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Starting an HR Department

As a small but growing business owner, you might feel underprepared for the human resources tasks that come with an expanding team of employees. While human resources departments are relatively new in the business world and were previously relied on for screening and hiring, they now provide significant administrative and employee development support. Learn about the main functions of a human resources department, the benefits they provide to businesses, as well as when to start and how to hire and organize your HR team.

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What is a human resources department?

HR departments are essentially responsible for representing the interest of the organization and its employees. Their primary role is to manage an organization’s human resources, which are the employees. While organizations and businesses may have departments dedicated to sales, marketing, or accounting, the human resources department provides and maintains skilled and satisfied employees. HR departments may also have divisions assigned to different functions.

While workplaces of the past considered employees as expendable resources, businesses now have progressed to comprehend better human capital and the need to better manage and develop employees. In other words, human resources departments ensure that employees are fairly compensated and treated with fairness, which enables employees to make more valuable contributions to businesses. To provide employees with satisfactory compensation and treatment, a human resources department develops policies and procedures that support workplace best practices.

What are the main functions of a human resources department?

The role of an HR department has developed and become more complex. Employee recruitment has always been a central function of HR, but departments have evolved to provide the highest level of development for employees belonging to the organization. To ensure a high performing and positive workplace for employees, a department of HR might be responsible for any of the following functions:

Recruitment, hiring and onboarding

The human resources department will post job openings, screen applicants, interview candidates and onboard new hires for the organization. When hiring for their department, a supervisor might assist the HR representative with interviewing and hiring candidates.

Training, development, and performance

An HR department responsible for training employees will create and implement training manuals and employee guides. They will also be responsible for the ongoing development of employees.

Compensation, payroll and benefits

When employees are hired or promoted, an HR department will design a compensation and benefits package. They will also manage payroll, vacation, and other time off.

Employee relations and advocacy

This section of an HR department is responsible for ensuring that communication and conflict issues are effectively managed and resolved.

Labor and union compliance

Businesses sometimes delegate the responsibility of developing health and safety procedures to HR departments to ensure employee safety and labor law and union compliance.

Record keeping

To ensure tax compliance and record accuracy, an HR department will maintain various business records.

Company culture

An HR department can promote a company’s culture by ensuring that policies and strategies focus on employee happiness and development.

Human resources planning

An HR department can analyze business performance and make suggestions to improve the organization’s effectiveness. This sometimes involves hiring employees, restructuring roles, or offering additional employee incentives.

Why do businesses need an HR department?

Human resources departments are crucial for the success of employees and, therefore, the success of your business. Effectively managing the people that make up your organization ensures optimal performance.

Many business owners try to manage the various elements of human resources on their own. Still, it’s an unrealistic expectation to handle the responsibilities of your role in addition to the management of employees. Moreover, studies showing a positive correlation between employee happiness and productivity prove it’s a disservice to your business to neglect human resources. By delegating tasks to a dedicated human resources department, companies can improve their overall performance.

A human resources department will create strategies and processes that best align with an organization and its goals. By doing so, HR will improve employee satisfaction, productivity, development and overall business performance.

How a Human Resources Department Benefits Businesses

The most obvious benefit of a human resource department is the administrative support it offers. HR can take responsibility for administrative tasks such as hiring, record keeping, payroll and business plan development. By taking on these tasks, HR offloads work from employees needed for their own job-specific responsibilities. This promotes greater workplace efficiency and stress management by delegating administrative work to HR specialists and keeping other skilled employees focused on their tasks.

An HR department promotes employee happiness and satisfaction through counseling, advocacy and mediation services to employees. HR can also provide communication and education about policy or organizational changes. These services combined help employees feel that the organization is listening and responding to their needs. Employees who feel their voice, safety and needs matter are more likely to want to continue working at the organization, thereby reducing turnover and improving retention.

Employee training and development initiatives through human resources departments can also help to improve retention by providing employees with growth opportunities. Training and development also provide dividends to an organization by developing highly skilled employees. In addition, employees trained to align with a business’s strategy will help that business become more efficient and profitable over time.

Human resources department employees also have a different perspective of the business than other departments or employees. As a result, HR can analyze the needs of a business and develop strategic policies or solutions. They can also collaborate with other departments, discovering solutions for areas where they are underperforming, such as understaffing, under-motivated employees, or unclear job descriptions.

