When Is An HR Department Necessary?

When Is An HR Department Necessary?

How many employees should a company have before there is a need for an HR Department? As companies grow, there is a need to administer the HR function, but that doesn't necessitate an HR Department. In fact, 30 years experience has shown that until the company has at least 50 employees, that "department" -- really a function -- can consist of or be handled by one person...often much to the dismay of that one person.

Between outsourcing such things as payroll and the initial writing of an employee handbook, and with the plethora of software for HR today, one person should be able to develop and administer the function.

Of course, there are variations to this theme. In some companies where recruiting has been a major activity, there may well be a need to have an HR administrator or "Benefits Clerk" and a recruiter. But in most small companies an Office Manager can suffice.

Historically, what necessitates an HR Department are the functions and responsibilities which no one else either wants or is capable of doing. From recruiting to orienting new employees, from writing job descriptions to tracking attendance, and from instituting and monitoring policies to monitoring benefits, there has been a need for an HR generalist to assist senior management in both establishing a structure to holding down costs of administration. In fact, I have felt for some time that the initial title for the HR person should be "Administrative Manager."

Let's say that you have been hired or requested to establish an HR function. What do you need to do?

The first step is to determine what the expectations are of the manager who realized the necessity of the function. In very small companies, this is often the owner or most senior manager who just returned from a seminar or workshop where an attorney -- or a whole herd of attorneys -- has scared the hell out of him or her by pointing out the complexities of complying with federal and state labor codes. Using some of the responsibilities listed below, develop a job description with that manager which at least outlines what the job entails.

After that, determine the compliance issues which pertain to your company. The most basic of these have to do with wages and hours of work, classification of employees, the I-9, COBRA (down from 20 to two employees in California and New Jersey, by the way), leaves of absence including maternity and family leaves which differ from state to state, ADA, harassment, and a host of others. (Charts and attendant articles - including a 2005 job description - are found only in the subscriber's section.)

Then, determine whether or not you need to have an employee handbook or other formal policies and procedures manual to cover everything from establishing the company as an at-will employer to benefits. If a handbook already exists, be certain that it is in compliance with federal and state regulations and that the policies and the way they are written are in the best interests of the company.

Are all the basic policies included? These can be thought of as grouped into conditions of employment, benefits, and disciplinary processes. Is there a balance between stated corporate and employee rights and obligations?

Take a look at existing employee files or, if no files exist, gathering all the papers into coherent personnel files. Minimally, you should have an Application for Employment form or resume, a W-2, any insurance forms that the employee may have signed, and performance appraisals. I also like to see start dates, dates of reviews, dates of promotions, and all the changes in wages or salary. Because personnel still runs on paper and paperwork, do not rely too heavily on computerized files. (Besides, such files seem to disappear with regularity nowadays.)

Who takes care of payroll? There used to be an ongoing fight between HR and accounting as to who gets payroll. I have no idea why anyone would want it and it does belong in accounting more so than in HR but, should the question arise, the answer today is to outsource payroll to a payroll service (or a bank which offers such a service). There are still responsibilities such as informing the payroll service of changes in individual wages or salaries, docking, and final pay, but payroll services are definitely the way to go. They do vary in quality and quantity of services, so you will have to compare. Do not let a payroll service sell you more than what you need...which means that you'll have to do some research into what you need.

Benefits administration is and should be separate from payroll. Even if you have the best broker in the world (who you only have to monitor on a semiannual basis), there is always internal administration of such packages. Further, you will have the responsibility of being the source for answering questions about all forms and types of insurance, the differences in options, and the cost to employees. One of the ways that HR can contribute to the company is by keeping the costs of benefits down, and this means auditing the policies periodically to be certain that there haven't been increases in premiums either directly or indirectly through a decrease in benefits.

One person should be responsible for new employee orientation. In order to inform new employees of their benefits and the policies of the company, you will very simply have to be the expert in benefits and policies of the company.

Does the company have a compensation system or is it pretty much a hit-or-miss proposition? Are there job descriptions? Job specifications? Is compensation tied to responsibilities? Are increases in pay tied to contributions to the company, i.e., pay-for-performance? Do you need a graded compensation system? Contrary to popular opinion, I am not certain that a compensation analyst from outside the company is needed to set up a system in a company with fewer than 50 employees. I know that one is not necessary for companies with fewer than 20 employees. On the other hand, all these questions were rhetorical.

What you will have to do is become proficient in writing or formalizing job descriptions. We can help as part of a subscription to ewin.com.

HR has an information function that you should think through. Changes in policies, changes in benefits, even changes in laws must be communicated to all employees. Major changes may call for training such as in harassment a few years back. Major changes in medical insurance benefits (as opposed to unemployment or SDI -- for those in states with SDI) have to be disseminated to all affected employees. Therefore, HR becomes a kind of pass-through in the information cycle.

I've left recruiting for last because it can be, but is not always a major function in smaller companies. Some small companies are very stable, hiring perhaps as few as one new employee in a 12-month period. Others are in very competitive industries where recruiting can be a function unto itself. Interviewing, selection, and placement are part and parcel of recruiting and a knowledge of the techniques involved is very important. Hiring the wrong person(s) is extremely expensive. Therefore, if recruiting is a major function, it may be in the company's best interest to have a professional recruiter and another employee to handle all the other functions. (The recruiter must also have a knowledge of benefits and policies and procedures, but his or her primary function would be to find and hire the best person at the "best" salary, i.e., one that satisfies the applicant and is affordable to the company.)

Certainly there are other responsibilities, but they should be considered as secondary. While diversity may be high on the list of the more "social-minded" managers, don't ever expect to sit at the executive table if you emphasize issues (or non-issues) such as this. Insofar as possible, stay with those areas having to do with risk management, planning, and costs.

Delegating the Christmas party and company picnic to someone else should be your first priority. Don't get caught up in becoming the company's "cruise director." You've got better things to do.

Ethan A. Winning

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