When a business is first starting out, the owner takes on much of, if not all of, the responsibility for everything the business does. These responsibilities include hiring new people, finding more customers, advertising, ensuring compliance with government regulations, and more. As the business grows, and adds new employees, it’s no surprise that it becomes harder for one person to handle everything. Eventually, if the business grows large enough, the owner will need to delegate some of the HR tasks to someone else, or create an official HR department altogether, so that the owner can continue to focus on big-picture items.
In many cases, the business will outsource HR duties and processes to either a software-as-a-service (SaaS) or another firm altogether, rather than creating their own department. This saves money at first, since the HR tasks are few, and starting up an entire HR department would take time and cost money. However, as time goes on, and the number of HR-related tasks grows, it may make more sense to create an official HR department within your business. Before you make the switch, there are a few factors that you can consider that will help you to make your decision.
What’s feasible for the size of your company?
How many employees you currently have will play a large role in determining whether or not you need your own HR department. If your business is fairly new and currently has less than 10 employees, you likely don’t need to establish an HR department. At this stage of your business, you can outsource much of the work that an HR department would do, such as ensuring your employees get paid, managing their benefits, or finding new candidates for hiring. Adding more employees just to manage the few you have already likely won’t make financial sense, and you’re better off outsourcing at this stage, or perhaps even just handling things on your own for now.
When your business grows between 10 and 50 employees, you’ll likely need at least one dedicated employee to handle the HR tasks. You’re not at the stage where you need an entire department yet, but you do need someone on staff who can handle some of the larger tasks. Outsourcing still plays a role here, as you can use outside companies to help you to do things like hire new people, or manage your payroll, but you’re at the point where you no longer have time to do things yourself.
It’s about when businesses approach a few hundred employees that they should consider an in-house HR department. Imagine this scenario: you’re recruiting new people all the time, compliance has become a bigger issue, and you need professionals who can help you with further expansion. A dedicated HR department at this point can do things like keeping employees healthy and happy, coming up with initiatives to improve skills, compiling an employee handbook, and more. Your company has grown to a healthy size and you need people who are thinking big picture when it comes to human resources.
The more your company grows beyond that, the more sense a dedicated HR department makes. There may always be a place for outsourcing some of the more basic tasks, allowing your department to focus on more strategic goals, but by now it likely makes financial sense to bring most of your HR tasks under one roof.
Adding an HR department comes with a cost
There are plenty of benefits to adding HR professionals to your team, or even establishing an entire department. However, these come at a cost. Every time you hire a new employee, you are taking on more costs to your business, and you need to weigh if the costs are worth the value you are getting. If your business is still on the small side, your HR department likely won’t have much to do, and the salary + benefits you are paying them will not be worth the value.
However, if your company is growing, and your HR department is helping to bring in new, talented employees, while improving your existing employees and making sure the company is always compliant, they are now worth their value.
Another cost to consider is the cost of freedom. When you’re first starting out, you control the business and decide how everything runs. Once you start hiring HR professionals, you are giving away control of part of your business operations, and letting someone else make important decisions for the company. While this may be necessary, it is still something you should consider before making any changes.
Remember to continuously examine your the business
Before you decide to start hiring an entire HR department, take the time to examine your business. How many employees do you have? Which HR tasks could be outsourced? Does hiring HR professionals give you a competitive edge, or make financial sense? These are the sorts of questions that you need to ask yourself, and the answers will help you to determine whether or not you need your own HR department.
If you think you’re on the cusp, and possibly ready to start bringing in more HR staff, a good place to start is talking with your current HR professional. They will be the best qualified person to let you know if they need help, what tasks they need help with, which parts of their job could be outsourced, etc. This should help you to decide if expanding the department is necessary, or if you can get away with just finding another part that you can outsource.
The goal of most businesses is to continue to grow and attract new customers. As this happens, the needs of the business change, and important decisions must be made on how you are going to run things. Businesses owners must decide first when they need help with HR-related tasks, and eventually when they need to grow it into its own department. By examining the size of your business, the current state of your HR and your budget, you should be able to make an informed decision regarding whether or not you need to establish an in-house HR team, outsource some tasks, or do everything yourself.