Will Having a Human Resources Team Lessen Your Financial Business Risks?

by Scott Schmidt, Chief Financial Officer, U.S. Money Reserve

HR does a lot more than just manage who you hire.

Business owners often wonder about the benefits of having an HR department. Sure, HR employees handle a lot of the nitty-gritty work of hiring, firing, and managing your staff, but they also provide an added benefit that many might not consider: They keep your business much safer.

In business, risks are everywhere. You could lose a key client; get into trouble with federal, state, or local authorities for not following the letter of the law or regulations in your field; or an unexpected disaster could occur. However, a company is only as successful and resilient as the people it employs. A human resources department helps business owners manage the human capital that makes a company run. HR offers a lot more than just hiring and firing and can actually help you mitigate financial risks in the long run. Here’s how.

People Are Risky

First, it’s essential to understand the role human capital plays in any business. There are no bones about it — people pose risks.

While both large and small businesses need to hire and sometimes fire people in order to keep their doors open, those people — the human capital — are a significant source of risk.

After all, people are individuals with a wide variety of backgrounds and experiences. When we go to work for someone else, we bring all those experiences and backgrounds with us, and those experiences cause us to act in different ways. Some days we are sloppy in our work, while other days we are totally on the ball. Sometimes we take new jobs and have to leave our current employer, vacating a position that’s vital for the company. Sometimes people refuse to take on new responsibilities because they simply cannot take on more work. In all of these cases, there is an implicit risk that an employee might not meet the company’s needs or that the company might not maintain the employee’s rights. If you don’t have an expert who knows and understands the ins and outs of managing human capital, there can be significant financial risks to dealing with these issues the wrong way.

But People Also Mitigate Risk

On the flip side of this coin is the fact that people can and often do mitigate risks for a business. They use ingenuity and intellect to solve problems that the company probably couldn’t fix on its own. People usually go above and beyond for the company they work for to ensure that their products and fellow employees are safe. People also can help make a business more efficient than ever by working smarter instead of harder. Plus, people often leverage networks to bring other trusted friends and advisors on board to help make a company better.

Without human capital and the risks and rewards that come with managing people, businesses would never work. Ultimately humans are both a vital part of business and one of the most significant risks to it.

How Can a Human Resources Team Help Manage Risk?

First, it’s essential to understand what the role of human resources really is. At its core, HR is designed to protect your company. Essentially your human resources team is there to help you navigate sticky employment law situations, any sort of interpersonal strife that can and does arise between employees, and any potential legal issues that crop up from both current and former employees. HR is there to ensure that your business is adhering to the proper guidance and legal rules of the locality in which you do business.

HR also handles issues like compensation and benefits, fair hiring practices, occupational health and safety, employee conduct and supervision, and of course exiting employees. Each of these issues comes with a fair amount of risk — and violating any of the laws or regulations around these topics can be a very costly mistake for any business owner.

The Cost of a Human Resources Team

Human resources costs are not cheap, especially for smaller businesses just getting their start. The costs of hiring an HR department can range anywhere from around $550 per employee to as much as $2,500 per employee, according to data from 2017. In 2021, just the cost of hiring an employee (finding, interviewing, training, and then retaining) is as much as $4,000 to 7,000 and up, according to data from Glassdoor and a study by the National Association of Colleges and Employers. There is no way around it: HR is expensive.

On the flip side, however, is the potential cost of not having HR support. For one, you open yourself up to any number of potential legal issues that could arise: violating a law, regulation, or employment rule in your country, state, or county. Secondly, if you don’t have an HR department that can handle hiring, firing, and employee relations, those responsibilities will fall to you. In fact, entrepreneurs can spend as much as 40 percent of their time tied up with various necessary but time-draining HR tasks, according to Entrepreneur magazine. Determining how much of your time you want to spend on these tasks and how big your staff might be or might need to be will help you decide whether a full HR team is worthwhile.

The truth is that not doing anything to support your human resources needs can significantly negatively impact your business. For one, damages can escalate considerably over time. The longer you remain in violation of a law or regulation, the more significant the financial impact. Multiyear damages are much more significant, and there may come a time in the future when you simply cannot do enough damage control to catch up. The cost of not bringing a human resources team on board can be significant enough that it could sink your company completely. Prevention is always the best option when it comes to helping ensure that your company stays aboveboard and solvent when dealing with hiring, firing, and managing people.

You Don’t Necessarily Have to Hire a Full-Time Human Resources Team to Mitigate Your Risk

While the implications of not having a human resources team at your company are tremendous and can profoundly impact your company’s solvency, you don’t necessarily have to bring on an entire HR team full-time to keep your business safe. There are plenty of other ways to protect yourself and your company without having to shell out a ton of capital — including hiring a professional employer organization, or PEO.

A professional employer organization helps you manage the human resources functions for your company without tying you to having an entire team. According to Entrepreneur, a PEO can cost about 2 to 11 percent of wages, or between $500 and 1,500 per employee per year. Pricing depends on what your company does, how big it is, and how many employees you need to manage through HR. If you like to control every last aspect of your human resources decisions, then a PEO might not be for you. If, however, you want to be protected while managing and growing your business but without needing a full HR team, a PEO might fit your needs.

But if you are already running a larger company and need more in-house support, it’s time to look at hiring a human resources team to help you continue to grow and maintain your business. Organizations with 50 or more employees should start to consider taking their HR operations in-house. You may want to consider working with an HR recruiter to build your human resources team, as they can help you target the right type of talent. Since human resources is so vital to the health and sustainability of your company, it’s really essential to make good hiring decisions when it comes to bringing an HR team on board.

Essentially, deciding when to hire a full HR team is strictly up to you. While there is a cost associated with the decision, the risk you run by not having a human resources team is far more significant. Violating workers’ rights, not following hiring laws, having unsafe working conditions, or not dealing with disgruntled employees can absolutely scuttle the best-laid plans and destroy your business.

The Bottom Line: Human Resources Teams Reduce Your Financial Business Risks

When it comes to managing people for a company, no one is better at it than a skilled human resources team. Depending on where you are in your growth trajectory and what you want to do in the future, a solid HR team can help you grow, mitigate your risks, and help you make great people management decisions. Ultimately, while investing in an HR team costs money, the long-term benefits outweigh any short-term costs. A solid human relations team can help significantly lessen your financial risk and help you grow your team and your company footprint over the long term. Whether you decide to hire your own team or outsource your HR services until you grow to a point where you need to bring them in-house, investing in a human resources team that supports your goals is never a bad idea. Good HR serves as a great way to protect you from a wide variety of financial risks that arise when you don’t have a human resources team backing you up. Plus, it’s a smart way to grow your company and ensure its longevity well into the future.

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