Why Human Resources Is Important for Small Businesses

Human resources (HR) is the function within a business that’s responsible for the “people stuff.” It encompasses a broad array of disciplines from recruiting to compensation. In short, HR staff ensure your workers are hired, paid, and productive. Choosing to embrace HR at your company can maximize business performance, improving both customer satisfaction and profitability.

If you don’t have the time, temperament, or expertise to focus on the importance of HR management, consider outsourcing your HR needs to Bambee. Bambee serves as your business’ HR expert with unlimited HR consulting services starting at $99 per month. Bambee helps deal with the complexities of HR so you can focus on what you do best, grow your business.

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So, why is human resources important? Let’s look at what they do.

1. HR Manages All That Administrative Stuff

Once your business hires its first employee, you take on responsibilities as an employer. For example, you must report new hires to the state, and you’re required to classify employees correctly (exempt vs nonexempt). You must also process payroll taxes, providing W-2s to employees at year-end. HR experts understand the why and how of each of these requirements.

New Hire Paperwork & Onboarding

Welcoming a new employee to your workplace requires more than assigning them a place to sit and showing them what to do. The government expects you to verify their right to work in the United States and gather information for the IRS. The importance of HR management in this process is that it goes well beyond the paperwork alone. HR employees add value by welcoming your new hires, increasing the chance that they’ll stay and be productive on the job.

Orientation & Training

While on-the-job training may cause line supervisors to question why human resources is important, it’s the timing and coordination of onboarding and training that makes your HR team valuable. As your business scales up, HR staff become the keepers of institutional wisdom, culture, and values. They help new hires get off to a good start, consistently.

“Some say HR is the most important element in building a successful business, and I agree. Apart from hiring new staff, a successful HR team will also be good at retaining it. A well-designed onboarding program will help employees adapt to a new role and duties, while CPD [continuing professional development] elements will help them evolve and feel motivated.”

―Kuba Koziej, Co-founder, Zety

Processes & Procedures

The focus of the HR management function is on consistency and information sharing to reduce organizational conflict or labor law violations. HR staffers create process and procedures tools to support your business’ operations like policies on paid leave and calling in sick. Most HR experts compile these documents into an employee handbook to be read and acknowledged by each team member annually and upon hire. That keeps everyone on the same page.

Document Retention

Some small businesses may overlook the importance of human resource management on simple tasks such as setting up secure filing systems to manage employee data. It’s your HR team who’s aware of which payroll records need to be kept and for how long. HR experts also ensure compliance with confidentiality laws, like Health Insurance Portability and Accountability Act (HIPAA) that require you to secure any employee medical data, such as a Family and Medical Leave Act (FMLA) request for time off to recover after surgery.

If managing the administrative side of your growing business stresses you out, consider partnering with Zenefits. Zenefits manages new hire paperwork electronically, stores all your employee files online and provides templates for employee handbooks and company policies. Plus, it can do your payroll processing and offers employee benefits too. Sign up for a free demo.

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2. HR Finds & Recruits Top Talent

HR is the front line of your business when it comes to sourcing talent. They know where to post jobs to get the best candidates. They have experience using job boards and recruiting software fast track your hiring process. They also understand what information should and shouldn’t be collected on a job application form to avoid potential lawsuits. Best of all, they know what questions to ask a candidate to separate the talkers from the doers.

Finding Employees

One of the reasons why human resources is important is that a small business owner may not have time to go out and recruit staff. HR practitioners understand the challenges of needing to balance finding the most qualified candidate with your desire to fill the position quickly. They use tools ranging from job boards to social media, and they seek candidates based on solid job descriptions and ads that target the exact type of talent you’re seeking.

“Human resources is very important for my business, because they are able to touch base with international talent—more than half of my employees are from different parts of the world. If I didn’t have an HR team, I wouldn’t have access to international talent. My recruiters scour job marketplaces, LinkedIn, and social media sites to find highly talented content writers, SEO [search engine optimization] specialists, inbound marketers, and so on.”

—Harsha Reddy, Co-founder & Editor-in-Chief, Small Biz Genius

Assessing Candidates

Most HR recruiters have a sixth sense for identifying and weeding out unqualified job seekers. They’re also less likely to assess a candidate by gut than by data. They 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.

Negotiating Job Offers

A 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. They know what a job should pay based on the skills, experience, and education as well as the job duties. They even understand regional pay ranges and shift differentials.

HR experts also understand the cultural and intangible benefits like flextime or casual Fridays that can improve your chances of having a candidate accept your job offer. For example, an accounting assistant being hired into a New York City insurance firm is going to require higher pay than an accounting assistant working from home managing your restaurant books.

“HR is important to your business because it’s on the front line of recruiting talented employees who will embrace your company culture. Hiring employees who are a fit for your company culture is critical to success and allows employees to onboard more quickly and become more efficient. In addition, HR is critical to recruiting candidates who will ultimately be happy in your company.”

—Ray Zinn, CEO, Tough Things First

Your HR reps write the job offers and advise you on the going rates—preventing you from overpaying for a key resource or having your job offer declined—all while ensuring the pay and benefits meet the needs of the worker. That can save you money as well as reduce the time it takes to fill a critical position.

