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The internet is full of articles about the risks of not having an HR department, and the penalties this could apply to your business. Yet while HR is extremely important, an HR department is not a realistic proposition for most businesses – many of which lack the staff, structure, or facilities to either support or justify having one.

As your business grows, you are likely to benefit more from a dedicated HR department, and the administrative burden it releases you from. Regardless of whether you have an HR department, however, the first and most important step is to develop an effective HR function – and have the training and resources to implement strong HR policies and procedures.

When is an HR department necessary?

Estimates for the right time to establish an HR department range from 15 to 100 employees. The reality will differ depending on the nature of your business, the way it is structured, and the industry you are in. Businesses spread across multiple locations, which have a mixture of on-site and remote employees, or which employ people across a range of disciplines (particularly outside of the knowledge and experience of the business owner) will find it harder to manage employees effectively, and be at greater risk of discontent or other issues.

10-15 employees is around the point where it is at least advisable to take stock, and assess your implementation of HR. All businesses are likely to have some basic policies in place from the start, ensuring that legal obligations such as payslips are fulfilled, and making avenues available for communication between employees and management. What many smaller businesses lack is a rigorous set of policies, and a framework to apply them consistently to all employees.

As long as you feel comfortable managing key HR responsibilities – legal compliance, happiness, training, and progression – you will be able to manage without an HR department. However, the need for an HR department should itself be up for regular review. There will come a point where the lost time from recruiting, ensuring legal compliance and monitoring performance will apply a greater financial penalty than not having an HR department.

How to improve HR without a department

Most businesses will not invest in the creation of an HR department until it’s necessary to do so. As such, the focus should be on laying out a clear and manageable set of HR policies, and deploying a framework that allows these policies to be applied without the need for constant oversight. Achieving this will allow you to address the most common and routine HR issues without impinging too much on your other responsibilities.

HR Essentials training is an ideal starting point to ground yourself in HR, and get a full appreciation of the role it plays in a business. This training addresses the two fundamentals of HR: employing staff and managing performance. An effective business is not just one that hires the right people, but one that keeps them happy and motivated, and presents a positive image of the business to potential recruits.

Through this training, you’ll be able to build a framework for successful recruitment and management. This includes a clear and comprehensive employee handbook, outlining your business’ policies and procedures, what is expected of the employee, and any laws which might affect them in their role. This might be accompanied by softer workplace rules and norms, as well as a formal induction process to bed staff into their roles.

The exact contents of an employee handbook are down to the employer, and will differ depending on your industry and policies. However, they commonly include details on:

  • The company’s background and mission statement
  • Policies
    • Attendance and punctuality
    • Dress code
    • Workplace safety
    • Personal conduct
    • Pay (e.g. overtime, sick pay)
    • Performance reviews
    • Promotions
    • Meal and rest breaks
    • Notices & terminations
  • Benefits
    • Holidays
    • Leave (sick, compassionate, etc)
    • Pensions
    • Training
    • Perks (e.g. healthcare)

Defining these policies will help you to instigate attendant processes, such as scheduling regular performance reviews. By consistently applying the rules laid out in your employee handbook, you’ll help to prevent grievances from individuals being treated differently. Through HR training, you’ll also learn soft skills that will help you to manage individuals and foster a culture of open communication, helping to identify any breaches of these policies, or areas that would benefit from clarification. 

The risks of not having an HR department

Once your business has reached a certain size or complexity, the risks of not having an HR department can increase substantially. Regardless of how good you are at managing employees, there will come a point at which dealing with recruitment, conflict resolution and legal responsibilities becomes untenable.

Having an HR department not only helps to resolve and prevent issues with employees, but helps to build trust and security, improving retention and recruitment. Below are some of the most common issues fielded by an HR department, and the impact they can have on a business if left unresolved.

