What is human resources management?

Human resource management (HRM) is an organizational system businesses use to oversee tasks related to employees, workplace culture and the work environment. It typically covers employee-related tasks that support the workforce, including hiring, training and managing compensation.

An HR team supports and implements practices for employee recruitment and retention, workplace safety and professional development. HR departments may include several employees or a team with a hierarchy of roles.

Some departments include specialized positions for certain initiatives, such as diversity and inclusion officers, development managers and safety managers.

Examples of common HR positions include:

• HR generalist: HR generalists handle a range of tasks instead of working in specialized roles.
• HR specialist: Specialists work within a specific area of HR, such as benefits, employee development or compensation.
• Recruiter: These professionals implement company staffing plans by creating recruitment strategies and attracting job seekers.
• Analyst: These team members collect and examine HR data to create strategies and make recommendations for compliance and job satisfaction.
• HR manager: Managers oversee groups of entry- or mid-level HR employees for daily operations.
• Consultant: Often hired as a third-party service, consultants oversee HR processes to ensure your business maintains effective strategies and complies with regulations and laws.

The importance of HR for small businesses

Here are potential ways that HR can support a company’s success.

Improved employee performance

HR helps identify top-performing employees and underlying factors that contribute to productivity and motivation. Since HR departments as a whole put focus on employee wellbeing, they can make strategic improvements to promote a positive working environment, which can boost employee performance.

Reduced turnover

Factors such as salary, flexibility and professional development opportunities can be primary drivers of employee turnover. Company culture and workplace environment often motivate employees to stay with a company. Because HR can enhance these areas, they typically help to reduce turnover.

Enhanced talent acquisition

HR can provide valuable insight into talent acquisition and recruitment. By analyzing data associated with job applications, quality of hires, candidate experiences and cost per hire, you can better understand the strategies that attract quality applicants to your workplace.

Maintained compliance

With constantly changing employment regulations, an HR specialist can help your company maintain compliance and confidently navigate legal issues.

HR functions and responsibilities

Human resource management for small businesses can take many forms. Your HR department may assume the following responsibilities.

Job analysis

Job analysis involves systematically researching and analyzing jobs. HR professionals use this process to determine the responsibilities and skills required for open positions and the candidates suited for these roles.

This can include writing job descriptions and specifications, assigning a role to a department or team or defining a role’s position in the organizational hierarchy. The information gathered in this process can also be used for other functions, such as recruitment or employee development.

Recruitment and hiring

The recruitment process typically involves writing job descriptions, creating job advertisements and screening applicants before they move on to the interview and hiring stages. HR professionals create the most efficient and effective recruitment methods. HR employees are sometimes responsible for the interview and hiring stages. They may schedule phone and in-person interviews, host interviews, deliver job offers and negotiate salaries and benefits.

Onboarding and training

Once employees are hired, HR typically handles the onboarding process, which involves completing new employee forms and introducing new hires to the social and cultural aspects of the workplace.

With a formalized onboarding process, HR supports new team members by communicating job expectations, offering training programs and connecting them to colleagues and managers. HR professionals may guide employees through their employee handbook or explain the company’s PTO policy.

Read more: New Hire Onboarding Checklist and Guide

Employee development

A strong employee development plan can keep your team motivated and engaged. With goals to strive for and skills to learn, employees are likely to remain more satisfied in their roles.

An HR team can help you organize these opportunities, whether by creating individual development plans, coaching, mentoring or cross-training. This may also create paths for internal job growth, helping employees obtain the qualifications needed to progress into higher-level roles.

Performance and discipline

To track and manage development and performance, HR may oversee performance reviews. This can help employees meet professional goals and provide valuable feedback for your business. HR is responsible for communicating and resolving performance-related issues.

Employee retention

HR professionals develop, update and implement employee retention strategies to address job satisfaction, compensation, job security and employee relations. They may conduct surveys or meetings to collect information about job satisfaction and analyze retention with various metrics and KPIs to determine the best courses of action.

Safety and wellness

Safety and wellness policies are an important part of running a successful business. HR helps ensure employees work in safe and accommodating workspaces by:

• Posting state and federally required health and safety guidelines
• Maintaining records of work-related injuries, illnesses or incidents
• Writing and communicating emergency action plans and measures
• Creating procedures for reporting incidents
• Facilitating compliance with state and federal safety regulations

Payroll and compensation

Accounting departments usually handle payroll processing and calculation, but some tasks may overlap with HR functions. HR oversees administrative and data-entry aspects of payroll, providing information such as compensation, payment schedules and promotions to accounting employees and organizing tax-related paperwork.

Benefits

HR administers benefits to employees based on state and federal regulations. This includes benefits required for certain businesses, including paid family leave, unemployment insurance or workers’ compensation. These professionals can also administer benefits according to your business’ specific benefits plan, including health insurance, remote work options and retirement plans.

