(3 – 5 minute read)
Most small and mid-sized businesses create more formal HR processes and departmental structures as they grow. This development is a response to the need to acquire talent, increasingly complex compliance demands and culture challenges that arise with new staff. Naturally, business leaders will ask the question: “how many HR people do we need to meet organizational demands?” Additionally, it is often difficult to know what level of HR expertise is needed for a small but growing team. For example, new compliance concerns are introduced as companies pass 10, 25 and 50 employees.
The HR-to-employee metric is a much-debated topic. If properly interpreted, it can help you establish HR staffing needs and determine how well the department delivers its services.
According to Bloomberg BNA’s HR Department Benchmarks and Analysis report, the rule-of-thumb ratio is 1.4 full-time HR staff per 100 employees. This ratio is at an all-time high, and in sharp contrast to the marked drops we have seen in recent years. The metric previously peaked at a record high of 1.3 per 100 employees in 2013/2014, after which it dropped to 1.1 per 100 employees in 2015, representing a more recognizable metric, and around where it had hovered for more than a decade. The new ratio is primarily attributable to unprecedented workforce growth and an increased need to support the added HR burden on businesses.
If you’re using the HR-to-Employee metric, and given that the metrics only account for your full-time HR staff, there will always be a gap between your calculations and your actual need. You will first need to assess how much value HR can add to the company, and in what areas your needs are greatest. The measure used to be to hire one HR person for each member of your executive management, but today a ratio of one HR leader to every 500 employees is not uncommon.
Always factor in the skills your HR practitioners bring to the table, as virtually no single professional is strong in all required HR competencies. It may be more advantageous to outsource certain aspects, such as payroll and benefits or even staffing. If your HR operations are automated or outsourced, you can safely reduce the ratio.
No matter the size of your company, HR is one of the most important internal functions. If people are the lifeblood of your organization, human resources is the pumping heart that keeps it alive.
For example, key HR concerns for small and medium-sized businesses typically include:
While small and mid-sized (5-100 employees) businesses do need HR support, research shows that most owners and key executive staff do not feel confident managing these responsibilities. Industry research also shows that owners and executives in smaller organizations spend as much as 12 hours every week on workforce administration.
Solving this problem requires companies to determine which aspects of HR and workforce management can and should be handled internally.
To make this determination, companies should examine what strategic and financial value is added by managing each part of HR administration. Simply put, small organizations have to separate HR administration into two areas: people and processes.
Core components of “people” management are often kept internal. In fact, many small businesses are beginning to opt for designating or hiring a “Talent Manager” internally to help find and keep the best people at their company. This individual may be partially or solely responsible for people-focused functions like talent development, culture building, core values and performance management. Most organizations want (rightly so) to maintain full control over these culture-focused aspects of their company.
Core back-office processes include payroll, compliance, benefits and HR administration (onboarding, consultation, handbook development, policy creation, etc.). Outsourcing these administrative burdens is a simple, cost-effective way to keep your business focused on people while ensuring that HR processes are compliant and competitive by exceeding employee expectations.
Read about our co-employment offering to learn more about how outsourcing all back-office processes works is the easiest way for small businesses to offer industry-leading HR administration.
January 5, 2021
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