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Updated Apr 18, 2024

The Pros and Cons of Having a Human Resources Department

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Skye Schooley, Senior Lead Analyst & Expert on Business Operations

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As your startup or small business grows and adds more employees, you may need help managing your team and navigating labor laws. When that time comes, should you use a co-employment model and partner with a professional employer organization (PEO) or would your company benefit more from an internal human resources (HR) department? Both options have advantages and drawbacks, so we spoke with HR experts to learn the pros and cons of having an in-house HR department.

Editor’s note: Looking for the right professional employer organization (PEO) for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

What is an HR department?

An HR department is the part of an organization that manages and organizes all aspects of staff and human capital. It is responsible for administrative tasks, operational functions, employee growth and culture and legal compliance with federal, state and industry regulations. Although very small businesses might forgo an HR department, a general rule of thumb is to hire roughly 1.4 HR employees for every 100 workers. 

What does an HR department do?

An HR department has a lot of responsibilities, with the primary goal of helping employees accomplish companywide and individual objectives.

“The HR department sources, recruits, onboards, trains, promotes, deploys and rewards the talent needed to reach the organization’s objectives,” Doug Coffey, HR expert and assistant teaching professor at the Rutgers School of Management and Labor Relations, told us. “HR staff can’t do it single-handedly. HR must partner with the organization’s leadership team and other staff to make it happen.”

In addition to hiring, training and terminating employees, an HR department is responsible for performing administrative tasks, creating a company culture, writing an employee handbook, facilitating employee benefits, managing payroll and taxes and maintaining legal risk and compliance measures with federal, state and industry regulations.

FYIDid you know

Maintaining compliance with labor and employment laws can be challenging to do on your own, but a good HR department helps you navigate common HR compliance challenges successfully.

Pros of having an in-house HR department

We consulted HR experts to learn the biggest benefits of having an HR department. Here are the top six advantages they cited.

1. You can cultivate company culture.

An internal HR department can create rapport and improve employee engagement through face-to-face conversations. Since your HR department will know your workforce on a personal level, your staff is likely to feel more comfortable bringing up any workplace issues they are experiencing. An HR team member can address and resolve those issues, boosting employee satisfaction and morale.

“[An internal HR department] generally helps employees to resolve their issues, especially when it’s related to work, teammates or managers,” said Shradha Kumari, HR business partner at Unacademy.

An internal HR department can also nurture company culture by hosting effective team discussions and engaging events based on team members’ needs and interests. 

2. You gain insight and maintain control over internal practices.

When you have an internal HR department, you are keeping your intellectual property and organization practices internal as well. This can help you secure confidential information, monitor your employees’ productivity, control your organization and reduce unethical practices within the organization. Additionally, Kumari said an internal team can help you understand the reasons behind attrition and retain your best talent.

3. You have access to reliable, on-site assistance.

When you have an in-house HR department, you and your team have access to reliable, in-person assistance. Because they know and understand your business, they can help resolve internal issues quickly and keep your organization on track. Kumari said that an HR department can lighten a tense situation between employees and support them throughout the process of resolving their issues.

“An internal HR department helps to ensure continuity of HR staff and consistency of service and policy administration,” Coffey added. “For most line managers, having an HR professional who knows you and your business’s needs is the basis of proactive, successful collaboration before problems blossom.” 

4. You can implement and enforce your own personnel policies and procedures.

You have complete control over your HR functions with an internal HR department. This means you can create and enforce policies that match your organization. You also have the luxury of speed: Since an internal HR department is often on-site, you can modify policies quickly as needed and relay them to the entire company.

5. It helps maintain legal compliance.

Although the organizational structure of your HR team may vary, it often includes a knowledgeable team of experts. These HR professionals can help you comply with labor and employment laws and evolve your business’s practices as those laws change. This can be incredibly difficult for a business owner or a single HR professional to do on their own.

6. They know what types of employees to hire.

Recruiting and hiring employees can be a difficult and time-consuming task. If done improperly, you are left with bad hires and high employee turnover. However, an HR department can dedicate time to strategically staffing your organization with top talent. They understand how to recruit and onboard employees and they know what to look for when determining culture fit.

Did You Know?Did you know

One bad hire can cost your business 30 percent of the employee’s first-year earnings ― or more. It’s crucial that whoever is managing your recruitment truly understands your company and what type of employees you need.

Cons of having an in-house HR department

Managing HR responsibilities is a lot of work and sometimes an internal HR staff is not enough to fulfill your needs. There are a few challenges to hiring an internal HR specialist, primarily cost and effectiveness.

1. It can be expensive.

An in-house HR department can be more expensive than outsourcing because you will be hiring at least one full-time employee and the pay rate for an experienced HR manager isn’t cheap. Also, when you have an HR team member on-site, employees may feel more comfortable making requests that can cost your company money.

2. It can be hard to find the right fit.

Another challenge of hiring an in-house HR department is finding someone who is the right fit for your organization and can fulfill all of your HR needs. If you do not have the right department members in place, your company will suffer, but finding someone who is the right fit and can subsequently hire more right fits can be difficult. It is not uncommon for an internal HR department to have limits on their time and expertise.

“As an HR professional, I often felt the need to reach out to external sources who were subject matter experts in areas where I was lacking or where I wanted fresh advice,” Coffey said. “Sometimes an internal HR department devotes so much attention to the day-to-day activities needed to keep the organization running that cutting-edge skills development suffers. These skills are what HR professionals need to add the most value.”

3. Internal relationships may cause bias.

Since an internal HR department is on-site, they will engage with organization members daily, which is both good and bad. While it can facilitate a positive company culture, it may also be difficult for them to remain unbiased if your HR staff becomes too submissive or friendly with colleagues or management.