Business plan support

Your HR department collaborates with other departments and executive management to create, implement and maintain your organization’s business plan. In addition to supporting the hiring and development needs of other departments, HR may help distribute company resources to the areas that need them most.

Create and maintain company culture

Between analyzing performance, retention and job satisfaction, HR acts as the steward of a healthy and sustainable culture. It creates codes, policies and initiatives that support your organization’s culture, such as:

• Diversity and inclusion
• Organizational values and behavior
• Job meaning and purpose

How to create an HR department for your small business

Building an HR department requires planning. The process depends on whether your business is brand new or operational, whether you have existing HR responsibilities and structures in place and how quickly you expect your workforce to grow.

Here are 11 steps that can help you establish a human resources department.

1. Establish a structure and staffing plan

Start by assessing your business’ HR staffing needs. Some organizations may only need one person to handle HR responsibilities, while others benefit from hiring a team. Depending on the roles and responsibilities of your existing employees, your HR staffing plan may involve restructuring jobs or moving employees into new roles.

2. Identify skills or support gaps

After you’ve established an HR structure, look for skill or support gaps in your business to support your short- and long-term staffing plan. You may need to hire HR professionals or train existing employees to cover skills and knowledge gaps, such as:

• Recruiting processes
• Tax and regulation knowledge
• Payroll and benefits administration
• Onboarding and training

3. Set an HR budget

This step requires you to create a budget for building your HR department and a budget your HR team can put toward necessary tasks and resources. Your budget may change as your business and HR department grow, but initially, it might include the following expenses:

• Number of employees for the year
• Recruiting, hiring and training costs
• Projected turnover
• Estimated benefits costs
• Legal expenses
• Employee development initiatives

4. Set HR goals and KPIs

HR for small businesses requires specific goals and KPIs to create effective long-term strategies, measure performance and identify opportunities for improvement. The KPIs should focus on supporting employees in ways that contribute to the business’ overall objectives. Metrics to consider include:

• Job satisfaction
• Turnover rates
• Absenteeism
• Productivity
• Quality of hire
• Training effectiveness

Consider collaborating with department leaders to learn what goals your HR team should work toward to support your business.

5. Choose an HR solution

HR software provides automated solutions for complex tasks such as hiring and recruiting, maintaining compliance and organizing employee information. These cloud-based solutions can be especially valuable for businesses with remote teams.

6. Write job descriptions

Attract HR applicants by writing detailed job descriptions and posting them on job boards, your website and other platforms. As you fill these positions, your new HR employees might eventually write job descriptions.

7. Establish payroll and compensation structures

Establishing a competitive compensation package is an important strategy for attracting HR talent. Gather market-based data to develop the structures and costs of compensation packages and salary ranges for all levels of employees. Adding pay transparency to your job description may attract more candidates, while structuring a pay scale helps streamline your HR hiring process.

8. Benefits

In addition to having a clear compensation structure, you might develop and implement a benefits plan for all new HR employees. Start with voluntary benefits that can attract candidates and potentially adjust your benefits plan to be more competitive as your business grows. Also, consider federal, state and local regulations, as they may mandate certain benefits.

9. Create an employee handbook

Employee handbooks are essential tools for communicating formal policies, workplace culture, benefits and other information. They support team members throughout onboarding and training and serve as a lasting resource for answering questions and reinforcing company standards. Your handbook can include policies regarding:

• Compensation and benefits, including details on taxes and insurance
• Retirement plans
• Schedules and attendance
• Safety and security
• Standards of conduct

10. Collect administrative records

If your business has previously tasked other employees with organizing administrative records, any documentation or information should be collected and given to your HR department. These records may include tax documents, job applications, benefit plans and compensation details.

11. Create a feedback and performance review process

To ensure everyone in your business is satisfied, successful and held to the same standard, create feedback and performance review processes. These typically include informal and formal approaches, such as casual check-ins and annual performance reviews. Setting these standards and processes helps build a strong foundation for motivated and loyal employees.

Frequently asked questions about HR for small businesses

At what size does a company need HR?

Companies of any size can benefit from having an HR department. It’s generally a good idea to hire a full-time human resources manager if your company employs a large team. A smaller company may have one employee gradually transition into this role as it expands.

What are the downsides of not having an HR department?

HR departments can play a key role in keeping employees satisfied and helping them maintain a healthy work-life balance. These professionals also help legally protect your company, so they’re typically needed for most businesses.

Are there different types of HR?

Some businesses only need a single HR representative to manage HR-related tasks, while others may have the needs and budget to support entire HR departments of varying scales and structures.

Businesses may also outsource to a third-party HR company. These companies take on all or some HR tasks on behalf of your business for an agreed-upon fee.