To find the best-matched talent and streamline their workflow, HR professionals often use recruiting tools and applicant tracking systems. A free small business alternative is to use Indeed instead. Indeed posts jobs, tracks applicants during the interviewing process, and provides offer letter templates and pre-employment tests. Best of all, using Indeed is free. Once you select your new hire, you can upload their data directly to your HR or payroll software. New users get $50 in free sponsorship credit to advertise open jobs.

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3. HR Ensures Labor Law Compliance

Many small businesses don’t recognize the importance of human resources management until after they’ve received an audit, fine, or penalty. The U.S. Department of Labor (DOL) enforces nearly 200 federal labor laws—many of which are further enforced or enhanced by state and local ordinances.

Consider these federal and state labor laws that affect small businesses. Those in states like California or Hawaii may find their employment laws more strict than other states. One of the reasons why human resources is important is that HR experts are aware of and help you comply with these important and often changing regulations.

“Our People Operations team stays on top of labor law changes that happen often in states where we employee staff like Hawaii and California—or in New York City where we’re headquartered. For instance, we offer reimbursement for commuter expenses and provide more sick leave than most states require. If you don’t have an in-house People Operations team, online HR consultancies like Bambee provide an affordable alternative.”

—Dave Waring, Founder & CEO, Fit Small Business

Safety

Larger organizations such as a food manufacturing plant or commercial construction firm often appoint a safety manager to ensure Occupational Safety and Health Administration (OSHA) compliance. However, in a small business, this role falls squarely on the HR team. Those HR staffers responsible for the people side of your business help the company assess potential risks to employees and comply with safety regulations. This reduces the likelihood of fines while supporting your workers’ right to a safe and healthy workplace.

Anti-discrimination

Recent news highlights discrimination ranging from sexual harassment to pay inequity. Thus, the human resources management function is important to prevent your team from accidentally discriminating against current and/or future employees. An HR team will have their ear to the ground on new rules—not asking about a person’s prior salary, inquiring about an applicant’s criminal history, or commenting on an individual’s disability during an interview. That may save you from being slapped with an unfair hiring practices lawsuit.

“HR staff are at the forefront of gender diversity as they help facilitate employee interactions and lead hiring processes. Research from Fairygodboss shows that a majority of men want to help women succeed in the workplace and believe it’s important to advocate for women, but they don’t know what practices are best to support these efforts. HR can help provide the necessary tools and resources both women and male allies need to drive gender parity at work.”

—Romy Newman, President & Co-founder, Fairygodboss

Local Ordinances

Your HR professional is the one who will review official compliance documents and may attend HR meetings to learn about new rules and regulations affecting your workforce. Did your town or state adopt a rule for no texting while driving, and does that mean you need to change your internal communications policy? Has your state recently mandated paid sick leave as many have? Is your local minimum wage higher than the state or federal minimum wage?

One of the difficulties small businesses face is understanding what labor laws affect them and how. Having an HR consultant on speed dial can prevent many newbie employer errors. Bambee provides a monthly unlimited phone consulting service for only $99 per month. Visit the website to get started.

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4. HR Keeps Workers Happy & Productive

While it may seem HR’s job is all about paperwork, once the requisite compliance stuff is managed, HR professionals add value by helping to monitor your workplace culture and support your workers. They keep tabs on the happiness of your people assets, similar to how an airline mechanic “listens” to identify and prevent potential problems. Why? Because they know happier, more engaged employees perform better on the job.

Reducing Turnover

Employee turnover is rarely a good thing. It means people are leaving your company, and it’s costly. The University of California, Berkeley, research shows that the employee turnover averages around $4,000 per worker, with manual and blue collar workers costing about $2,000 to replace and manager turnover costing closer to $7,000.

Some employees leave voluntarily for valid reasons like a spouse’s job requiring them to move out of state. Others leave involuntarily when you realize the employee is not up to the task and let them go. Through great hiring and engagement of existing workers, your HR staff adds value by reducing turnover in your business, saving on the cost of finding and training replacement workers.

Preventing Burnout

One of the reasons high performers leave an organization is due to burnout. They work hard, producing great results, and you keep promoting them and paying them bonuses. The cycle continues until the employees burn out. That can cause poor performance, stress, and likely turnover. HR can prevent you from losing your best employees by giving them and their managers a sounding board along with strategies to help deal with workplace stress.

“As a small business owner, you have a lot of control over how jobs are designed as well as when and by whom tasks are assigned. Think about the person and their situation when you consider how a role might be modified to increase work-life balance. Our research shows that if you have an HR function, it can be very helpful in maintaining the pulse on the employees and being on the lookout for burnout and emotional exhaustion symptoms in employees.”

—Ronda Smith, Ph.D., Professor, Ball State University

As part of its human resource management system (HRIS) software and library of HR tools, Zenefits offers resources to small businesses like templates for gathering employee engagement feedback. It can also track employee retention and turnover data. Zenefits can help you manage employee performance conversations that keep your workers engaged and let you stay on top of brewing issues. Sign up for your free Zenefits demo.

