Many small businesses treat HR much as they may treat fire safety: The day-to-day pressures of running the organization may cause them to neglect even the basic steps that keep them in compliance, and, when an issue does ignite, they're forced to scramble.
To save money, research shows, 54 percent of small businesses handle employment matters themselves. But CEOs at these businesses often realize they'd be better off devoting their time to sales, technology and other functions.
In the end, many of the employees who take on HR duties simply aren't prepared. In fact, 70 percent of businesses with five to 49 employees add HR onto the workload of employees with little to no experience in workforce issues, according to ADP's Ad Hoc Human Resource Management Study. Some 23 percent of the time, these "ad hoc HR managers" fill roles including office administrator and chief operating officer, while 12 percent work in finance.
Though these people spend 20 percent of their time on workforce issues, 81 percent of them aren't confident in their HR skills, and 82 percent have no formal HR training, ADP said. Only 20 percent trust their abilities to manage HR "without making a mistake." Not surprisingly, a survey by the payroll service Paychex found that less than 50 percent of small-business owners are very confident about the way their companies handle HR.
From a business point of view, organizations with fewer than 20 employees often are better off when the owner delegates HR responsibilities to someone inside the company, experts say. But it's not only important for business leaders to begin delegating at the right time; they should also consider to whom they're going to entrust their workforce and how they're going to help those people succeed.
When to Delegate
Of course, the first question is, when should an owner begin delegating? As SHRM Online reported earlier this year, businesses require some kind of HR function as soon as they hire their first employee. But beyond basic concerns such as running accurate payroll and following the law, small companies depend on their owners for success in ways that go far beyond administration.
Small-business HR practitioners, owners and consultants agree: The time to begin delegating usually occurs sometime around the hiring of employee No. 10. However, they don't base that estimate on any kind of formula. Rather, they say, it's around this time that an organization's leaders discover their time can be spent more advantageously on other things.
"The owner should always delegate when their time can be spent better elsewhere," said Barry Moltz, a small-business consultant based in New Buffalo, Mich. "Especially early on, they need to focus on the secret sauce of the business and delegate the rest."
Brian Murray, director of talent and culture at Likeable Media, a 47-employee digital marketing agency in New York City, said his company's owners realized they needed help with HR around the time they hired their 15th employee. Until then, the CEO had been handling issues like payroll and benefits but came to realize her time would be better spent selling and consulting. As Murray put it, "She went from trying to save money to trying to make money."
The decision was also partly fueled by the owners' desire to build an engaging workplace. "They believe that treating people right leads to making more money," Murray said. "While delegating HR was important, so was ensuring [that HR] wouldn't be neglected."
There are other, more tangible signs that owners need HR help. "When four managers are hiring in different ways, you need a single approach," Murray said. "Standardization improves efficiency in a lot of areas, such as hiring and benefits administration." Owners must always be on the lookout for inefficiencies, which is why Murray said one of his most important accomplishments early on was creating a handbook that documents several company policies.
The sheer pace of business and turnover are also factors in deciding when an owner should delegate HR.
That was the case for Jean Edwards, who, as a partner and chief communications officer, oversaw HR for Psynergy Programs, a Morgan Hill, Calif., operator of residential mental-health facilities. Even with the assistance of a consultant, handling the company's HR matters quickly became "a quagmire" because of the industry's high turnover rate, she recalled. "You go from something like 55 employees to 70 employees, and soon keeping up with recruitment and onboarding becomes too much," she said.
Edwards' initial solution was to engage a consultant to make sure the company was compliant and to help with recruiting. Because the company was investing so much in hiring employees to run its facilities properly, Edwards said, "we didn't have anyone I could delegate to."
Less than a year after Psynergy opened its third facility in 2015, she hired a full-time HR generalist. With more than 70 employees and more coming in a high-turnover environment, "we needed to turn these applicants faster," she said. "We needed to get them screened and cleared [by the Department of Justice] fast, and we needed to get them into positions and trained faster."
Identify the Right Person
Once they've made the decision to delegate HR, many business owners make the mistake of assigning subordinates based on their role rather than their abilities.
"Unfortunately, they pick people who are no more qualified than any other manager in the office," Moltz said. "They need to find someone who can keep everything confidential, be administratively organized, and, most important, [be] an empathetic listener and guide for employees."
"It seems to me that, especially in a small company, your HR person really has to be your people development person, so they have to have some skills and chops," said Jose Palomino, CEO of Value Prop Interactive, a sales and marketing training company with five employees in Malvern, Pa. "You're looking for somebody who understands, [and] has worked in and has an appreciation for small business."
In addition, Palomino said it's critically important for a small company's HR person to have good people skills. Very often, he pointed out, "they're the ones who'll be delivering bad news."
Delegating Means Training
Moltz and Palomino indicated that picking the right person means identifying the person with the right potential—and then training that person. HR requires considerably knowledge, and one of the worst mistakes a business owner can make is to give HR responsibilities to someone who doesn't have at least some education in the basics.
While a strategic mindset is important, said Chrys Martin, a Portland, Ore.-based partner in the employment law practice of law firm Davis Wright Tremaine, it's "the dotting the I's and crossing the T's on nuts and bolts that can trip you up."
For help, small businesses have many resources they can use. Many states offer courses and technical assistance, Martin noted. Murray said he relies on information from the Society for Human Resource Management (SHRM) and his local network to stay on top of current trends and regulations.
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When he took on Likeable's HR responsibilities (he was originally hired for another role), Murray said, the company's owners went out of their way to introduce him to people at other firms who were doing the kind of work he was beginning to do.
Allowing him time for training and helping him learn made a notable difference in his work, he said. "Owners have to support their HR people as well as find someone who's excited by it."
Besides conflict resolution, emotional intelligence and looking at issues from multiple vantage points—such as the organization's view and the employee's view—are also important HR skills.
"If someone is underperforming, you have to ask if they've been given feedback," Murray added. Such thought processes don't come naturally to everyone, he believes, so business owners should remember that "some HR you can't go to school for."
Training shouldn't be limited to those designated to handle HR, Martin added. For example, "in smaller companies, the key people at the top are doing the hiring," she said.
"That means they need to have some training, too. Administrative tasks can be delegated, but some things remain with the owners."
Be Prepared to Grow
Business owners aren't finished once they've named a point person for HR. As Martin observed, an organization's needs change as it grows and adds locations and increasingly complex jobs. "You need to reassess every year or so," she said. "If you've added 20 people, three of them remotely, it's probably time to move [HR responsibilities] beyond the office manager."
Martin believes that companies with 25 or more employees should have someone on staff who has at least some HR training. If not, they should consider whether outsourcing would be a cost-effective solution. "When you get to 75 or 100 employees," she added, "you need a full-time HR person who can do everything," including manage any outsourcing.
"There are resources out there" for business owners considering their initial moves in HR, she said. "Talk to others in the industry. Find local HR groups. Talk to a trusted lawyer." And, she added, be sure to include your HR person in your strategic thinking. "An HR person who's just doing the functional work is the wrong person," she said.
Mark Feffer is a freelance business writer based in Philadelphia.
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