By J.D Ndungu
When you are a small business owner (micro and small businesses), you are responsible for several roles – but as your business grows, the challenge becomes bringing the right people into your business so that you can focus on the bigger picture.
HR’s key responsibility is managing these employees and it tends to be viewed by many businesses as purely an administrative function. Managing employees can grow increasingly more complicated as your business grows so the need for having a dedicated HR professional/department is clear, but can be hard to execute.
So when would you need a dedicated HR department?
This will vary from business to business, but from a numbers perspective, it is recommended that one considers an HR department when you grow to 15+ employees. Obviously, the more employees you have, the more help you would need managing those employees. When considering the HR function, however, the number of employees should be just one factor in making the decision.
What do you need to get done for the people in your business?
Each entrepreneur comes with their own strengths and weaknesses; and this usually shows up in their business. If the business is being led by a 15+ year career professional from the private sector, they will tend to handle their business differently from a serial entrepreneur who doesn’t come from the same space. But each entrepreneur will face similar challenges that can be supported by HR, such as:
- Employee Relations – Beyond the onboarding process, benefits administration and disciplinary procedures, HR can be responsible for employee welfare and create a space for the employees, should they need anything resolved without going to the business owner directly.
- Talent management – Finding the right people doesn’t mean they will always remain the right people. The problem many small businesses face is that the organisational needs can shift at the drop of a hat. Who helps support staff through these rapid decisions beyond a hands-on business owner?
- Compliance – The intention of any business is to provide value to its customers and build income to the benefits of its owners. A potential by-product of this, depending on the business owner, is a business that does not adhere to employment laws that are designed not only to protect employees, but the bottom line of the business. A clear example of this is Safaricom, a local telecommunications company that although had identified fraudulent practices by it’s employee, still had to pay penalties due to a lack of adherence to the due process.
- Paying attention to the cost of employees – Cost is a key metric in any businesses operations and the cost of hiring moves far beyond their basic salary. When hiring employees, the types of contracts and benefits that you offer them has a short and long term effect that very few businesses pay attention to until it is far too late. Labour costs on average can range between 40 – 70% of total business costs and so for many businesses, understanding what makes up these costs and the value, both tangible and intangible, are important.
Advantages of having a separate HR team
HR can be an incredible enabler for businesses and is only truly limited by the imagination of the business.
For the business owner, the biggest benefit in hiring HR professionals/building an HR department frees up time and mental capacity to focus on their core business and how to grow that. A business owner that is focused on the day-to-day management of HR matters is an inefficient use of time for both the business owner and the employees. The various competing needs of the business that is the responsibility of the business owner may slow down the processes needed for the employees and business at large.
Having an HR team or provider can ensure that the appropriate processes are being followed across the business. Following the earlier example, another area that could benefit from HR is the hiring process; the business owner may rush through the process in order to get back to their regular responsibilities and make basic errors that have a long-lasting impact well beyond the process. For employees, having an HR function can help them focus on their specific tasks without possibly needing to double up with HR responsibilities.
Building psychological safety for employees can be an incredible, intangible benefit and the HR function could be responsible for this. This is especially necessary in the unfortunate situation where an employee needs to report a difficult situation such as inappropriate conduct by a colleague etc. There is an element of peace of mind that comes with having HR professionals handling all matters HR as they are likely to have a more in depth understanding of employment law and regulations. From a business perspective, having a strong HR function that is focused on reducing HR related mistakes would have a significant impact on the bottom line.
But there is still the factor of cost…
While there is no set rule on when a business should have an HR department, investing in HR can be a significant accelerant to a business’ success in the long term. But as with any business, you can see and appreciate the value of a solution, but there is still a cost element to it. So how can you capitalise on a value adding HR function without having to develop that capacity yourself? Outsourcing.
We will explore outsourcing your HR function as a small business in the next article.