When to hire an HR department

As your business grows, your HR functions may become too much for one person to handle. An HR department may be necessary when your company reaches a tipping point and matters need to be handled internally. Once an organization reaches a certain size ― more than 50 employees ― hiring an HR department is often necessary.

Growing businesses that simply want to hold on to their company culture may also want to consider hiring an HR professional or HR department. The in-house HR staff can steer the culture in the desired direction and keep it on track.

Bottom LineBottom line

In-house HR departments are best for businesses with 50 or more employees, as well as growing organizations that want to keep their HR in-house.

How to start an HR department

The strategy you use for creating your department can vary. You can hire a person or team to handle all your functions in-house or create a hybrid model by pairing your HR department with a top PEO service or a highly rated HR outsourcing (HRO) service:

  • In-house HR: In this situation, you keep all your HR functions in-house. You can start by hiring an HR professional as a point person for functions like recruiting, onboarding, benefits administration, training, performance management and rewards distribution. As your business grows, you can bring on other HR professionals to build your department.
  • Hybrid HR: If you want to hire an internal HR department but aren’t sure if they can handle all your HR needs, consider a hybrid model. For example, you could hire internal HR staff to help with cultural development, talent acquisition and team growth and then partner with an outside organization for traditional HR activities like payroll processing and benefits administration. Common options for outsourcing HR include PEOs and HRO services. The main difference is that a PEO uses a co-employment model.
TipBottom line

If you’re not sure whether you should outsource some HR functions or keep them all in-house, check out these tell-tale signs that it’s time to outsource.

How to hire for your HR department

When hiring HR employees for the first time, you can hire them gradually or all at once, depending on your budget and needs. Here are a few steps to follow through the process.

Step 1: Define your HR needs ahead of time. The people in your HR department will have a significant influence on your company culture and employee experience, so it’s essential to have a clear grasp of your HR needs before hiring a team of workers. 

Consider your options and determine which one will be most cost-effective and valuable for your organization. If the need for an internal HR department is unclear, consider an interim solution, such as contracting staff or outsourcing HR services, until a permanent in-house HR department is necessary. 

“Although decisions may be reversible, a small business owner needs to carefully evaluate when it makes sense to invest in building an HR department,” Coffey said. “Most of this investment consists of committed fixed costs or long-term costs that are hard to undo if the need is no longer there.”

To help you assess your current HR situation, ask yourself:

  • What is your HR budget?
  • Do you have existing staff?
  • What is their expertise and what functions still need to be covered?
  • Do you want a specialist or a generalist?
  • What will your future HR needs be?

Step 2: Create and post an accurate job description. Write compelling job descriptions that define the scope of the roles and job responsibilities accurately. You want to hire HR professionals who understand your company’s vision and mission as they will largely steer your company culture. This is why the job description must depict your company’s culture and values accurately. 

Post the job opening on various job boards, career sites and social media accounts. Leverage your professional network and current employees to seek viable references. The wider net you cast, the better your chance of finding a good candidate.

Step 3: Screen and interview candidates thoroughly. When screening HR professionals, assess technical and soft skills, industry expertise and cultural fit. Use strategic HR interview questions, check references and allow candidates to interact with multiple employees. This will help you identify the best fit.

Step 4: Hire and onboard the best candidate. After you make an informed decision based on experience, skills, expertise, cultural fit and long-term potential, make a competitive job offer. Be prepared to negotiate salary and benefits to attract the new hire. Set your new employees up with a comprehensive training and onboarding process to ensure they have a smooth transition into the company. Equipping your HR staff with the proper knowledge, tools, processes and guidance can be their key to success. 

Best HR software for your internal HR department

An internal HR department manages various HR processes and functions, which can be challenging and time-consuming to do by hand. Luckily, there is software to streamline the process for them. Implementing top-rated HR software can be critical to setting your new HR department up for success. 

If you’re in the market for HR software, check out these top providers: 

  • BambooHR: This cloud-based HR solution makes it easy for employers and employees to manage their own HR functions. It has an easy-to-use dashboard and several tools to help you hire and onboard workers, track benefits and time off, manage performance and payroll and access HR reports. Read our BambooHR review to learn more.
  • Bambee: If you aren’t quite ready to hire an HR department but still need help with your HR, Bambee is a great option. This HR solution acts as an external HR manager for you, with services like HR policy creation, HR audits, employee onboarding, job description assistance and dedicated HR support. Learn more in our Bambee review.
  • Gusto: Payroll is one of the most important (and complex) parts of managing HR. This full-service solution offers payroll processing, automatic payroll tax filing and built-in benefits administration. It also has useful HR features like HR reporting, employee onboarding, time tracking and team management tools. Our Gusto review dives deeper into these services.
  • Paycor: This HR software boasts an intuitive analytics dashboard and an easy-to-use mobile app. It has robust recruiting and onboarding features, benchmark data, automated workflows and other useful HR tools. Read our Paycor review to learn more.

Some source interviews were conducted for a previous version of this article.

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Skye Schooley, Senior Lead Analyst & Expert on Business Operations
Skye Schooley is a human resources writer at and Business News Daily, where she has researched and written more than 300 articles on HR-focused topics including human resources operations, management leadership, and HR technology. In addition to researching and analyzing products and services that help business owners run a smoother human resources department, such as HR software, PEOs, HROs, employee monitoring software and time and attendance systems, Skye investigates and writes on topics aimed at building better professional culture, like protecting employee privacy, managing human capital, improving communication, and fostering workplace diversity and culture.
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