From an employee perspective, a human resources (HR) department is there to protect them, a place where they can bring their grievances and have them heard. The employer’s perspective is different—they believe the primary purpose of an HR department is to screen out undesirable candidates. Both are true, but even together they don’t tell the whole story.
What is human resources?
The Great Depression was a time of great change in the financial and business worlds. In 1915, only 5% of large companies in the United States had personnel departments. The New Deal programs of the 1930s and the rise of labor unions increased that number significantly by 1948, when the American Society for Personnel Administration (ASPA), the world’s largest such association, was founded.
In 1950, the ASPA began publishing Personnel News. In that era, personnel departments existed mainly to protect workers’ rights. In 1989, the ASPA was renamed the “Society for Human Resources Management” (SHRM), and Personnel News was renamed HR Magazine. Today, HR departments ensure companies remain in compliance with labor laws and industry regulations, help vet new technology and resources, and encourage diversity across the workforce.
What does HR do and why are they important?
Your HR department might not look exactly like those of your peers or larger companies within your industry, but here are some basic functions that every HR department is responsible for:
Recruit, hire, onboard, and retain
This is close to the original purpose of human resources as outlined by the ASPA in 1948. The purpose has expanded in modern times to also include overseeing department management and corporate restructuring. Onboarding has also changed with the development of new payroll and HR software.
Train and support employees
Professional development and performance reviews weren’t necessarily a priority during much of the twentieth century. Today, HR is responsible for making training and support available to all employees who want to improve themselves.
Manage payroll and benefits
The HR department processes employee payroll, but doesn’t set their wages, as HR representatives are meant to be impartial about compensation. They’re also responsible for explaining and managing employee benefits.
Mediate workplace conflicts
Employees don’t always get along with one another or with their managers and supervisors. In these scenarios, it’s better for the parties involved and for the company to have a third-party mediator. HR departments have historically filled that role, especially in larger businesses.
Comply with labor and union laws
Labor and union laws are complex and change frequently. As a business owner, it’s a lot to keep up with, so delegate that responsibility to your HR department, as labor laws are their areas of expertise.
Keep company records
Government agencies like the IRS and the US Department of Labor want to see documentation and records when issues arise. That paperwork needs to be kept in good order by the human resources and accounting departments.
Establish and maintain company culture
Fostering company culture can be challenging in the era of hybrid and remote work models, but it’s still an important draw for potential employees. HR should also promote diversity, equity, inclusion, and belonging (DEIB) at your company.
When’s the right time to start an HR department at your business?
Entrepreneurs are often their own human resources department during the startup phase. The time to delegate HR responsibilities is typically when the company reaches ten employees, but this can vary—the right time for you to start an HR department is when your organizational needs dictate it.
How to establish an HR department at your business
Creating an HR department is an involved process. Here’s a step-by-step list of what you need to do to get one up and running at your business.
1. Assess your company’s HR needs
The size and complexity of your workforce are the two key metrics for assessing HR needs. You’ll also want to factor in projected growth and whether your current HR department can scale.
2. Create an HR plan
Use your needs assessment to create a roadmap for incorporating HR into your company.
3. Hire HR professionals
Human resources is a $20 billion industry that employs roughly one million people globally. Find HR professionals with experience to help start your department.
4. Establish HR operations
Work with your HR professionals to draft some policies and procedures for your new HR department. These guidelines should be treated as “living documents” that can be updated as needed.
5. Ensure regulatory compliance
Each state has different labor regulations that your company will need to comply with, and these change frequently. Have your HR experts make sure you remain in compliance.
6. Integrate HR systems
The right technology can make your HR department more efficient and reduce the chances of your company being non-compliant. Install payroll and HR software that can help your team accomplish all their goals.
7. Develop employee onboarding and training programs
The HR department will be responsible for employee onboarding and training, but the executive and management teams will need to set the parameters of what this looks like.
8. Cultivate a positive work culture
Culture can often be the deciding factor when prospective employees evaluate multiple job offers. Use the principles of diversity, equity, inclusion, and belonging (DEIB) to build a positive work culture at your firm.
9. Evaluate and improve HR practices over time
Your HR team should study and embrace new techniques and concepts as they become available.
Should you outsource HR?
Some HR operations can be automated, like payroll and certain onboarding steps. Other tasks can be outsourced to professional employer organizations (PEOs) or administrative services organizations (ASOs). Here are some benefits and drawbacks to doing that:
- Streamlines your operations: HR firms are specialists in employee/company management. They offer a turnkey solution to your HR needs.
- Reduces your HR expenses: You don’t have to hire experts to get expert help. That makes a firm easy to scale if you’re planning on accelerated growth.
- Mitigates risk: HR firms are specialized to understand labor laws and tax compliance. An in-house HR team may need training in those areas.
- Reduces your control: You’re giving up direct control for convenience, which could result in a misalignment of HR firm objectives and company needs.
- Could alienate your employees: Your employees might see an outside agency as something imposed on them, not an organic part of their company culture.
Relinquishes privacy: Outsourcing means giving away sensitive info about your company and your employees. Make sure you can trust your firm’s cybersecurity.