When to Hire an HR Manager for Your Small Business

By Skye Schooley,
business.com writer
| Updated
Sep 14, 2020
Image Credit: Yumi mini / Getty Images

Learn what an HR manager does and how to tell when your business needs one.

Your employees are your greatest asset, so it is important they are properly managed and taken care of. One way to facilitate that is by employing a human resources manager. Whether your team simply grows into needing an HR manager or you are legally obligated to hire one, an HR manager does more than just manage payroll and employee benefits; they can keep your business compliant with regulations and shape your company culture. Learn what an HR manager does and how to identify when you should hire one internally.

What does an HR manager do?

A human resources manager works with senior leadership to design and implement people strategies and ensure your organization has the right team in place. A great HR manager does more than just administrative tasks (e.g., payroll, benefits, employee safety, company compliance), they also help maintain organizational and employee development (e.g., recruiting, hiring, employee-employer relations, employee growth, company culture).

Karen Stafford, Arizona president of Employers Council, said an HR manager typically partners with other senior members of leadership teams to serve two different types of roles: transactional and transformational.

  • Transactional role: An HR manager ensures employees are paid correctly; the organization's practices, policies, and procedures comply with relevant local, state and federal laws; and the managers and employees are trained and aware of what's expected of them for ongoing success in the organization.
  • Transformational role: Building on the necessity of the transactional role, the HR manager can take on more of a strategic role by influencing key organizational priorities and strategies, and by being involved in senior leadership discussions and activities.

Why does a company need an HR manager?

An HR manager can be very beneficial to your company. Understanding the reasons for hiring an HR manager can help you determine if it is in your best interest to add one to your team.

1. You need someone to help you maintain legal compliance. 

An HR manager helps organizations maintain legal compliance and mitigate risks. Having an untrained employee manage HR functions can land your business in hot water, as they likely won't know the full scope of the local, state and federal laws associated with human resources. Although an HR manager can be a great addition to any team, in some instances, you may even be legally required to hire one.

Every HR manager should have in-depth knowledge of employment and compliance obligations specific to their company's industry and location, as well as federal legal requirements and government reporting regulations that affect HR functions.

2. You want to increase employee satisfaction and retention.

A better ability to increase employee development and satisfaction is another benefit of having an in-house HR manager. An HR manager can help build career paths and employee growth strategies that keep employees on track to reach their goals. This can increase employee satisfaction, which increases productivity and employee retention in turn.

HR managers also focus on inter-employee issues as they relate to work – for example, managing workplace harassment situations – but they're not social workers. Michael Trust, human resources leader and certified mediator at Michael Trust Consulting, said that although an HR manager can get involved in employees' personal lives when such issues impact the workplace, they are not there to be a professional therapist (unless they're licensed as one and it's part of the job).

"HR is a profession, just like any other professional role, and it should be treated as such," Trust said. "HR often does get involved in social events for the organization, but taking the lead on those events takes them away from their HR work."

3. You value your company culture.

You may consider hiring an HR manager if you place high importance on company culture. When you have a small business, hiring an employee to foster culture can seem insignificant, but it can be very beneficial as your company grows. An HR manager who thoroughly understands your business from the beginning will have an advantage in ensuring your company mission and values are upheld throughout the company. They will be able to hire employees who embody your company culture and train them to keep it thriving throughout every department.

"Balancing the needs of the business with the needs of employees speaks to an organization's overall culture," said Stafford. "Establishing and maintaining that culture should be a responsibility of all leaders within an organization, and oftentimes, the HR function is looked to as a leader, partner and gatekeeper of this organizational culture. It's an important role for companies who are serious about their culture."

When should a company hire an HR manager?

In some cases, you are legally obligated to hire an HR manager once you have a certain number of employees. For example, many state regulations "start to take effect once an employer reaches five, 10 or 15 employees," said Trust. "In all states, some federal laws kick in at 50 employees if they are in the same geographic area, whereas some federal and state laws kick in at one employee."

