When you start a business, there may not be much to your human resources. But when your business grows, you hire more employees and the workload mounts: orientation and training; keeping track of hours, vacations, and sick days; procuring and managing health insurance programs and other benefits such as flexible spending and 401(k) programs; terminating employees; and keeping up with general employment laws as well as the rules and regulations that apply to your specific industry.
“Depending on how fast you’re growing, human resources can get out of control real fast,” says Gail Pierce, who has handled HR for several startups and is now CFO of Newmerix, a software company with 40 employees.
If you have only 10 employees and your business is stable but not growing dramatically, you’re probably fine with the status quo. But if your business is growing fast, employs highly compensated professionals, has a virtual workforce, or has high turnover, you’ll likely need help.
By the time your business has 50 employees, you may need to hand off at least some HR duties. Perhaps the office manager is handling the paperwork and department managers are doing most of the interviewing and hiring. But having different people involved can mean that things aren’t done consistently. How do you make sure that interviewees are all given the same, and the correct, information about the job, your company, and its policies? For that matter, do your own employees even know what those policies are? Do you have an employee handbook that spells them out? And do you have a standard process by which employee performance and compensation are reviewed?
“That’s when you need to start formalizing HR, because you’re no longer touching everything,” says Verne Harnish, CEO of Gazelles Inc., a consultant to small and medium-sized companies.
The number of employees isn’t the only measure of your company’s need for more HR support. What if your employees are scattered? Maybe some of them work from home; maybe you have salespeople across the country.
“When you start crossing geographic boundaries, new rules come into play,” says Martin Babinec, founder and CEO of TriNet, a professional employer organization that handles human resources for small businesses in the technology, finance, and professional fields. A geographically scattered workforce brings into play multiple state employment laws. Different states may have different regulations on taxes and workers’ compensation, for example.
Among the laws that may affect your business are the Americans with Disabilities Act (which kicks in at 15 employees), Title VII (15 employees), Age Discrimination in Employment Act (20 employees), and the Family Leave and Medical Leave Act (50 employees). All it takes is one disgruntled former employee to stir things up and you can have a legal nightmare on your hands.
So what responsibilities should you offload if your business is overburdened with HR duties? And to whom should you transfer the tasks?
Some jobs are repetitive and high-volume transactions, such as payroll processing, which you can easily automate with software or outsource to a third party. Some payroll companies also offer other services such as employee screening, benefits, and workers’ compensation services. There are also companies that offer HR software as a service over the Web, and some companies handle the paperwork necessary for you to offer your employees 401(k) plans.
Even the best third-party provider won’t cover absolutely every HR duty. You’ll probably retain certain company processes that build your company’s unique culture: setting quarterly performance goals, offering special employee incentives, or devising a special way of acknowledging employee birthdays, for example.