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5. HR Creates a Great Work Environment

Your business likely monitors its reputation through customer feedback and net promoter scores. You want to ensure your customers come back, buy more, and tell their friends. HR does this monitoring for you on the employee and culture side of your business. What do employees want more of or less of? HR looks for those things that will make your company a great place to work.

Goal Alignment

One of the drivers of employee engagement is workers who believe their work matters and that they’re “part of the team.” HR serves a critical role throughout all phases of the employee lifecycle to ensure that employees feel a sense of belonging and valued. It also ensures that managers have tools to help their staff understand how what they do ties to the company’s objectives.

6. HR Manages & Tracks Employee Productivity

Let’s be honest. You don’t hire employees just to make them happy. You hire them to do a job. Although it’s common sense that they’ll do a better job if they’re happy. The importance of human resources management beyond employee engagement is that individuals trained in HR offer many levers to track and improve employee productivity.

Compensation

Spoiler alert: more money doesn’t equal better productivity. It’s only one among a myriad of tools the HR practitioner brings to your business. Experts in HR and particularly those with expertise in compensation management help determine fair pay rates to can support your pay equity goals. They know how to structure a combination of pay and benefits to motivate employees best. Examples might be hourly pay, salaried pay, the timing of pay, and structured bonuses and incentives.

“We have had many employees over the years and have dealt with payment equities in the past. We implemented a solution for this issue by adopting a career path for certain positions. In our company, we pay the same salaries to employees who perform the same function, unless they have a difference of two years or more of working for our company. When comparing pay for two employees, consider that whoever was hired earliest may receive a different salary. We also differentiate our salary amounts by geographic location. We allow salary differences for offices farther than 150 kilometers.”

—Gustavo Carvalho, Chief Marketing Officer, Copahost

Benefits

U.S.-based employees are accustomed to being provided with benefits in addition to their pay, which means not providing these benefits could decrease their motivation and productivity. Benefits can include paid time off like holidays, a car allowance, employer-sponsored health insurance, or a monthly pizza party. HR experts can help you determine what employees want and then match that to your benefits budget.

Health Insurance

Once your business crosses the full-time equivalent (FTE) threshold of 50 employees, you’ll find it’s your HR experts who have expertise in setting up and managing an employee benefits program. They understand what it takes to be compliant with the Affordable Care Act (ACA). However, they can also help you get health insurance even if you run a much smaller firm—by leveraging their expertise in working with small business benefits providers like Zenefits.

Software Tools & Productivity Apps

The complexity of human resources has given rise to HR automation tools ranging from electronic time clocks to peer feedback apps. Your HR team can help you determine which tools are best for your business based on price and features and then help set up and implement those tools—providing instructions, training, and support to managers and employees alike.

7. HR Supports Business Competitiveness

The ubiquitous phrase, “people are our most important asset,” is only true if the workers on your team have their basic needs met. If not, people can be your quickest path to failure and begin to exhibit toxic behaviors in the workplace. Human resources are so important because the HR staff is the ones managing all the things that contribute to the optimization and productivity of your people resources.

“In my opinion, HR is what makes or breaks any company. A company is only as strong as its weakest link, so the role of HR is crucial. I think that many organizations fail due to bad HR policies, starting with hiring since employees are the foundation of any company.

“Hiring aside, HR needs to also make sure that employees are satisfied, motivated, and comfortable in the workplace. Successful companies do not skimp on HR and make sure that all employees’ needs are met, especially from a motivational standpoint; it’s crucial for HR to assess employees and know what makes them tick. Employee retention rates are also directly correlated with HR, as employee satisfaction is an ongoing process.”

—Igor Mitic, Co-founder, Fortunly

Strategy

In many organizations, HR takes on the role of helping a business articulate and execute its strategy. That may work with you to document your company’s mission, vision, and values, but the real importance of human resources management is that it bakes the organizational philosophy into the employment lifecycle—starting with job descriptions, employment ads, the employee handbook, orientation and performance metrics. HR helps execute the company strategy through people.

HR is the People-facing Side of the Company

The importance of human resource management is that it covers all things people related. It does so in a labor-law compliant way that may also save you from fines and penalties. It can also save you money—for example, reduced turnover or lower cost to hire—as well as make money. Happy people engender customer loyalty and help your business be profitable and grow.

Bottom Line

As our experts remind us, human resources may be a person managing workplace compliance, department centered on people and company values, or mindset that focuses on all the human aspects of your business from employee benefits to peer engagement. Improving your human resources function can translate to bottom line profits by reducing your turnover cost, improving employee productivity, and lowering your risk of employment lawsuits.

Ready to automate your HR function from hiring to payroll? Zenefits can save time and eliminate your stress around administrative paperwork and labor law compliance. For example, overtime and state minimum wage rates are built into its software. In addition to software with self-service options, Zenefits offers benefits in all U.S. states and can provide you consulting services for HR and payroll. Sign up for your free demo of Zenefits.

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