Do Small Businesses Need HR?

For small businesses wrestling with tight budgets and lean staffing decisions, the question of “Do small businesses need HR?” is particularly pressing. Hiring a full-time HR professional may seem like a considerable investment, leading many small business owners to wonder if it’s feasible to operate without a dedicated HR manager, especially with a modest team size.

However, HR departments play a pivotal role in both external and internal functions of a business, ranging from recruitment and onboarding to conflict resolution, and from managing payroll and benefits to shaping company culture. For small businesses, the essence of HR transcends mere position filling; it encompasses nurturing and retaining talent, ensuring legal compliance, and fostering a positive workplace environment. Recognizing these vital functions, small businesses might find outsourcing HR to be a more practical solution. Outsourcing offers access to expert HR services without the overhead costs of a full-time staff, providing a flexible and cost-effective approach to managing these critical operations. Therefore, for small businesses evaluating their growth and operational efficiency, considering outsourced HR services can be a strategic move.

What are the important HR requirements for a small business?

While recruitment, onboarding, and developing your employees are key functions of your HR staff, HR is also responsible for keeping your business in line with current legal HR requirements. HR documents for small businesses have to be maintained, and you need to know the necessary administrative HR functions. Here is a checklist of HR services for small businesses, as well as an additional list with functions necessary for high-growth businesses:

Small Business HR Services:

• Payroll: Register to hold payroll tax in your state and state employment, and any other state-specific registrations should be addressed. You should consider how payroll affects different roles at the company, like sales. Often different types of compensation, like sales commission, requires a payroll system with more flexibility.
• Insurance: State required workers comp and other business insurances as appropriate 
• Benefit offerings: Medical, dental, vision, and other ancillary products like long and short disability. 
• 401K or HSA: We view these as separate benefits from medical. 
• Employee handbook: No matter your size, we recommend a handbook both because of liability and because it forces employers to think through the policies you want to create for your team. A handbook should be more than just a document you send out to check a box. It should be a helpful resource for your employees and should set the tone for company identity and culture 
• Team-specific policies: If you’re hiring remote employees then you also need to think through remote- specific policies. 
• Employee feedback: While employee surveys may be overkill at most small businesses, it’s important to think through feedback you would like to collect from each of your employees as it pertains to employee engagement, performance, satisfaction, and compensation. 
• Sexual harassment and discrimination avoidance training: Every company regardless of size should set up a training using a vetted partner. 
• Compliance review: Put in place an annual review to refresh employment law practices based upon changing state and federal laws. Most companies that are non compliant (and there are many) started out compliant and fell out of compliance as laws changed. 
• Clear hiring and termination practice: Hiring and termination best practices are critical to define as you think about hiring even one employee. Yes, establishing fair practices will cover the business in case of potential liability and lawsuit. But looking past legal liability, establishing fair practices from the jump can help you set up a positive reputation for your business. 

High Growth HR Services:

• Onboarding: If you anticipate high growth, onboarding processes become an immediate priority so your team can be ramped up as quickly as possible. Having any sort of onboarding strategy improves the potential of employee retention by 50%, and a great onboarding process ensures 69% of employees stick with a company for at least three years.
• Employee file structure: Take it from us, it’s much, much easier to establish an organizational structure for your employee documents when the company is small. 
• Talent acquisition: Your recruiting strategy and basic recruiting processes will create a positive experience for a potential candidate. It’s worth mentioning here, everything else on the list here will become selling points as you work on attracting and retaining top talent. 

Your business can be fined for not following proper posting requirements. Keep in compliance with this and other important legal requirements for your small business. The administrative roles of HR are as vital as competitive talent acquisition functions.

Do small businesses need HR?

There are several ways small businesses can try to fulfill their HR needs—saddling all responsibilities on a few core people, ignoring some HR functions, or even trying to delegate HR responsibilities onto current employees in other roles. This turns into a juggling act as you attempt to adhere to legal HR functions, complete documentation, and keep up on employee management. 

The role of HR in small business can’t be shouldered entirely by those in your organization with other primary responsibilities. You risk turning over those employees as you ask them to be responsible for tasks not included in their job description. 

Keep in mind what you’re asking, and why small businesses need devoted HR resources:

• Talent recruitment and performance management
• Interviewing, Application-flow, and Onboarding
• Training and Development
• Payroll and compensation
• Benefits and Leave
• Risk Management and Documentation
• Termination duties and compliance

These are important functions that, if done incorrectly, can bring serious risk to your business. 

What are the risks of not having an HR department?

Legal fines or court fees aren’t the only thing at risk for your small business should you ignore or downplay HR functions. You risk losing your competitive edge by not attracting key talented employees who want to work for an organized, professional company. 

As you begin to recruit, interview, and onboard employees, these HR functions are the first thing potential employees see about your organization—it’s your best foot forward. What do they see when they look at how you handle HR right now? An human resources department that’s efficient, effective, and compliant? Or something else…. Once an employee is hired, HR includes the development and learning for your employees, actively improving their ability to perform. Not supporting your employees sufficiently will lead to higher turnover. 

So how do you get the execution and expertise of a full-service HR department to mitigate these risks for your small business in an affordable way? Small business HR outsourcing could be the solution.

How Milestone Can Help Your Business With HR Services

At Milestone, we understand navigating HR can be extremely difficult for small businesses. We provide small business owners with HR outsourcing services to help their teams determine and fulfill their HR needs, whether that means stepping in to take over needed HR functions or working with the team to determine the best HR strategy. 

We know most small businesses aren’t covering HR responsibilities as well as they would like, and we’d like to help provide the outsourced solutions to get them on track. Learn more about Milestone and the work we do today.