Do SMEs Need a Human Resources Department?

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According to the Society of Human Resources Management (SHRM), a lot of small businesses see the human resources (HR) department as a fire safety: The daily pressures of managing the organization may cause them to disregard some of the basic steps of compliance, and, when a problem does occur, they are obliged to scramble. For money saving purposes, studies show that fifty four percent of small businesses handle the recruitment process themselves. CEOs at these organizations often believe that they would be better off allocating their time to sales and other functions.

Experts state that companies with fewer than twenty employees are usually better off when the owner delegates HR duties to employees inside the company. However, this process of delegation should be done while taking into consideration who has the right skills to be entrusted with workforce related matters and how top management can help him or her succeed.

Ultimately, seventy percent of businesses with five to forty nine employees add HR to the workload of employees in other departments who have little to no experience in HR, according to ADP’s Ad Hoc Human Resource Management Study. 

Though these employees spend twenty percent of their time on HR related issues, eighty one percent of them lack confidence in their HR skills, and eighty two percent have not undergone any formal HR training, ADP stated. Merely twenty percent have faith in their abilities to fully manage workforce related matters. Additionally, a survey by the payroll service Paychex found that less than fifty percent of small-business owners are truly confident in the way their organizations handle HR.

The Wall Street Journal published an article about companies that have chosen to function without an HR department and rely instead on present managers to perform HR-related duties within their department. As good as it may sound in theory, it can be risky for the organization to operate without a centralized department that follows up on the latest changes in employment laws and regulations. Small businesses can be hit especially hard by any wrongful employee related actions, especially on the legal side, because they do not usually have the financial resources to resolve them.

Organizations interested in flat management structures often resort to canceling their human resources department. Executives state that the old-fashioned HR departments, which takes over everything from hiring and laying off employees to upholding workplace diversity, hinders innovation and overloads companies with inefficient policies and procedures. However, employees often state that they do feel a big gap when the HR department is missing, especially when it comes to resolving employee relations matters as well as resolving payroll issues.

A survey between HR and non-HR employees at big and small organizations as well as asking experienced HR professionals for their input, confirmed some commonly held beliefs such as:

  • The most noteworthy difference between HR in small and big companies is the perception of competence and positive influence.
  • HR departments in small businesses can learn a lot from more experienced teams in larger organizations.
  • A well informed strategy as well as investments in HR technology can change perceptions of small-business HR for the better.

While many owners and CEOs of small to medium enterprises believe that the organization can function properly without an HR department, there are some challenges that they might not be aware of which could be holding the company back and preventing progress. Some of these basic challenges include:

  • Attracting and Retaining Top Talent: HR teams invest their energy and time into hiring the right talent and retaining key performers in the organization. This can save the organization a lot of short and long term costs.
  • Enhancing employees’ skills by upskilling and reskilling: With a well-structured performance appraisal system, in addition to the right tools for learning need analysis, HR professionals can help employees identify skill gaps and undergo suitable training programs.
  • Setting up policies and procedures and ensuring compliance: Policies and procedures are key elements in any organization and the HR department is responsible for developing them as well as ensuring that employee compliance.
  • Resolving employee relations issues: Often, this function of HR is not regarded as significance as other functions. However, as stated earlier, it is one of the primary elements that employees notice is missing in the absence of an HR department.

Small to medium Business owners aren’t done once they’ve appointed an HR person. A company’s needs change as it expands and thus a yearly evaluation is highly recommended. References show that companies with twenty five or more employees should have at least once person who is experienced in HR. If not, outsourcing should be taken into consideration. When the number of employees ranges between 75 and 100, a full-time HR generalist is needed to handle all HR areas including managing any outsourcing. Based on the experience of ideas group with small to medium enterprises (SMEs), it is highly recommended to recruit an internal HR representative who can act as a liaison with an outsourced consulting company that handles all HR functions on an operational and strategic level. The presence of the HR representative is crucial for the implementation phase and for the sustenance of any newly introduced practices that need to be embedded into the organization.

All businesses of all sizes need some kind of HR presence. There are a number of things that human resources professionals can do for a business that other employees simply can’t. The earlier on an organization hires an HR representative, the more time and money it will save on the long-run.

As Lauren Weber and Rachel Feintzeig from The Wall Street Journal put it: “Sometimes the only thing worse than having an HR department is not having one.”


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