These minimum requirements depend on what state you operate in and what type of workers you have. Even if you aren't legally required to hire an HR manager, though, you may still benefit from employing one. You need someone on staff who adequately understands the risk and compliance measures for your business.

"Once the organization gets above 15 employees or so, it should consider at least a part-time HR manager; certainly at 50 employees and above, it becomes far more necessary," said Trust. "This is assuming that companies with less than 15 employees have someone on the team that knows enough HR to know what should be occurring. One of the issues in smaller companies is that the owner or partners often feel that they have enough expertise to handle these types of issues. Sometimes they do; oftentimes they do not."

For some companies, one HR manager may not be enough. As your business grows, it is important to reassess your HR needs and expand your HR department accordingly. Another option is to work with an HR outsourcing provider to handle some of your HR responsibilities.

How does a company hire an HR manager?

The hiring process for an HR manager is similar to that of any other position – you must start by clearly outlining their job description, responsibilities and necessary qualifications. Not all HR managers perform the same functions, so you will need to identify what you want them to do. For example, do you want them to focus solely on risk, compliance and payroll, or do you want them to have extensive experience in recruiting and fostering company culture?

It is also important to identify the depth of legal and industry knowledge your HR manager needs to have. Some states and industries have stricter regulation and compliance measures than others, so take this into consideration. Although a college degree isn't always necessary for an entry-level HR professional, your HR manager should have relevant certifications and industry experience.

The criteria you look for in an HR manager will be unique to your business, but Stafford created a qualifications list to get you started:

  • Experience in multiple HR disciplines (e.g., total rewards, staffing, employee relations, performance management) at a strategic level
  • Substantial knowledge in compensation, employee benefits administration, or payroll and HR systems
  • Bachelor's degree in human resources (or closely related field) or equivalent work experience
  • HRCI or SHRM certification (already earned or attained within one year of hire)
  • Excellent attention to detail
  • Ability to work independently, execute plans to meet employers' needs, prioritize multiple responsibilities and work collaboratively in a team environment
  • Ability to communicate effectively (verbally and in writing) and connect with people at all levels of the organization
  • Ability to effectively train and facilitate group learning
  • The credibility to be a trusted resource to ownership, leadership, employees, and the business's industry and community

Once you've established job requirements and qualifications, you can look for the right recruit internally (current employees will have insider business knowledge) or seek an external HR specialist.

What are some alternatives to HR managers?

Most businesses can benefit from hiring an HR manager, but for very small businesses, it may not be feasible. You still need someone to manage your HR functions, though, and there are a few other options for you to consider.

1. Pass off HR functions to competent internal employees.

According to Trust, a highly competent office manager or administrative officer who has sufficient, current, and correct knowledge in the foundational aspects of HR can often substitute for an HR professional. However, as the organization grows, an HR manager becomes more of a necessity. If you have a very small team with internal staff members taking care of HR tasks, make sure they are knowledgeable and up to date on all laws and regulations that apply to your business.

2. Seek external guidance.

If you are internally managing your HR functions without an HR manager, you can seek mentorship from external business resources, like Employers Council and SCORE. Other options are to seek legal counsel from a trusted attorney or consultant who can help you meet your HR-related compliance requirements.

3. Partner with a PEO.

Another route to managing HR functions for a small team (typically five or more employees) is to partner with a professional employer organization. These companies use a co-employment model to help you manage employee benefits, payroll, risk and compliance, employee training and development, and other HR-related administrative tasks. Some PEOs bundle their services together, whereas others allow you to pick and choose the functions you need. If you don't have an HR manager, this is one of the safest ways to manage your HR functions and ensure your company's legal compliance.

Skye Schooley is an Arizona native, based in New York City. She received a business communication degree from Arizona State University and spent a few years traveling internationally, before finally settling down in the greater New York City area. She currently writes for business.com and Business News Daily, primarily contributing articles about business technology and the workplace, and reviewing categories such as remote PC access software, collection agencies, background check services, web hosting, reputation management services, cloud storage, and website design software and services.
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