You don’t have to tell us: we know that the human resource department does an incredible amount of work and strategizes for a business. But what about those small businesses that have so few employees to begin with, let alone an HR manager? HR departments often times don’t even exist in small companies, so it’s the business owners themselves who handle organizational development and all other things HR.
Realistically, though, owners and CEOs don’t usually have the bandwidth to give the proper attention that HR really needs. Think about everything a human resource department takes care of: managing benefits, moderating personnel issues, keeping track of labor law compliance, taking care of the entire hiring process – and the list goes on!
That’s why businesses should still consider implementing some level of formal human resources, even smaller companies. So, read on to learn more about small business HR practices and how you can create a better work environment for all!
Why Do Small Businesses Need HR?
Here’s the truth: HR keeps a business running smoothly. Need to fill a position? HR. Does someone have a question about their insurance coverage? HR. Someone advised the maternity leave policy could do with an update, so who’s going to review their request, research industry standards, and see what kind of solutions there are for your benefits policies? You guessed it! HR.
Here’s a more extensive list of key HR functions to more fully capture the mountain of work HR representatives move.
- HR planning. What does the future look like for your company? HR is highly strategic, helping you complete current goals while ensuring that your objectives move your business forward.
- Recruitment and selection. We said it before and we’ll say it again: finding the right employees takes time, skill, and resources, and can be almost entirely handled by HR.
- Compensation and benefits. Human resources find fair compensation for the positions at your company, as well as competitive benefits that your employees need and expect.
- Performance management. Employees need to be engaged at work to really contribute to your organization’s success, and HR is the department that helps measure their performance and find solutions for both employee and company expectations.
- Learning and development. People aren’t robots – they need opportunities to grow, learn, and advance at work. HR is responsible for training and development opportunities at work, which especially shapes your company culture.
- Rewarding employees. Employees also need to feel appreciated if they’re going to stick around. HR representatives understand the importance of recognition and take on the responsibility of rewarding employees and making sure employees are well taken care of.
- Labor law compliance. This is a big one. As a company, you have to follow certain laws when employing other people, and failing to do so can result in lawsuits with some serious penalties.
- Company culture and engagement. Managers and other leadership contribute to company culture, but HR sets the tone and makes sure that the policies and benefits of your company reflect your values and mission. This primarily shapes your company culture and engages employees, too.
- Health and safety. The safety and wellbeing of your employees also fall under the HR umbrella, especially because your company is required by law to create a safe work environment.
- Administrative functions. If all of the above isn’t enough, HR also handles a lot of administrative work, like processing paperwork, managing records, overseeing discipline, the whole nine yards!
This list of responsibilities is pretty hefty, but honestly, there are so many nuanced duties that fall under HR that it’s nearly impossible to capture. This workload is a lot for one HR manager, let alone a business owner trying to run an entire company! To spread the load, you need qualified HR personnel who can take initiative with HR strategy, keep you in compliance, and ultimately take care of the employees of the company.
When to Delegate HR
Some businesses are small enough that they either can’t afford to hire a human resource rep or they don’t have the employees to justify bringing someone on. Still, that doesn’t mean an owner can take on all of those responsibilities.
When HR responsibilities are taking an owner away from their most demanding work — growing the business — that’s when it’s likely time to hire an HR representative.
Delegating HR responsibilities saves business owners a lot of time that can go towards running the rest of their business and honing their actual specialty. This especially saves time. Just hiring a new employee is an intensive and prolonged process, from talent acquisition to onboarding. Plus, if you want to have any kind of strategy in place, one where you can plan adequately for the future and make your workplace and culture more competitive, someone needs to regularly dedicate time to those initiatives.
Bringing on an HR manager or specialist can also save money: Failing to comply with labor laws or hiring the wrong person due to lack of time and resources are both examples of expensive mistakes companies make without HR.
In the case of replacing an employee, not only do you lose money by investing in someone who wasn’t qualified or a good fit in the first place, but you also have to begin the entire process again, which means investing more time and missing out on the productivity and revenue that position would otherwise bring in.
You also have to look at your growth goals and where you see your company in the years to come. The more employees you have, the more you will benefit from an HR department to manage and sustain that growth.
Outsourcing vs In-House HR
If all of these HR services (and advantages) sound appealing, it may be time to find an HR solution. You can hire someone to work in-house or consider outsourcing your HR needs. A lot of factors play into this decision, including but not limited to your budget, projected growth, the current size of your company.
Outsourcing can give more immediate benefits since those specialists are already trained and ready to go. It is also typically more expensive. On the other hand, in-house HR saves money and builds HR knowledge within the organization, so there’s a much more personal investment when you hire someone to work as a member of your company.