When to Consider Starting an HR Department

Even if a business performs well without a human resources department, there’s no wrong time to start one. The question of when to start an HR department primarily depends on when the owner is willing to invest resources into the long-term growth and success of their business. If you’re unable to put time and energy into essential tasks because of human resource demands, it’s probably time to consider an HR department.

What about outsourcing?

It’s common for businesses to start an internal HR department once they have 100 or more employees, although this is merely a guideline. Smaller organizations, however, might benefit from outsourcing human resources services instead of starting an internal department. For example, a second party can provide the same functions to an organization that an internal department could. Outsourcing HR functions include hiring an external representative that handles administrative tasks, delegating specific tasks to a contractor or allowing existing departments to perform general support functions.

Pros and Cons of Outsourcing

Outsourcing provides numerous benefits, including:

  • Employee relation and retention: HR firms often specialize in managing employee relations, mediation and retention.
  • Reduces cost and resource consumption: External services provide efficient and professional services for time-consuming administrative tasks, such as payroll and business operations. In addition, outsourcing these tasks can be less expensive than full-time wages for an internal employee.
  • Labor and tax compliance: HR firm employees are knowledgeable of the most recent laws and regulations. Outsourcing to an external service can ensure that your business mitigates risk and avoids non-compliance.
  • Streamlined HR functions: Because they specialize in human resource tasks, HR firms are often better equipped to develop business strategies and policies. They provide pre-existing infrastructure and training to improve your business, reducing costs and labor to establish an internal department.

However, it’s important to consider the potential disadvantages of outsourcing:

  • Reduced control: Handing off tasks to an HR firm may result in losing some control over your organization’s policies, strategies, and culture.
  • Employee disconnect: An external party handling your HR functions might cause employees to feel disconnected from the organization.
  • Confidentiality: Once you outsource to an HR firm, you trust them with sensitive information about your organization. Some business owners may not feel comfortable sharing information or potential security risks.

How to Start an HR Department

If you’re starting an HR department from scratch, you’ll need to identify the needs of your business. For example, some small businesses can function with only a small HR team of one or more specialists. At the same time, larger companies may have a department with divisions dedicated to different functions like recruitment, development, compensation and compliance.

Determining Human Resources Staff Structure

Once business owners identify their business needs and the expectations of an HR department to grow their business, they can structure their business around those goals. Some examples might include a need for additional employees or improved training for current employees. Business owners will want an HR firm specializing in either recruitment or development while still providing other functions in those cases.

There are several models practiced by HR departments, including:

  • Hierarchical Model: In this model, personnel managers report to hiring managers for goals, which they then work on with their respective teams. Therefore, a development and training manager would need to work with a team to reach goals for their division.
  • Informal Model: A team of various HR specialists can work together with flexible dynamics and organization.
  • Shamrock Model: This model has HR specialists providing core functions to the organization while outsourcing or contracting less specialized tasks to other providers.

How to Hire HR Staff

Human resources staff should have considerable skills and experience to meet job qualifications. Many organizations require that human resources professionals have at least a bachelor’s degree in human resources management or a related field and sometimes even more advanced education for higher-level roles.

In addition to significant experience and education, a human resources specialist should possess the following qualities:

  • Communication
  • Leadership abilities
  • Technical expertise
  • Organizational skills
  • Detail-oriented
  • Critical thinking
  • Conflict resolution

When interviewing candidates, consider asking questions that expand their experience of leading or building a human resources department. For example, ask about the positive outcomes from their experiences and their approach to improving your organization’s human resource functions. In addition, the right hire should be well-aligned with your organization’s strategy and culture.

Frequently asked questions about starting an HR department

What is a human resources department responsible for?

A human resources department represents the interests of the organization and its employees. In addition, HR professionals make sure that an organization’s policies, strategies and systems align with its goals and needs. By performing these functions, a human resources department can optimize employee happiness and business productivity.

What is the highest position in a human resources department?

The highest position depends on the structure and size of an organization’s human resource department. For example, smaller organizations might have an HR specialist or general manager overseeing operations. In comparison, larger organizations might refer to the highest position as the director or chief of human resources.

What is the best HR structure?

The best HR structure depends on the needs of your business. For example, a department might start with one HR generalist overseeing all functions, with responsibilities divided and delegated to specialists as the department grows. Consider whether your business may benefit more from a blend of HR professionals working dynamically towards department goals or from a department with designated roles to various HR functions.

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