Tensions can simmer

One of the most important roles HR plays is in resolving issues between employees before they snowball. While these may be minor disagreements or perceived infractions, a lack of resolution can leave employees unsettled, and create tension in the workplace. This not only affects the individuals involved, but everyone around them, as conflicts can quickly escalate and impact people’s mood and morale. 

An HR department helps to settle these kinds of issues, and prevent anger or discontent that can unsettle the working environment. Even by being there as a point of contact and reassurance, the presence of an HR department can serve to dissuade employees from taking actions that they shouldn’t, and prevent tensions from manifesting in the first place. 

Legal issues can arise

As businesses grow, it’s easy to find yourself falling foul of rules and regulations. There are numerous things that a business might not require when it first starts out, and others that won’t be relevant until you have a larger pool of employees. Without strong frameworks for things like health & safety, holidays and sick pay, these issues can escalate as you scale up, and increase the risk of litigation and messy disputes.

An HR department helps to relieve this administrative burden from business owners, and ensure that your business remains compliant with employment law. This most obviously includes managing employee disputes, such as sanctions or cases of wrongful termination, harassment or discrimination, but it also applies to things such as safety. By talking with employees and formalising guidelines, HR helps to disseminate key information – ensuring everyone is clear on what the rules are, and protecting you from repercussions.

People can feel insecure

The absence of an HR department can have a chilling effect on employees, and could even prevent them from joining. HR acts as a protective measure for the interests of employees, and reflects a positive attitude on the part of the business owner. Investing in HR is a sign that you care about the welfare of employees, and the means by which you can work together to improve the work environment and culture.

Without an HR department, some employees may feel uncomfortable and somewhat vulnerable, whether that’s due to abuses of power or interpersonal conflict. This lack of safeguards can prevent people from speaking out about issues, leading to serious problems manifesting, and impacting employees’ happiness and productivity. Seeing that a business doesn’t have an HR department can be a red flag, and may imply a work culture that would not survive the scrutiny of good HR.

Recruitment is easier

Recruitment is often one of the most difficult aspects of managing a business. Finding the right people is important on so many levels: they need to have the right skills, be self-motivated, and get the company culture. Miss out on any of these requirements – and many more besides – and you can easily end up in a scenario where you have to fire someone a few months down the line, and invest even more money and energy in the recruitment process.

Having an HR department allows you to delegate this process, and remove much of the stress of hiring and firing. An HR department will help you to recruit the right employees, making sure that each new hire complements the existing team, adding new skills and experience. Moreover, they will help to onboard those employees after the hiring process, minimising the amount of time they need to get acclimated and up to full throttle.

Employees may stagnate

Many people assume that HR exists only to resolve disputes and perform administrative tasks. While this can be true, a good HR department should strive to develop the human resources at its disposal. By monitoring employees, encouraging communication with HR, and engaging in open conversations, the HR department can help to develop employees, and ensure that they do not stagnate or regress in their abilities.

An HR department not only creates a bridge between management and employees, but helps to cultivate a happy and productive working environment. HR personnel play a vital role in identifying unhappy or malcontent employees, and addressing any issues. This may happen via dispute resolution, forwarding complaints about workplace culture, or even identifying training opportunities for employees who want to advance in their roles and responsibilities. Without this, once promising and productive employees can become disillusioned, degrading their performance and risking them leaving the company.

An HR department shouldn’t be seen as a necessity for every organisation, and is not always going to be cost effective. As businesses grow, however, so does the HR workload – making it increasingly difficult for the business owner to manage. 

Being honest about this and seeing the benefits of good HR – in terms of costs, happiness and productivity – will ease that burden, and prevent serious issues before they happen. This is a process that starts with good HR fundamentals, something that’s best achieved through HR training.

Improve your HR knowledge & Skills

Our HR courses cover everything from the recruitment and interview process to staff psychology to fostering diversity and equality in the workplace. Each one aims to improve both skills and ideals, empowering delegates to improve their lives and their workplaces.

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Mark Fryer

7th March 2022

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