Why Even Small Businesses Should Invest in HR

Why Even Small Businesses Should Invest in HR


Why is HR important? Good question. A potential client once told me they didn’t have a human resources (HR) function and didn’t need one. I thought this was a strange comment, given the fact he had 300-plus employees in three states. When I asked what he was doing to manage the financial costs of employing people—i.e., workers comp, unemployment, overtime, etc.—he said that high costs in these areas were “just the cost of doing business.”  After hearing that, I didn’t bother to ask about compliance, benefits costs, legal issues, or anything remotely proactive when it came to managing his workforce… I knew what his response would be. He had no idea what HR could do for him; he considered HR as an expense that provided no return. Needless to say, he didn’t hire my company to help him manage his HR function. I found out a couple years later that the business had closed; I suspect his lack of attention to HR may have had something to do with the closing.

Please know that every employer has HR administrative, legal, and employee relations responsibilities and liabilities. Large companies almost always utilize some form of HR (internal or outsourced), but small companies oftentimes go without. If you are a small employer and don’t have HR support, you run the same risks as the potential client I mentioned above. So before you decide you don’t need or can’t afford HR support, please consider the following:

  • No matter how large or small, all employers have the same basic legal and administrative compliance requirements.
  • These requirements include, but are not limited to, correctly determining exempt/non-exempt status, accurately recording hours worked, accurately calculating and paying overtime to non-exempt employees, adherence to personnel record-keeping requirements, knowledge of and adherence to certain federal and state employment regulations, etc.
  • HR is usually responsible for ensuring these basic compliance requirements are met. If an employer doesn’t comply, they may get a visit from a representative of the Department of Labor, Internal Revenue Service, or other federal or state entity, and the result can be costly.

Speaking of costly, I know of a local company that was fined over $5,000 by the North Carolina Department of Labor (NCDOL) for allowing 16- and 17-year-old employees to work after 11PM on school nights. It didn’t matter to the NCDOL that this only happened a handful of times, the employees were paid for the work, or that the employer immediately corrected the problem when they were notified of it. Violation of NC Youth Labor Law happens frequently when companies don’t have good HR support.


Why Workplace Policies Should Be Implemented


Another reason to have HR support is the importance of work rules/policies. Most companies that employ people establish rules/policies that employees are expected to follow. The reasons are pretty simple:

  • Without rules/ policies, employees don’t know what is expected of them, so they tend to work in ways that aren’t always in the best interest of the employer, for example, frequent breaks, excessive tardiness/absenteeism, lack of focus on productivity, and the like.
  • Also establishing (and enforcing) work rules/policies on a consistent basis helps employers minimize the costs of employment law violations.

Small companies tend to fly by the seat of their pants when it comes to rules/policies, and this can be costly. Here’s an example:

My company was once hired by a small employer because, as they said, “they couldn’t win an unemployment case.” I learned this employer had no rules/policies related to discipline and termination, so they were unable to defend itself when a former employee filed a claim for unemployment benefits. Employees need to be aware of the rules/policies, and supervisors and managers need to follow these rules/policies when disciplining  and terminating employees. If not, employers will lose more (maybe a lot more) unemployment claims unnecessarily, and the result will be the cost of increased unemployment taxes. After working with this employer to establish and enforce some basic rules/policies regarding discipline and termination, I’m happy to say the employer began to win the vast majority of the unemployment claims and, over time, their unemployment rate dropped from just over five percent to around one percent.


The Many Hats HR Wears


Another area where HR can help an employer is in the development of processes to manage the costs of employing people. Labor costs are the most obvious costs of employing people, but there are also other costs such as productivity and turnover. HR processes such as recruitment, selection, performance management, compensation, benefits, discipline, and termination can help employers become more efficient and effective while generally saving time and money. For example, better recruitment and selection processes reduce the costs of turnover, better discipline and termination processes reduce unemployment and legal costs, and better performance management increases productivity. Good HR support to develop and manage these processes is critical to ensuring effective and efficient processes that reduce the costs of employing people.

All employers have to deal with employee relations issues, whether they have a dedicated department for those issues or not. HR is where employees go for help dealing with their work (and sometimes personal) issues. HR is also where supervisors and managers go for guidance on how to handle their employee issues. Without HR support, employees will find someone (usually a co-worker) for advice on their workplace issues. Supervisors and managers, on the other hand, may take action without support or advice from anyone. Both approaches can have negative consequences. Employees seeking advice from other employees cause rumors to spread, leading to more problems. Supervisor and managers who make personnel decisions without HR support and advice tend to get the company in hot legal water. HR fills an important role when it comes to employee relations for both employees and for supervisors and managers.

HR handles many, many calls, emails, texts, and visits from employees with concerns about the company, their supervisor, co-workers, pay, benefits, and the like. Sometimes the employee just wants to be heard; sometimes the employee doesn’t have the whole story; sometimes the employee has a legitimate question or concern; and sometimes the employee is wrong. HR usually acts as the mediator in these situations, making the decision regarding how to respond to the employee’s concern, all the while taking into account the employee’s, as well as the company’s, interests. It can be a difficult fence to straddle, but responding to employee relations issues is a fundamental value of HR.

Depending upon the situation, HR wears many hats, from administrator to counselor, policy cop to trusted advisor, terminator to strategic partner. I’ve been referred to by all of these informal titles during the course of my career, and, in most cases, I took the comment as a compliment. HR is a catch- all where employees, as well as supervisors and managers, go when they need help, have questions, don’t know where else to turn, are at the end of their rope…you get the idea. The impact of good HR support in these situations is immeasurable.

Bottom line: When employers understand what good HR support can do, “Why HR?” is a question that answers itself.



This article was originally published in Capital at Play magazine, March 2021 Issue. You may also read it online on Capital at Play’s website by clicking here.


Stephen H. Murphy, SPHR, is the president and founder of Carolina HR. He has been active in Human Resource management and consulting for over thirty years and brings his experience in a wide variety of HR situations to his clients.

Stephen H. Murphy, SPHR, is the president and founder of Carolina HR. He has been active in Human Resource management and consulting for over thirty years and brings his experience in a wide variety of HR situations to his clients.


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