How to Set Up an HR Department
An HR department is obviously a wonderful and worthwhile investment, so if you want to prioritize HR for small business practices, here’s what to assess.
Review Current HR Processes
What does the current state of your HR procedures look like? Who handles some of the HR functions we discussed before? Could this person transition into a formal HR position, or do you need to look outside of your current company? Understanding what you do now can help you better understand what is missing and where you need the most help. You can also collect feedback from your employees and teams to learn what they need as you create a blueprint for your HR solution.
Create HR Processes
Okay, now look at what processes you are missing. When you hire someone, what steps do you take? Is there a specific procedure that you follow? What about processing paperwork — how have you standardized that process? Determine what functions you need and find out what processes need to be implemented.
Structure HR Team
We’ve talked processes, now let’s talk people. Your HR department can be made up of one mega-talented person who wears a lot of hats or a team of 10 with different specialists. For small businesses, you will probably only need two to five people, depending on the size of your business until you begin growing. Here are some of the most important roles to fill:
- Human Resources Manager
- HR Director
- Hiring Manager
- Recruiting Specialist
- HR Coordinator
Recruit to Fill Skill Gaps
Once you’ve determined the positions you need to fill, it’s time to recruit the best people and tailor your HR hires to the needs of your company. Some basic skills that HR personnel need include strong people and communication skills, high emotional intelligence, conflict resolution, and time management. Especially for small teams, look for people with experience who can take charge of your HR strategy so you can truly step back from these processes.
Select HR Software
For small operations in particular, it’s best to automate wherever you can to streamline processes and give back as much time to your HR team. Look into HR software that can help with record keeping, compliance, auditing measures, payroll data, employee documents, and any other administrative tasks.
Define HR KPIs
Any form of improvement needs to be measurable so you can analyze your successes and pitfalls, so establish some key performance indicators (KPIs) to better understand how effective your HR function is. This includes metrics such as employee turnover, satisfaction, costs, productivity, absenteeism, and more.
Collaborate with Other Departments
HR has a hand in every department because they help manage the people and the labor laws that every other department has to follow. Plus, by owning the hiring process, they largely control who fills what positions throughout the entire company. For these reasons, it’s always best to gather input from the department heads, even with a small company, to determine what the people and the business need from HR.
As you figure out your KPIs and set goals, you also need to have a specific budget in place so you know how and where to spend your resources. This helps HR managers know what to prioritize and how to forecast future HR strategies based on how their budget choices impact the company.
Continue to Review and Improve the Department
The beauty of an HR department is that the process is always improving — that’s part of HR’s job, right? They work tirelessly to find ways to improve the culture and efficiency of your company, whether through policies, people, or procedures. Always be willing to evaluate how things are working and seek improvements whenever possible.
Find HR Solutions with Gympass
Human resources for small businesses may look a little unconventional, but there are all kinds of creative ways to incorporate an HR strategy for your company. For small businesses especially, a great benefit goes a long way for your employees. In fact, one study found that 80% of employees would choose a job with good benefits instead of an identical job that offered 30% more salary (but minus the benefits).
So, if you want to help better support your employees and allow them to prioritize their health, consider partnering with Gympass. With Gympass, your employees can find a gym in their area, download wellness apps, and more! Talk to a wellbeing specialist to round out your HR wellness program, small businesses included!
- Americans Favor Workplace Benefits 4 to 1 over Extra Salary: AICPA Survey. (November 28, 2018). AICPA. Retrieved December 17, 2022 from https://www.aicpa.org/news/article/americans-favor-workplace-benefits-4-to-1-over-extra-salary-aicpa-survey.
- Heaslip, Emily. (April 13, 2022). Does Your Small Business Need an HR Department? U.S. Chamber of Commerce. Retrieved December 17, 2022 from https://www.uschamber.com/co/run/human-resources/small-business-human-resources-department.
- McCandless, Karren. (May 18, 2022). A Small Business Guide to Setting Up Human Resources. The Ascent. Retrieved December 17, 2022 from https://www.fool.com/the-ascent/small-business/human-resources/articles/human-resources-for-small-business/.
- Stacey, Kate. (October 31, 2022). The Complete Guide to HR for Small Businesses in 2023. Connecteam. Retrieved December 17, 2022 from https://connecteam.com/guide-human-resources-for-small-businesses/.
The Gympass Editorial Team empowers HR leaders to support worker wellbeing. Our original research, trend analyses, and helpful how-tos provide the tools they need to improve workforce wellness in today's fast-shifting professional landscape.