When you started you small business it’s fairly unlikely that you were already an expert in human resources. That was probably the last thing on your mind. It’s not that you don’t care about your employees – you want them to be happy and satisfied in their jobs – it’s that managing HR can be a real time suck and most likely the least favorite of the many hats you wear as a small business owner. Instead of growing your business, you’re dealing with employee retention, insurance costs, benefits, employee reviews, 401ks and everything else that falls under the HR umbrella. You’re not alone. We find a common theme among business owners – HR is either taken care of on an as needed basis by the owners, delegated to employees as ‘other duties’, outsourced or ignored altogether.
Finding the HR Solution to Fit Your Needs
No matter if you’re a company of 5 or 500, you have human capital and everything that comes with working with humans. If you are a small business now, you probably plan on growing and HR needs to be included in your overall strategy. It can be overwhelming, but don’t worry, we’ve put together a guide looking at the pros and cons of the options available to you.
Here’s how to incorporate HR services into your company, whatever size business you have:
Company Size: 10 to 50 Employees
You started your company on a shoestring budget handling everything – sales, marketing, operations and HR. Now that you’re growing, your company’s HR needs are growing, too. Your HR challenges include:
- Providing employees benefits.
- Addressing HR-related issues in a timely manner.
- Attracting top talent when you can’t offer the benefits offered at larger companies.
Your Options
Hiring an entry-level employee whose duties include small HR tasks, or retaining a consulting firm or a professional employer organization (PEO) on a part-time basis are options you can consider for your HR needs. You could also make due without anything at all and handle HR issues as they arise. Let’s take a look at the pros and cons:
Hiring an entry-level employee
PROS
- Takes these tasks off your plate so you can focus on running the business
- HR needs do not require a full-time solution, so employee can be tasked with other duties
CONS
- At this level, the employee does not have the experience or knowledge to handle HR needs such as recruiting, interpersonal problems, or training
Retaining a consulting firm or PEO
PROS
- Companies can engage an HR consultant on an hourly or contract basis, making it a cost-effective solution for your business
- An HR consultant can advise you on recruitment strategies and finding ways to create a productive workforce
- A PEO is a solution for small business owners who want to give employees access to health and retirement benefits
- HR Consultants and PEOs can act as your company’s HR department and handle employee issues, assist with employee reviews, exit interviews, etc.
CONS
- Using a PEO means you lose some control over the benefits offered
- PEO policies may also limit a company’s power to hire and terminate workers
- A part-time consultant or PEO may not always be available, which could affect your deadlines
Company Size: 40 to 100 employees
Congratulations, your company is growing! And so is the number of HR issues. At this stage, you have outgrown using a PEO and an in-house employee needs more skills and experience than an employee who is simply handling the administrative side of HR. For companies of this size you must consider the following:
- What HR services does my company need?
- Can we still get by without a formal HR department?
- Should we incorporate additional HR consulting services?
- Would it be more cost effective to hire an in-house HR professional?
Your Options
While it’s never cut and dry, when your company is this size you may want to consider hiring a full time HR professional such as an HR generalist. A generalist handles the day-to-day HR tasks, designs and administers your company’s HR policies and procedures, covering everything from performance management, benefits, payroll and talent acquisition, A generalist handles employee relations and works with employees at all levels of the organization. If hiring an in-house HR professional is not feasible, another option is to increase the level of services your HR consulting firm provides. Let’s review the pros and cons for these options:
Hiring an HR Generalist
PROS
- An HR employee on staff gives you consistency and control
- An HR employee is part of the team and more invested in the company
CONS
- Hiring a generalist gives you someone with more of a tactical skill set rather than strategic
- You need to pay their salary, benefits and other overhead costs
Increasing the level of Services from Your HR Consultant
PROS
- Your HR consultant can provide expertise for a variety of business decisions
- A third-party consultant will have an objective perspective
- There are no overhead costs
CONS
- You lose the personal touch that someone hired within the company may provide
- Your employees may feel disconnected with an HR professional who is outsourced from a consulting firm
One thing to keep in mind is that you have the option of using both an in-house HR employee and a consulting firm. Because an HR generalist has a specific skill set, there will be a need for a strong partner to assist with other HR areas, so you may want to keep your HR consulting firm to work with your HR generalist for a well-rounded solution. And of course, there’s always the option of continuing to wing it.
Company Size: 80-200 employees
Your way past the small start up company now. Your company has evolved and grown to the point where it’s time to create an HR department with a manager and one to three HR associates. This solution can help you with challenges such as:
Your company’s growth affecting the corporate culture
You’re struggling with hiring the right talent
You’re growing too fast and unable to develop career tracks for employee retention
Your Options
At this level, you’ll want to consider using HR as a strategic function of your company. As a strategic business partner, the HR department is vital to the decision making process. However, may still want to retain the use of an HR consulting firm as a source to help you craft your strategic growth initiatives..
The functions of HR include benefits, compensation, training and development, organizational development, employee and labor relations, HRIS and recruiting. Creating an HR team with a manager and several employees to oversee the wide range of HR duties is an option for a company in definite growth mode. Here’s a look at the pros and cons of creating an in-house HR department:
PROS
- You have a department dedicated to overseeing all HR functions
- An HR department can develop corporate culture initiatives
- The manager or director of HR can play an integral role in the company’s strategic initiatives
CONS
- You’ll need to look at budget increases to support the creation of a new department
- It may take some time to find the right HR manager to lead this department and be an expert resource for your company
