Woman smiles and shakes the hand of a new employee
If you’re not sure whether you need an HR department — or if you can outsource your HR — here are some things to consider. — Getty Images/VioletaStoimenova

A human resources department can fulfill many business needs: labor law compliance, employee recruitment, employee engagement and development, and compensation and benefits management. At large enterprises, HR is often the backbone of the organization, defining the company culture and investing in the long-term success of its employees.

HR plays a vital function, but for some merchants, it’s not always feasible to create a separate human resources team to serve a small number of employees. If you’re not sure whether you need an HR department — or if you can outsource your HR — here are some things to consider.

[Read more: Outsourcing HR: Is a PEO or ASO Right for You?]

Why do small businesses need HR?

In evaluating whether or not your company needs an HR manager, partner, or full team, it’s important to understand the role that HR serves. Human resources is in charge of:

  • Ensuring the company is compliant with local, state, and federal employment laws.
  • Hiring and retaining new employees.
  • Training employees and supporting their professional development.
  • Managing compensation and benefits.
  • Handling performance reviews.
  • Creating an inclusive company culture.
  • Writing and maintaining employee handbooks.

Many small business owners take on tasks such as payroll, benefits management, hiring, and training, instead of hiring a human resources generalist or bringing on a partner; however, that can limit the ability of the business to hire and foster great employees who help the business grow. At some point, it makes more sense for the business owner to delegate these tasks.

Most experts recommend bringing on a full-time human resource staff member when there are at least 10 employees within the company.

When should a business owner delegate HR?

There’s no “rule” stating that a small business must have an HR team or manager in charge of human resources activities. But, most experts recommend bringing on a full-time human resource staff member when there are at least 10 employees within the company.

Some business owners decide to hire an HR partner sooner, rather than later. This decision takes into account how you value your time. Determine what your time is worth as the business owner. “These unrelated tasks can add up and take valuable time away from the actual productivity and profitability of your business,” wrote Concordia St. Paul University. “If you start to see a notable dip in your productivity level or other employees aren’t able to keep up with the extra demands on time because of HR duties, it is probably time to consider hiring a human resource generalist.”

It’s not just about valuing your time, however. Creating a separate HR team can help increase employee engagement and open, inclusive company culture.

What are the benefits of creating a separate HR team?

HR plays a key role in employee engagement and retention. Research has found that 75% of employees would stay longer at an organization if they feel the company listens to and addresses their concerns. Especially at a small company, having someone other than the business owner to listen to and address employee needs can help keep everyone working together professionally.

[Read more: How to Create Loyal Employees (and Why It Matters)]

Delegating recruitment efforts can also help a small business save money. A survey from CareerBuilder found that the average cost of hiring the wrong person can be $17,000 annually — including the cost of lost productivity, time, and the expense of hiring and training a replacement. Empowering an HR specialist to oversee the recruitment, hiring, and onboarding process can help reduce this risk.

Should you outsource your HR function?

If you decide to delegate your HR role, the next step is to determine whether to hire an HR specialist or outsource HR to a third party. Professional employer organizations (PEOs) and administrative services organizations (ASOs) are organizations that can help you address pressing operational needs without having to sacrifice the time you spend on making your business successful. There’s also HR software that can help you manage specific HR-related tasks, such as payroll software, hiring platforms, and onboarding tools.

[Read more: A Complete Guide to Outsourcing Human Resources]

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published April 13, 2022