Is HR important for a small business?

Strong HR in small business settings is critical for growth. Consider some of the key functions:

• Recruiting and hiring candidates
• Tracking compliance with local, state and federal law
• Administering payroll and benefits
• Maintaining policies and records
• Supporting employees

When each of these areas runs smoothly, it improves the employee experience and enables your team to focus on their jobs. Happy employees contribute to high job satisfaction and low turnover , reducing hiring costs and promoting business growth.

HR and company culture

If you’re planning to grow a business, building a strong company culture is probably on your list of action items. HR functions directly impact corporate culture; they affect many key areas of employees’ lives, both in and out of the office.

This alone is a reason to pay attention to HR sooner rather than later. When you establish stable practices, it creates a sense of trust and confidence among employees. If you can maintain this practice over time, it will help make your business a positive and supportive place to work.

Managing HR in a small business

As with many tasks in a small business, HR often falls to the owner. In the early days, this arrangement is fine; when margins are tight, it makes more sense to save money by doing things yourself. Plus, firsthand HR experience provides insight to make smart delegation decisions down the road.

When you’re handling HR in-house without the support of a dedicated employee, you can do a few things to ease the workload. To start, consider outsourcing payroll. Your accountant may be able to help, depending on how many employees you have. Another option is to work with a third-party payroll provider that can take over record keeping, taxes and reporting.

If hiring and onboarding encroach on your time, consider bringing a manager into the process. They have on-the-ground insight into the job duties, so they can add a valuable perspective when you’re writing job descriptions, screening candidates and conducting interviews. Managers may jump at the chance to be directly involved in bringing on new team members.

As you grow, it might make sense to bring in an HR consultant to help with employment law compliance. They can examine your current practices and set up a compliance framework to use going forward. The one-time expense is often more affordable than hiring an HR employee.

Deciding when to delegate HR in small business environments

When should you transition from a scattered approach to a dedicated HR partner or employee? Typically, it’s a good idea to start delegating before HR responsibilities get in the way of profit-generating activities. The timing is different for every business, but there are a few key signs to watch out for:

• Your company has at least 10 employees. This tends to be a tipping point for many companies; after 10 employees, the HR burden is often large enough to warrant additional help.
• Payroll or benefits issues are taking too much time. Employees expect smooth, on-time payroll and benefits administration; even one late paycheck can damage trust and confidence.
• Employees are overloaded. An HR professional can create a smooth recruitment and hiring process. That way, you can find and train the right candidates to help handle a growing workload.
• You need more bandwidth for mission-critical tasks. If employee requests and screening interviews dominate your day, it’s time to delegate.
• You’re anticipating a period of growth. The best time to bring in HR support is before you need it. That way, you can build a stable foundation to support a bigger team.

Benefits of delegating or outsourcing small business human resources

When you’re working with a tight budget, every investment counts. A dedicated HR team or partner brings significant benefits that can increase your business’ ROI.

• Increased efficiency. Delegating HR tasks to trained professionals can lead to a significant increase in efficiency. That’s because a dedicated team member has the time to focus solely on HR. Because they’re not concerned with running the company or managing a team, they can develop HR templates and systems, fix problems and eliminate inefficiencies.
• Unified approach. Splitting HR tasks between multiple people tends to create a patchwork-style approach that can lead to confusion or overlap. A dedicated HR team brings together all functions, ensuring that each candidate and employee has a consistent experience.
• Single point of contact. A defined HR person creates a clear, streamlined communication system. With a defined point of contact, employees and candidates always know where to find answers. That means you won’t need to spend time responding to job inquiries or answering questions about benefits.
• Better hiring. When hiring is delegated to HR instead of scattered throughout the company, it’s faster and easier to locate, recruit, hire and onboard new employees. As a result, you can build fully functioning teams to boost productivity.
• Timely compliance. HR professionals are responsible for keeping up with employment laws at the local, state and federal level. They can help you stay compliant and avoid penalties.

Ways to delegate HR in a small business

You’ve decided that it’s time to delegate HR — now what? For small businesses, there are a few common options. The right one for your company will depend on your workload, budget, staff and future plans.

Train an existing employee

If you have a staff member interested in HR in a small business, you may be able to train them to take over. This can be a good option when an employee’s job is becoming obsolete or someone wants to go from part- to full-time. It’s also an opportunity for a lateral move from another area of the business.

This strategy has obvious benefits. A current employee is already familiar with the company, which can speed up the training process. Since the person is already employed, you can save money on hiring and onboarding expenses.

When hiring and training an HR person from within, look for relevant skills and personality traits. People skills such as communication, empathy and conflict resolution are just as important as organization.

Unless your chosen employee has a background in HR, you’ll need to provide comprehensive training. This is particularly important for areas like compliance and payroll.

Outsource HR to a third party

When your company isn’t quite ready to support a full- or part-time HR employee, outsourcing is a potential solution. Third-party HR providers called Professional Employer Organizations (PEOs) offer off-site HR support for small business owners on a contractual basis. They provide a professional, organized experience for employees and candidates.

Every PEO contract is different; you can work with the provider to design a setup that suits your business. Typically, these organizations can handle everything a traditional HR department does, including drug testing and unemployment benefits.

This approach has a few potential drawbacks. Most importantly, a third party lacks in-depth knowledge about your business. Since PEO professionals handle hiring and communication, their company’s culture can impact yours. Before you sign a contract, it’s worthwhile to verify that you’re comfortable with the provider’s values, traditions and practices.

Hire an HR employee

When you’re growing quickly or don’t have the time or personnel to train a current employee, it might make sense to hire a full-time HR professional. The tipping point is different for every company, but it often happens when the staff reaches 25–50 people. As you get closer to 50 employees, you’ll need to start thinking about FMLA compliance.

A quality HR hire can help your business get ready for the next growth and development stages. Set them up for success by allowing plenty of lead time to build systems and prepare for the next big hiring round.

Since HR has a big impact on culture, choose a new employee carefully. Pay attention to how the person communicates in a high-stress setting — it can help you assess how they’ll deliver important news to employees and applicants.

When you’re in the throes of building a business, HR might not be a top priority. By getting your HR practices in order early, however, you can create a strong foundation to support a positive company culture and stable growth.