Why Is Human Resources Important? A Guide for Small Businesses
Charlette has over 10 years of experience in accounting and finance and 2 years of partnering with HR leaders on freelance projects. She uses this extensive experience to answer your questions about payroll.
Human resources safeguards and supports both your company (through risk management, compliance, and payroll accuracy) and your employees (via effective engagement and management). Sometimes called people operations or simply HR, human resources is a crucial piece of your business operations, helping your employees remain productive and keep your company growing.
The importance of human resource management cannot be overstated. Let’s take a look at each HR function and how it is crucial for every small business.
1. Administration & Compliance
HR administration requires adherence to complex and ever-changing employment laws. Whether dealing with payroll, personnel files, employee benefits, or other areas of the business, HR must pay close attention to laws and regulations to keep your company compliant.
Payroll sounds simple: It’s the process of paying your employees for work they’ve done. But it also includes balancing and reconciling payroll reports, depositing and reporting payroll taxes for both your company and your employees, managing wage deductions, and reporting new hires to state agencies.
This process handled by HR is riddled with regulations. Your state or municipality may require you to pay employees on a certain schedule or by certain methods, and require overtime daily—looking at you, California.
Payroll also includes withholding money from an employee’s paycheck for different reasons. Every company needs to at least withhold payroll taxes and remit them to the appropriate federal, state, or local agency. Many localities have additional withholding requirements you need to follow.
If your company provides benefits like healthcare and retirement, you’ll need to deduct these and ensure payments are made to the right vendors. Each of these deductions needs to be properly recorded on the employee’s pay stub and in your human resources information system (HRIS).
Whether your company has a multi-member HR department or you are the HR department, it’s vital that you follow a structured process to ensure absolute accuracy when doing payroll and calculating withholdings. You may want to consider using free payroll software. Failure to pay your employees correctly and timely can lead to government fines and employee lawsuits.
One of HR’s most important responsibilities is to maintain and protect employee personnel files, which should include resumes, references, general employment information, and any progressive disciplinary actions.
Essentially, anything related to the individual’s employment with your company should be retained by HR so that they can ensure any relevant laws are being followed. Additionally, they will ensure that confidential medical information and employment verification data are kept in a separate location only accessible to certain HR staff and not by anyone else—something that could place your company at risk of litigation.
HR is responsible for administering the benefits you put in place. From healthcare and retirement plans to time off and flexible work schedules, your HR department keeps track of all employee benefits, some of which have laws that must be followed. They also regularly review the benefits offered and develop strategies to add new benefits and update existing ones, all while keeping new expenses to a minimum.
To attract and retain top talent in your industry, you need to offer a competitive and comprehensive benefits package. It’s on the shoulders of your HR team to figure out the benefits you need to offer and find budget-friendly options. Whether you have an existing benefits package and you need to update it or you need to start from scratch, your HR staff should be able to put together a package that entices candidates to join your company and employees to stick around.
There’s an abundance of employment laws your company needs to adhere to, from at-will employment to various federal, state, and local regulations. It is simply an enormous task to ensure your company is compliant with all relevant laws.
Your HR team will need to ensure your company complies with:
- Minimum wage laws
- Rest and lunch break laws
- Sick leave laws
- Maternity leave laws
- Equal employment opportunity laws
- Fair Labor Standards Act (FLSA)
- Family and Medical Leave Act (FMLA)
- Age Discrimination in Employment Act (ADEA)
- Affordable Care Act (ACA)
The team will also need to ensure you have the required certifications and licenses in your locality. If you have enough employees, HR will need to source workers’ compensation insurance. All of these duties fall to your HR team to ensure compliance and keep up to date on any relevant legislation, which may require changes to your company policies.
2. Hiring & Onboarding
A core component of your HR team’s duties, finding the right candidates is crucial to fill open positions quickly and accurately. Following a structured hiring process will help your HR team find the right talent. Meanwhile, providing strong new hire training will leave a positive impression on the employee and set them up for success.
Recruiters use tools like resume scanners, pre-employment tests, background checks, and personality assessments to ensure that job candidates and, ultimately, employees are well-matched for open job roles.
Also, whether HR conducts interviews or your hiring managers do, your HR team will at least track each stage and ensure interviewers aren’t asking illegal questions or succumbing to hiring bias.
Another core part of why human resources is important is that it will help you target the right balance of salary and benefits to entice desired job candidates to join your firm. The HR team knows what a job should pay based on the duties, skills, experience, and education. It also understands regional pay ranges and shift differentials and even the cultural and intangible benefits—like flextime or casual Fridays—that can improve your chances of having a candidate accept your offer.
