Business Owners Can Do HR—But in Today’s Competitive Market Should They?

Business Owners Can Do HR—But in Today’s Competitive Market Should They?

Clearly something is happening in the small business employment market that few owners had anticipated.  There are many factors that have caused issues including the battle to find and keep quality employees, government rules and regulations, and the competition from global competitors. Times for the small owner certainly have changed!  So the question begs, “What is the most effective way for an owner to steer through the 21st century battlefield while enhancing their company’s competitiveness?”

Today we will attempt to put emphasis on the small business employee quandary most owners find themselves in. We will then suggest an effective HR approach that can improve the situation effectively.

Components of Human Resources Management (HRM)

Over the years, we have seen HR evolve from a transactional/administrative role to a more strategic, people-centered role. The Management Study Guide regards this transformation as two-fold, defining HRM as:

  1. The process of “managing people in organizations in a structured and thorough manner.” This includes hiring, retention, payroll, performance management, recordkeeping, compliance, and termination.
  2. Encompassing “the management of people in organizations from a macro perspective.” Whereas Definition 1 represents a modernized version of personnel management, this second definition deals with people development and striving for a fulfilling relationship between leaders and employees.

Performing the duties of number 1 on your own can cost you valuable time, plus adversely impact the productivity and profitability of your business.

While helping to develop and increase the productivity of your people can take valuable time, such as the approach of point number 2, it can dramatically improve your company’s chances of success.  Once you have increased your employees’ effectiveness and productivity – there will be more capacity for your limited number of people to increase output, thus lessening the need to find additional employees in an already difficult market.  So how can an owner transform their approach to be more in-line with number 2?

To deal with many of the employee related issues, it’s typical for large businesses to establish a human resources department; however, small businesses tend to shy away from this move. With resources being limited, a small business owner may choose to perform HR on his or her own. This is especially true if the company has only a few employees. As the founder of the business, wearing too many hats can result in you spreading yourself too thin thereby not allowing you to work on the business – instead you find yourself working in the business.

From business planning to marketing to accounting to legal matters to HR, the role of a small business owner runs the gamut. The downside to assuming all of these responsibilities is that related processes are likely to suffer. At some point you will need to determine which duties you are better off self-managing and which ones should be assigned to someone else. The sheer scope of tasks associated with human resources makes it one of the most delegated functions in any business.

Potential Costs of Going It Alone

 A 2014 survey by the SCORE Association reveals that:

  • HR work takes up 25-35 percent of a small business owner’s time
  • Owners spend 7-25 percent of their time dealing with paperwork
  • Businesses with less than 20 employees have 60 percent higher compliance costs

Special attention should be paid to compliance because laws relating to HR are complex and ever-changing. Many of them are administered on a federal, state and local level—and employers must stay abreast of them to avoid noncompliance.

For instance, a 2017 survey by the National Small Business Association noted that “One in four small business owners report spending more than six hours each month handling payroll taxes internally.” Payroll tax errors can lead to issues with the Internal Revenue Service and, depending on the severity, force the business owner to seek legal representation.  According to the Small Business Association, the annual cost of government regulations, paperwork and tax compliance for small U.S. businesses firms was an estimated $10,585 per employee. Overall, the cost per employee is 42 percent higher in small compared with mid-sized firms, and 36 percent higher in small firms than in large firms.

Clearly one of the driving forces is the growing burden of rules and regulations for employers. In the 20 years between 1989 and 2009 the number of U.S. laws and regulations regarding employment practices grew by 60%, not to mention the current healthcare fiasco! All of these require reporting and threaten fines and punishment for the non-compliance, even if unintentional.

No wonder employers (especially smaller businesses – which make up the over-whelming majority) complain bitterly that they have no time to work on competing in the marketplace!  As Peter Drucker was once quoted:

“Owners instead work on problems, that is, on employee regulations.  They no longer chant the old mantra “People are our greatest asset!”  Owners now say instead “People are our greatest liability!”   *Drucker

Hiring an HR Executive

Industry reports typically suggest hiring a full-time HR manager at approximately 50 employees.  As a small business owner, you probably don’t need a fulltime HR manager today. One person may help handle your HR needs and other tasks, or you could hire someone part time.

With this being said, some business owners have decided that the best option is hiring an outside firm to handle all of these non-strategic tasks.  As part of this approach owners look to an expert to deal with government regulatory interference. This allows them to remain compliant without the headaches! When they opt for this approach it builds a business model that is highly professional and capable of scaling before a full time HR executive is necessary.

Conclusion

 While most business owners are working towards actually having the time to compete in the marketplace, these issues have them feeling cornered!  As daunting as this sounds, solving the global competitive puzzle is absolutely necessary in order for the small business community to survive and prosper in first half of the 21st century.  Having the ability to navigate this ever-changing marketplace with a new management resource will help catapult the small business owner towards a more successful outcome than their small business owner peers.

Instead of falling off the same HR small business cliff as everyone else, navigate into the future with a parachute in hand!

 

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