when should a small company hire an hr manager

Should you hire an HR manager? Here’s the pros and cons

Your company has grown, welcome news to be sure. With that success comes the question: When should you hire a human resources (HR) manager? Or, should you even hire one at all?

It’s best to have a strong HR presence early in your company’s life to establish company mission, vision, values, culture and vital HR infrastructure, which can have a lasting impact on the success of your employees and your business. But that may not always be how business owners approach their business.

When your company is small, you might be able to get away with an informal HR department – a non-expert tasked with HR-related responsibilities in addition to their core expertise. But as your company grows, so does your HR burden.

Around the time your company hits fifty employees, things change, and there are regulations that you must comply with that weren’t previously applicable.

For instance, is your business FMLA compliant? Are you meeting all the regulations and requirements for documentation, insurance and more? Is your company meeting all the legal requirements as an employer?

This is often when businesses begin thinking seriously about hiring an HR director and building out an in-house HR staff.

If HR was an afterthought at your business, it’s also around this time that cracks may begin to show in your culture, recruiting, training and retention strategies.

While it’s best to implement sound HR strategies at the outset of your business, it’s at this time that HR infrastructure switches from highly recommended to absolutely essential.

With such a wide range of issues, it can be difficult for business owners to know where to start.

Broadly speaking, there are three key options to choose from: hire an HR director and build an in-house team; hire a small handful of HR managers who utilize an array of HR technology tools; or outsource your HR needs to a professional employer organization (PEO).   

Here’s a look at the options, with the pros and cons for each.

The in-house team

Some companies opt to establish an in-house human resources team.

This typically involves a team responsible for people management, setting up benefits and payroll, helping with the company’s culture and making sure compliance is being met.

If the in-house team is large enough, you may have specialists for benefits and another for payroll. Or some may serve multiple functions within the structure. It all depends on the size of the human resources staff and your company’s budget and preferences.

Pros:

  1. An in-house team can have intimate knowledge of the company culture, mission and vision.
  2. They may be well equipped to manage big-picture questions regarding recruiting, retention and other human resource issues.
  3. They work directly with management. That may allow them to be nimble and adapt to company needs on short notice.

Cons:

  1. Hiring, training and maintaining an in-house HR team is expensive.
  2. Your company must negotiate its own medical and retirement benefits.
  3. Expertise may be lacking in one or more critical areas of HR. Laws, regulations and best practices are ever-evolving. An in-house team must be diligent to stay abreast of changes.
  4. All compliance, regulatory and other employer-related risks fall on the employer.
  5. A large HR department, like any other growing department, must be managed to ensure it’s aligned with the company’s overall goals and strategies. There is risk that an in-house HR team’s goals diverge from that of the company, which could have broad impacts on other areas of the business.

The technology option

Many companies will employ a small HR staff and augment their knowledge and skills with cost-effective HR tools and software.

This could mean software for payroll, time and attendance, benefits administration or any number of other tasks.

Pros:

  1. A small team (or small company) can leverage these tools to make up for lack of expertise in certain areas of HR.
  2. The employer has real-time access to employee data. Employees can also accomplish routine tasks themselves – clocking in or out, updating benefits, requesting PTO – anywhere with internet access.
  3. Repetitive HR duties can be automated and streamlined, reducing the likelihood of human error.
  4. The cost to maintain a small HR staff and a few HR tech tools may be favorable to the other options.
  5. HR technology often offers additional materials that assist in educating employees. For example, there may be online leadership courses or videos that detail policies on workplace discrimination and sexual harassment.

Cons:

  1. The company must negotiate its own medical and retirement benefits.
  2. All compliance, regulatory and other employer-related risks fall on the employer.
  3. Cost could become an issue if too many different software services are used, which may have individual licensing, maintenance and other fees.
  4. Various HR systems (created and maintained by different companies) may not be compatible with one another. This could cause more work for your HR team.
  5. If you don’t continue to use the technology or if it becomes obsolete, what happens to that data? Is the third-party company responsible if that data is compromised?
  6. Other factors should be considered, such as will the technology come with customer service, and if so, for how long?

Professional employer organizations

Other companies may opt to outsource their HR services through a professional employer organization (PEO).

When you hire a PEO, you enter a co-employment relationship where the PEO takes on many of your employer-related responsibilities. You’ll maintain management of your organizational structure and employees’ core job functions and to-dos.

You will still need an in-house HR representative, but you’ll gain access to the PEO’s expertise, resources and benefits.

Pros:

  1. A PEO can provide access to specialists in payroll, recruiting, benefits and many other HR niches. This level of service and expertise is difficult to build and maintain in-house.
  2. You gain access to plug-and-play HR infrastructure that scales and evolves alongside your business.
  3. A PEO model provides group buying power for medical coverage and also offers additional advantages from a workers’ compensation standpoint.
  4. A PEO assumes responsibility for certain employer-related risks.
  5. A PEO will help instruct your company on how to stay compliant with all laws and regulations.
  6. A PEO does not provide a workforce, but they can supply a level of responsibility that comes with all of the HR services and benefits an in-house staff may provide. Reputable PEOs focus on building strong company culture, which is the foundation for attracting and retaining employees
  7. With a PEO, you won’t need to continually grow your human resources department as your company grows.

Cons:

  1. A PEO assumes certain employer-related risks, which disqualifies certain high-risk businesses.
  2. The knowledge of the internal workings of the company, its strategies and big-picture goals may be harder for the PEO to ascertain.
  3. A PEO may require a larger financial investment than other options.

The takeaway

No matter which option you choose, the goal is to grow your business by maximizing available resources. Sound human resources practices have proven to promote healthy, measurable growth in businesses, while treating employees with dignity and respect. The key to doing that is to understand your options and make smart decisions.

If you’d like to learn more, download our complimentary e-book: How to create a more strategic HR department.

The Insperity Guide to Leadership and Management, Issue 2
Download your free magazine

0 responses to “Should you hire an HR manager? Here’s the pros and cons

This site uses cookies to store information on your computer. Some are essential to make our site work; others help us improve the user experience. By using the site, you consent to the placement of these cookies. Read our privacy policy to learn more.