same function as an in-house HR department while providing additional experience and support. Check out our article for the three things to look for in an HR provider to ensure you’re making the right choice when it comes to outsourcing your HR functions.
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