The question of whether a company needs a Human Resources (HR) department is not a simple one to answer. Ask the question to a variety of entrepreneurs, CEOs, and HR professionals and you’re likely to get a variety of answers. For instance, many experts will tell you that the number of employees in a company is the determining factor. A lot of companies with total employees under 20 assume that they don’t need an HR department. But size isn’t the only issue to think about. Other considerations include:
- The scope of HR services needed
- Whether requirements are limited to transactional services
- Are strategic services mandatory
- Will the department operate as a cost or profit center
There are no two ways about it; HR is mandatory
In reality, HR functions must be conducted for every company—no matter how small or large. So properly framed, the question to ask is: “What is the most effective way that HR services can be delivered by your company?” Is it better to have an in-house HR department doing the job or is it better to partner with outside HR experts, using a variety of vendors or even to a single source? For example, many organizations find that it’s more convenient, and more cost effective, to outsource transactional services such as payroll, tax, and benefits administration, while partnering with a strategic HR partner to deliver high value consultation.
It isn’t just company size that determines which HR approach is best
Whether or not a company needs an HR department also depends on its business category and the competitive challenges it faces. Say you are a relatively-new, rapidly-growing firm offering professional services. You need to quickly onboard highly specialized talent and you can’t afford to waste time by hiring the wrong person. In such a situation you are likely to require high-end recruiting capabilities that are beyond the scope of most in-house HR departments, thus the importance of a strategic HR partner is eminent.
On the other hand, if you are a manufacturing firm with a primarily blue-collar workforce—or a company employing unskilled workers—a small, in-house transactional-focused HR department may satisfy your needs.
Does your company require more than administrative HR services?
The depth and breadth of HR services required by a company should determine the composition of the system it picks to deliver them. One of the ways to find out if in-house department, multi-vendor delivery, single source service—or a combination of all three—is best for your company is to decide which of following transactional and strategic services your firm requires:
- Payroll & tax administration
- Liability protection
- Legal compliance
- Benefits negotiation
- Benefits administration
- Talent acquisition
- New hire onboarding
- Performance management
- Leadership training
- Employee development
- Time and attendance monitoring
- Termination review and guidance
If you are a small- to mid-sized company with an employee base of blue-collar or unskilled workers and you only require transactional services, outsourcing coordinated by a single in-house employee may work best. When a growing professional services business like the one mentioned earlier needs both transactional and strategic HR services, a single-source professional employer organization (PEO) may be the way to go. A PEO can provide a comprehensive menu of HR services, including robust benefits packages that will allow you to attract top talent. On the other hand, if you are large manufacturing company with over 300 workers, your size gives you the clout to negotiate competitive rates with benefits providers—therefore an in-house HR department may work for you.
Don’t overlook the profit-center capabilities of today’s HR department
Whichever HR structure your company has in place, it is important to conduct an ongoing assessment of that system in order determine if systemic changes are needed to ensure that your employees are receiving the optimum services possible. As you conduct such an investigation, also recognize that HR has evolved in the last decade. Beyond employee benefits, ask yourself if your company needs a more comprehensive range of transactional and strategic HR services. Today, many leading-edge entrepreneurs realize that a peak-performing, strategically focused HR operation can generate both savings and profits for the businesses they serve.
The question of why a human resources department is important does not have a simple answer. However, understanding the benefits of strategic HR will help guide you in determining whether in-house HR, outsourced HR, or a combination of the two best suits your business’ human resources needs.
Learn more about how TriNet can be your strategic HR partner. Contact us today.
The contents of this article have been prepared for educational and information purposes only. The content does not provide legal advice or legal opinions on any specific matters. Transmission of this information is not intended to create, and receipt does not constitute, a lawyer-client relationship between TriNet, the author(s), or the publishers and you. You should not act or refrain from acting on any legal matter based on the content without seeking professional counsel.