There comes a time when every small business owner realizes they need an HR department. It’s not a question of if, but when.
The need for HR starts the moment the first employee is hired. In the beginning, the owner—and eventually, other employees—shoulder the burden themselves. That means having to manage payroll, onboarding, and performance reviews on top of their other responsibilities. But once the business grows enough that the company shifts from caring about filling seats to caring about the people in the seats, the time has come for a dedicated HR professional to enter the picture.
If you’re a small business owner and you’re unsure of when to start investing in HR software (and eventually an HR team), here’s what you need to know.
HR handles your administrative needs
If you have people working for you, you have HR needs. At first, these needs may be mostly administrative. When the company is in the 5-15 person range, everyone in the company tends to share some of the responsibility.
These needs include:
Hiring and firing
Training and development
Standards of conduct
As any employee who likes being paid on time, trained properly, and kept safe from workplace harassment or unsanitary working conditions can tell you, these are all crucial tasks—and errors can be costly. One in three business owners are penalized by the IRS for payroll errors alone.
This is why small businesses typically rely on HR technology. The best options are cloud-based, automated, and scale with the business—so as more hires come aboard, the software keeps pace and easily incorporates them into the system. They also provide a digital record that can be used to protect businesses against Fair Labor Standards Act (FLSA) lawsuits and complaints.
HR prevents costly mistakes
Operating without an HR solution is a surefire way to mishandle some important duties. There’s a term for when businesses delegate sensitive HR tasks to employees who aren’t trained in such matters: ad hoc HR. One person might handle payroll, while another one mediates complaints, and so on.
Amazingly, many smaller companies have ad hoc "HR managers,” or aHRMs, yet very few of those employees use outside resources to help manage HR. This means that the vast majority of small business employees worry that their “HR rep” will make a vital mistake. As a result, companies that use aHRMs are at risk for increased turnover, compliance risks, and disputes in the workplace. Trying to manage your talent without trained HR support is a potentially damaging game.
HR helps you plan for the future
HR is about much more than administrative work, however. Once a business starts thinking about how to engage its workforce, develop talent, and move toward long-term goals that will make the company sustainable, they require the help of full-time HR professionals.
So when does that shift happen? The answer is highly variable and depends on your company and situation. However, for most organizations, the tipping point occurs around 50 employees.
An HR professional or team will help your small business tackle some of the following critical questions and issues:
How do you find, maintain, and develop the best people?
What is more important for the company right now, growth or maintenance?
How do you turn positions that have a lot of turnover into stable pillars?
Do our actions and processes align with the company’s vision and values?
What company goals should we prioritize and why?
What is the return on investment of a certain hire, program, operation, or tactic?
These are just some of the issues that small businesses deal with as they go through early growing pains.
As you look to make your first HR hire, let the needs of your business guide your recruiting strategy. For example, HR software and junior HR professionals can help with administrative tasks, but senior HR professionals are better equipped to tackle workforce planning and strategy. Companies that don’t invest in HR early on may struggle during periods of high growth. HR teams ensure the smooth operation of the business while putting the processes in place to help your company scale.