Managing employees and navigating the labyrinthian regulations that come with the task is time-consuming and difficult. Hiring new employees, managing payroll, fielding complaints and ensuring legal compliance are all essential human resources roles, and balancing each of those tasks is a challenge. What's a business owner to do when they are already focusing on growing the business and running day-to-day operations?
For young or very small businesses, there's always the option to do it yourself or outsource human resources to a third-party company. At what point, though, does it become necessary to hire a full-time, in-house staff member for human resources?
The importance of human resources
The typical tasks a human resources specialist takes on include managing the recruitment and hiring processes, training personnel, staying up to date on labor law compliance, and ensuring the workplace is running efficiently. HR specialists also generally deal with employee pay and benefits packages, as well as working conditions. Of course, they also deal with employee complaints or disciplinary situations.
The central theme that connects each of these tasks is that the HR specialist is essentially a link between the employer and the employee, as well as the mediator who prevents or resolves workplace issues.
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"It's really hard as a business owner to put ourselves in the employees' shoes," said Steve Kurniawan, a content specialist and growth strategist with Nine Peaks Media. "We mainly think from the perspective of how to grow the business – increasing revenue [and] winning markets – while the employees think about their promotions, their personal struggles. HR managers, on the other hand, will think as an employee and can better relate to the employees' requests and needs."
It's clear what benefits an HR manager offers a small business, but at what point in a business's life cycle could an entrepreneur justify the added cost to bring on an HR manager?
Knowing the right time to hire a human resources manager
There's no clear-cut answer as to when a business should hire an HR manager. The window can shift depending on a business's industry, growth rate, strategic planning and workload. However, a few indicators can help a business owner decide when the time might be right to bring a dedicated HR specialist on board.
When business roles start to become specialized
One school of thought suggests the general organization of your business is an indicator as to when you need a dedicated HR manager. As businesses grow, their staff often shifts from general employees focused on any necessary tasks into more specialized roles and, eventually, narrowly focused departments. At that point, it makes sense to develop an HR department as well.
"When a business is small, it is normal for everyone to be in 'all hands on deck' mode all the time," said Jordan Brannon, president and COO of Coalition Technologies. "However, with any successful business, there is a point to be reached when you're no longer so tight on cash and manpower that you cannot afford for your employees to specialize in their departments. At that point, it is time to hire a human resources person."
When the business grows to a certain number of employees
Business owners could also judge their need for an HR manager by the number of employees they have, whether that be 50 full-time workers or 100. However, specialization remains the real differentiator, according to Doug Coffey, HR expert and teaching instructor at the Rutgers School of Management and Labor Relations.
"Having an HR manager will probably be a necessity when the company approaches 100 or more employees, but the telltale sign is when the business starts to specialize into functions such as IT, sales and operations," Coffey said. "If you need a dedicated manager in those areas, you probably need the specialized knowledge of a human resources manager as well."
When focus on revenue over HR tasks could boost the bottom line
Another method to determine whether you could benefit from a full-time HR specialist is to track your time spent on HR tasks and ask yourself, "Would my time be better spent growing the business?" Once HR tasks begin demanding an inordinate amount of a business owner's attention, that could be a signal that it's time to bring a dedicated HR manager on to the team. If an owner's efforts to grow revenue could cover the cost of a new salary and then some, the choice is clear.
"Business owners should track the time they're spending on employee-related issues," said Sharon DeLay, owner and president of GO-HR. "They should then consider what the impact to revenue growth would be if they spent that time instead in growing revenue. If the revenue growth activities would far outweigh – or would soon outweigh – the cost of HR resources, whether outsourced or hired, then it's time to look at HR solutions."
The risks of operating without a human resources specialist
Business owners might feel they can go it alone, and perhaps they can, but failing to hire an HR manager comes with risks that could develop into serious consequences, both organizationally and legally. Before making the decision not to hire an HR manager as your business scales, you should be aware of the potential problems to which you are exposing your business.
"A human resource manager helps to establish fairness and consistency throughout the organization," Coffey said. "Employees come to know what to expect with policy development in hiring, performance management, reward allocation [and] leave policies. By not hiring HR managers, businesses may add to employee turnover, one of the highest HR-related costs. This happens when dissatisfied employees leave due to inconsistent, time-wasting, unfair policies."
Beyond creating confusion or dissatisfaction amongst employees, there are steep consequences for mismanaging logistics when it comes to HR-related tasks. If a business owner is overwhelmed by the responsibilities of running the business and managing HR, they could soon find themselves in a record-keeping nightmare.
"When a business does not hire an HR manager, things will be missed," Brannon said. "Important paperwork, completed photo releases that could lead to lawsuits, updating out-of-date paperwork, optimizing incorrect forms, and keeping employee tax information up to date are all essential points that could be missed by a business owner running their own HR department."
Those documentation issues can quickly balloon into legal problems, potentially resulting in fines or lawsuits. While late paperwork might not seem to be a big threat at first, it can be a slippery slope that creates a lot of extra work at best and a legal disaster at worst.
Human resources an essential part of business
There is no escaping the need for human resources management. The question is maximizing efficiency and your return on investment. Many business owners try to handle everything on their own until it is no longer feasible, but when it comes to something as sensitive and critical as human resources, it is important to establish a planned transition away from the startup phase, in which owners and staff all wear many hats, to a more specialized organization with dedicated department managers. Thinking about HR early on, and at what point it would be wise to let go of certain responsibilities, will make it much easier to shift control to a dedicated HR manager down the line, before things get messy.