When you hire a new employee, you need to acclimate them to their job and your company. HR manages this through onboarding, which begins before a new hire’s first day. It needs to comply with rules and regulations to verify an employee’s eligibility to work, possibly run a background check, and collect other information for the employee’s personnel file. HR will also manage the employee’s first couple of weeks, ensuring they receive proper training both for their job and for safety.
By being thoughtful about onboarding and tailoring the experience to each new hire and their specific role, your HR team can help maximize employee engagement, increase retention, and work to get new hires productive in a shorter time. When HR doesn’t understand the importance of onboarding or simply attempts to wing it, new hires don’t have the direction and initial training they need to be productive workers. It can also leave new hires wondering if they made the right choice of employer.
3. Employee Retention & Development
Training employees starts during onboarding but it doesn’t end there. Workers require constant training to help them stay on top of their duties. It’s also an opportunity for HR to provide upskilling opportunities to employees, helping them adapt to and change with the company’s evolving needs. This is a prime chance for employees to advance their careers within the organization, a key element of employee retention.
HR should also ensure employee development programs exist to help every department meet their goals. In collaboration with department managers and team leaders, HR develops programs to assist every employee in advancing their skills to improve company productivity and efficiency. This helps the team and company achieve stated goals.
These training and development programs can also help your managers improve.
Management training, which should include people management skills training, is an important development program to ensure you have the right people leading your teams.
Training is vital for your HR staff, too—especially for those employees dealing with employment laws, regulations, payroll, taxes, and sensitive employee information. Ensuring those HR team members remain up to date on existing employment laws will help your business stay compliant.
4. Employee Management
Employee management involves all aspects of interacting with and managing employees. Although much of this work is done directly by the management team, your HR department must be there for support and guidance around performance evaluations, discipline, and other areas.
Managers are expected to support their teams and ensure every employee has the tools necessary to do their jobs. Part of that includes performance management, the concept of using regularly scheduled check-ins, structured performance reviews, and disciplinary action to effectively manage employees’ performance. All together, this is a performance management system.
HR develops this system using performance review templates that help ensure fair and accurate assessment of each employee. It also ensures consistency across the organization, reducing the likelihood of discrimination claims. While the direct supervisor is usually responsible for collecting the information, documenting performance issues, and implementing performance improvement plans, HR should be involved in this process to guide the manager and retain the information in each employee’s personnel file.
The most important thing to remember about employee discipline is that it is intended to help the employee get back on the right track by giving them the support and resources they need, not setting them up for failure or termination.
We recommend using a progressive discipline approach. With each failure to meet a goal, an employee receives an increasing level of discipline. Because this can be an emotional and legally tumultuous area, it’s best to have HR involved from the start.
Your HR team can develop your progressive discipline policy and guide your managers through these difficult conversations. It’s important to involve HR so you don’t put your business at risk of lawsuits claiming discrimination or wrongful termination.
5. Workplace Safety & Conflict Resolution
HR needs to put in place safety procedures, even for businesses where people work at desks. Ensure that employees do not lift items which are too heavy, run around the office, or engage in horseplay. These are activities that could lead to employee injuries and workers’ compensation claims.
Employers need to keep their workplace safe for all employees. Workplace safety is a serious issue, especially in certain industries. The Occupational Safety and Health Administration (OSHA) provides for certain regulations that businesses must follow. When violations occur, workplace injuries happen, leaving employees out of work while companies deal with the fallout of other employees witnessing a colleague suffering an injury.
Conflict resolution is another key component of your HR team’s duties. Employees can get on each other’s nerves and engage in unprofessional ways. While managers should address these issues in real time, sometimes issues can escalate and will require that HR step in.
HR professionals can act as mediators between employees who have a conflict. Many HR employees are trained to handle these unpleasant situations; if not, this is a great place to start your HR team training. Trained HR staff can help guide the workers to a successful resolution. This will help ensure a peaceful workplace and increase employee satisfaction through resolution instead of disciplinary action or termination.
6. Workplace Culture & Employee Engagement
Getting culture right is a never-ending process. It requires constantly analyzing what the marketplace is offering and what employees want and making adjustments based on that data. And HR is at the helm of this process. Its role is to ensure your company culture aligns with the needs and wants of your employees so they remain engaged members of your workforce.
A strong company culture is more important for today’s workforce than ever before. An inclusive and attractive culture drives employee engagement and retention. Too many companies get culture wrong, however, and end up with a disengaged and unmotivated workforce.
Bottom Line
Historically, HR has been seen as the place for employee discipline and termination. More recently, HR is trending in a different direction—building and engaging workers with an employee-centric focus. The role has expanded to include all facets of employee relations and engagement.
The importance of human resource management is key to small business growth. HR must adhere to employment laws, create and implement effective employee management procedures, and handle payroll and tax remittance—all while ensuring your company is a great place to work. HR touches every part of your business, so make sure you hire HR staff that you can trust to help you grow your company.
