When it comes to running a business, basic HR elements have to be in place, no matter the company’s size (think hiring, payroll, workers’ comp, etc). But at what point should a small business hire an HR manager? And how many HR staff members should be on board?
Expert advice on the subject varies: a small business (1-250 employees) is estimated to need between 1.7 and 3.4 HR professionals per 100 employees for proper human resource management, depending on their size. But do you include payroll processing in that number? Training for employees? What about benefits administration? And who takes care of watching the shifts in politics so you know exactly what you need to do to stay within the law?
Determining the right answers isn’t easy. It all depends on the company’s needs and growth strategy.
HR tasks at small businesses
Calculating the number of employees a small business needs for their HR team begins with determining the functions those employees will perform, such as:
- Recruiting – Create job descriptions, place ads, sort through resumes, interview candidates, schedule follow-up interviews, and communicate with applicants regarding status.
- Job offers – Collect information to create offers, handle negotiations and any back and forth between the manager and applicant, and ensure all job pre-testing is conducted.
- New hire onboarding – Provide paperwork, conduct training, answer questions, orient with worksite and coworkers, and establish email, name plates/badges, and any other technology and security needs.
- Timekeeping and payroll management – Maintain accurate collection of hours worked, coordinate with management for approvals, process deductions and checks, change withholdings, and answer pay-related employee questions.
- Benefits – Shop for new benefit plans, answer employee questions, hold open enrollment meetings, administer enrollments, set up employee deductions, reconcile benefit plans, communicate with broker regarding benefit issues, and answer any benefits-related questions.
- Employee relationship management – Research conflict management for varying scenarios, make updates to employee handbook, create and implement processes for internal conflict reporting, meet with employees, oversee performance reviews and related record keeping, and conduct ongoing employee and management training.
- Compliance – Ensure employment-related regulations are met, create awareness of requirements for new and/or amended regulations, review size of workforce relative to regulations, develop processes for reporting requirements, ensure dates associated with compliance actions are met, and submit timely reports to governing agencies.
- Morale – Create wellness and morale-building programs, develop and administer employee surveys, and implement strategies to enhance morale.
Most small businesses scale back on their HR services to only cover the bare essentials of running a company due to costs. But even with scaling back, small businesses require a higher ratio of HR staff-to-employees than big companies do because economies-of-scale work in a large company’s favor. According to the Society of Human Resource Management, HR team staffing requirements are tapered as follows:
- Small business: 3.4 HR pros for every 100 employees
- Medium business: 1.2 HR pros for every 100 employees
- Large corporation: 1.03 HR pros for every 100 employees
For small businesses, this can become a choice between snagging the engineer who will make essential tweaks to your next big product launch that your business is riding on, versus hiring a skilled HR pro who can oversee compliance, enhance morale, handle all employee-related issues, attract and retain your all-star employees, and help you find an attractive benefits package. It’s the classic “chicken before the egg” dilemma.
How to keep HR costs manageable for small businesses
When you need both the chicken and the egg, it’s time to consider outsourcing your HR. Outsourcing provides you with a team of experts and tools that not only keep you in compliance, they instantaneously make you a more attractive employer and allow you to focus on growing your business. It allows economies-of-scale to work in your favor, not just for the larger corporations with deep pockets.
In surveying executives who opted to outsource all or part of their company’s HR, Bloomberg found the primary driver was “greater expertise” which was considered “extremely important” by 37% of executives and “very important” by 39%.
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