In the early stages of a business, the management and administrative tasks, including human resources (HR), often fall to the founders or a small leadership team. However, as a business grows, so does the complexity of managing its workforce. For many companies, the question arises: When is the right time to create a dedicated HR function? There are several factors to consider when making this decision, including business size, profitability, workforce needs, and the regulatory environment. This article explores the key considerations that can guide businesses in determining the right time to invest in dedicated HR expertise.
Business Size and Workforce Complexity
The size of a business and the complexity of its workforce are significant factors in deciding whether to establish an HR function. For smaller companies with fewer than 15 employees, HR responsibilities are often managed by the founder, a general manager, or an administrative assistant. At this stage, tasks such as recruitment, onboarding, and payroll processing tend to be straightforward, and they can be handled without needing a dedicated HR team.
However, as the workforce grows to 30-50 employees or more, managing these tasks becomes increasingly challenging. At this point, the need for structured HR policies and procedures, as well as someone dedicated to managing them, becomes more pronounced. A larger workforce tends to bring diversity in roles, skills, and experience, requiring tailored management practices. In such scenarios, it is beneficial to have an HR professional who can oversee recruitment, handle employee relations, manage benefits, and ensure compliance with labour laws and health and safety standards.
Profitability and Budget Considerations
Financial stability is essential when making the decision to hire a dedicated HR team. For many businesses, prioritising core business functions such as sales, product development, and customer service takes precedence over hiring for administrative roles, especially in the early stages. While these are undoubtedly critical functions, overlooking HR can sometimes lead to costly mistakes, including high turnover rates, poor compliance, and low employee morale.
When a business reaches a stable level of profitability and can budget for additional staff, investing in HR is a strategic move that can lead to long-term savings. A dedicated HR function can develop practices to improve recruitment processes, reduce turnover, and boost employee engagement, all of which positively impact productivity and profitability. Moreover, by ensuring compliance with employment laws, an HR team can protect the business from potential fines and legal issues. Thus, while profitability doesn’t always dictate HR needs directly, it provides the financial foundation to support this essential function.
Workforce Turnover and Employee Morale
A high employee turnover rate and low morale are clear indicators that a business could benefit from a dedicated HR function. Companies without HR professionals often lack structured processes for hiring, onboarding, and performance management, which can lead to dissatisfaction among employees. A lack of career development opportunities, inconsistent performance feedback, and unclear job expectations are common issues that can contribute to a disengaged workforce.
An HR professional can play a pivotal role in addressing these challenges by implementing programmes for employee engagement, performance management, and career development. They can also foster a positive company culture that aligns with the company’s values and mission. If a business is experiencing increased turnover rates or struggling to maintain employee satisfaction, these are strong signs that it may be time to bring in an HR specialist to improve retention and engagement.
Compliance and Regulatory Requirements
As businesses grow, they must navigate an increasingly complex landscape of employment laws and regulations, which can vary significantly based on location and industry. This includes laws related to minimum wage, working hours, health and safety, anti-discrimination, and data protection. For smaller businesses, staying compliant with these regulations can be challenging, especially when HR duties are managed alongside other responsibilities.
Once a company reaches a certain size, such as 50 employees, they may become subject to additional regulatory requirements, making it more challenging to stay compliant without professional HR expertise. A dedicated HR function helps ensure that all policies and procedures are legally compliant, reducing the risk of costly penalties and lawsuits. Compliance is particularly important for businesses operating in highly regulated industries, such as healthcare or finance, where penalties for non-compliance can be severe.
Future Growth and Strategic Goals
Another crucial consideration is the company’s long-term growth strategy. Businesses aiming to expand rapidly or enter new markets will face increased demands on their workforce, requiring structured HR support. For instance, scaling a business often involves hiring quickly and managing larger, more diverse teams, which necessitates robust HR policies for recruitment, training, and management. A dedicated HR function can assist in developing talent pipelines, enhancing workforce planning, and supporting strategic goals.
Additionally, having an HR function can contribute to succession planning, identifying and grooming future leaders within the organisation. When growth is part of the strategic plan, HR becomes essential not just as an administrative function but as a partner in achieving organisational goals.
Determining the right time to establish a dedicated HR function depends on multiple factors, including business size, profitability, employee turnover, compliance requirements, and future growth plans. While there is no fixed threshold, a company with around 30-50 employees or experiencing rapid growth should seriously consider setting up an HR function.
A dedicated HR function brings immense value, from improving employee satisfaction and reducing turnover to ensuring compliance and aligning the workforce with strategic goals. Ultimately, investing in HR is an investment in the company's most valuable resource—its people. Making the decision at the right time will position the business for long-term success and sustainable growth.
Speak to our team to find out more about our HR solutions.
Comments