Are HR departments required?
Technically, the answer is no—they’re not required for a small business.
But for a successful small business, an HR function is required.
In this article, we explain why you need an HR function for your business, no matter the size, but also what it means to have an HR function. It might not look the way you think! Keep reading to learn more.
Do we need an HR department—or something else?
While the HR function is necessary for any successful business, having an entire HR department is often overkill for small businesses who simply need to cover the function, and not necessarily staff a whole office.
For example, a small business of 20 employees likely doesn’t need to have a full-time HR person, because, frankly, that person won’t have a full-time job (but to be clear, the need for an HR function exists at all company sizes). As a small business, your human resource needs vary greatly, ranging from recruiting and onboarding to handling employee benefits, overseeing performance management, dealing with employee conflict, and more. Unfortunately, it’s nearly impossible to hire one person who is skilled at handling everything.
In a company of 20 people, it’s just not smart business to hire a dedicated HR employee. Realistically, it would eat up your resources. And even if you found someone you could afford, that one hire almost certainly wouldn’t have all the skills your small business needs.
Or, imagine your business has a stable work environment with long-term employees and not much hiring activity. You simply don’t need a full-time employee to be an HR presence.
As long as you have resources and experts on your side, alternative solutions exist for companies of all sizes and needs—and they often make more sense than having an in-house HR department. A PEO can be used as the sole solution, or to augment internal HR staff with additional expertise and functionality.
An Attractive HR Department Alternative: PEOs
For companies that don’t need an HR department, there are other options for fulfilling this function, including PEOs, HROs, ASOs, and staffing companies. We’ve written about all these organizations here, and encourage you to read more about them, especially in regard to how they compare to the professional employer organization, or PEO—our primary recommendation for companies with no HR department.
Professional Employer Organizations (PEOs)
Of course we’re biased, but we think PEOs are excellent solutions for small and midsize businesses who need the expertise of an entire HR function but either don’t want to or can’t afford to hire out each of those functions in a standalone department.
GenesisHR is a Massachusetts-based Certified PEO that offers you expertise and guidance in all things HR—management, benefits, compliance, payroll, and more. There are hundreds of PEOs in existence, but we’re the only one that has a heart for our customers that’s as big as our knowledge of everything HR.
As New England’s premier PEO, we work with clients via a co-employment relationship, which means that, together with you, the client, we share and allocate employer responsibilities and liabilities. Our knowledgeable team provides a complete human resource solution for you, taking care of any or all of the following:
- Employee handbook guidance and creation
- Dedicated HR & payroll support team
- HR strategy guidance in the form of a certified human resource business partner (HRBP)
- Expert guidance in employment relationships
- Custom employee onboarding experiences
- HR compliance audits and corrective action plans
- Job descriptions and resources
- Customized management training programs
- Salary benchmarking
- Employee engagement tools and training
- Benefits plan administration
- Health, dental, and vision plan options
- Life and disability plan options
- Tax-preferred plans; FSA Health, DCAP, Commuter, HSA, HRA
- 401k plan administration (if adopting sponsored plan)
- Employee eligibility compliance
- HR technology and employee self-service
- Data management and reporting
- Payroll processing (multi-state)
- Payroll tax filings
- W-2 processing
- Direct deposit administration
- Business expense reimbursement
- PTO management and workflow
- Workers’ compensation administration
- Unemployment administration
- Employer practices liability insurance (EPLI)
- Labor law posting by state
- Annual OSHA logs
- Form 5500 filings
- MA HIRD filings
- ACA reporting
- COBRA administration
If you’re thinking that list looks like a lot, you’re right—it is! This is exactly why you should consider partnering with a PEO instead of creating an in-house HR department.
So many small businesses are doing the best they can—either by cobbling together an HR department or handling HR functions in a piecemeal fashion—but it’s almost certainly not enough. Trust us—you really don’t want to handle the hard stuff on your own.
What should you do if you’re missing something from your HR function?
If you’ve read this article and realize you’re missing an HR function that can help your business grow and protect you with regard to compliance, you’re in the right place. Here are a few resources to consider:
- Engage an employment attorney to audit your small business and give you pointers on how to strengthen your HR function.
- Consult your local chamber of commerce. Many have many small business resource centers where you can share knowledge and information with other companies like yours.
- Expand your HR knowledge by reading the resources provided by the Society of Human Resource Managers (SHRM). A subscription gives you access to a large library of data you can use to level up your HR expertise.
- Consider reaching out to a PEO to come work alongside you, so you can focus more fully on running your business.
Nothing compares to having a strong PEO in your corner. We’d love to be that PEO for your business! Take a look at who we are and what our clients think about working with us, and then schedule a time to talk to us to see if you might be a good fit for our PEO—and if we can help you grow your business by providing that solid HR functionality you need.