Know The Magic HR Number for Your Firm

As I was in Florida in November, working with clients on their business plans for 2023, I had many conversations to understand what HR resources those companies needed and how they were going to accomplish their goals. Almost every conversation started with the same question: “How many employees should I have before I hire a full-time HR person?" or “At what revenue should I look for a full-time HR person?"

If you Google this question, you’ll see several sites that give a definitive answer: 50 to 75 employees. The trouble with this is that they don’t consider the many factors that should go into the decision of when to hire a full-time Human Resources person. After all, the need and type of HR support is much different for a new business than for one that is more established.

Let’s look at some of the points to consider, ways to evaluate when the right time is to look for full-time HR support, and then confirm what their role and responsibilities should look like.

When businesses first start out, they are in the mode of getting jobs completed, providing great service, and generating revenue. Often piecing together the progression of how this happens and who makes it happen gets lost in the process of day-to-day business.

At this stage, the HR component is usually done by the owner, a family member, or anyone who has a few spare moments. The HR activities we see with a start-up company are related to getting employees in the door, adding them into payroll, and ensuring they get paid for the work they do. This cycle continues while a company grows and hires its first few employees. We think of this initial stage as very tactical in nature — get done what is needed in order for people to show up to work and get paid. This is often haphazard, with little to no structure.

GROWTH BRINGS MORE STRUCTURE

As a business grows and begins to take shape, more structure falls into place and we start evaluating what HR tasks should be delegated, along with whether the designee has the time to ensure the tasks are completed and if that individual is actually qualified to do so. Ensuring compliance of basic HR laws, defining and documenting the process of onboarding, and maintaining the employer/employee relationship is imperative to the success of an organization. Typically, this can be accomplished in a few hours a week, but it does require a dedicated person to own these responsibilities.

At this point, it’s also common for a company to see the need for more support in the office management capacity and/or internal bookkeeping work. This is the time when you might consider a new role that combines office management, light bookkeeping, and HR tasks into one full-time position. These roles are a natural fit because they require trust and confidence from the owner, a focus on detail, and access to the systems and information needed to perform the basic HR functions.

With more structure in place and accountability for HR tasks falling within a dedicated role, the focus then moves to scaling with and for future growth. In my experience, when most small businesses approach the 25-employee mark, it is time to seriously consider that 26th hire — a designated HR person.

Depending on the skillset of the office manager/bookkeeper/HR administrator, I’ve seen those who are rockstars in terms of organization, trustworthiness, and talent hold down the HR activities well enough to squeeze up to and beyond the 30-employee mark, but this is rare. Owners should begin planning and budgeting for a full-time HR position well before this time.

WHAT QUALIFICATIONS TO LOOK FOR

The additional question I’m asked about a full-time HR hire is what a company should be looking for and what qualifications the candidates should have. In my experience, those who are successful have a true HR generalist background, meaning they have experience in multiple HR disciplines. These would include basic payroll and benefits processing, employment laws, policy and procedure creation, and recruiting. These are the skills that are critical for what an organization needs at this size.

One full-time HR manager or HR generalist should be able to support an organization up to approximately 50 employees. It’s at this point when the HR focus then shifts to more strategic human resource management, which includes training and development, succession planning, and supporting ownership in implementing their core mission, vision, and values.

Beyond the 50-employee point, additional HR headcount is typically needed to provide more specific support in one or two key areas. In recent times, for example, I’ve seen clients bring in a full-time recruiter to solely focus on getting the right people in the door and creating a pipeline of candidates to support the growth of the organization.

Along the way, regardless of employee count, my experience also suggests that outsourcing on some level is more efficient in both cost and time (not to mention being more compliant) than adding part-time staff or additional HR duties to those in non-HR roles. Companies should be looking at activities within the HR responsibilities that aren’t value-added and may be able to be outsourced.

The questions to consider when looking to outsource HR functions are those of time and cost. It’s nearly impossible for one person to stay up to date with the constantly changing rules and regulations that apply to several aspects of HR, so outsourcing some of those components takes the pressure off of one person needing to be continually researching topics and hoping to get it right. From a cost standpoint, having an outsourced partner removes some of the liability and potential penalties and fines that can be incurred if things are handled incorrectly. This should be weighed against the cost of another headcount or partial headcount. The cost benefit analysis will likely show that outsourcing makes sense, in addition to the peace of mind that an outsourced provider can offer to ensure HR functions are compliant.

Here are some of the questions that should be thought about when considering outsourcing HR functions.

• When do we hire a payroll service? Is it really cost effective for the owner to be cutting manual payroll paychecks with the time and liability involved?
• At what point do we enlist the help of a recruiting or staffing agency for new hires? How much time is this costing us now?
• When do we employ the services of a training/onboarding platform for new and ongoing employee management and training?
• When do we implement employee benefits? Does the owner know what is required for both mandatory and voluntary benefits? What does that benefits package look like and who will manage it?

NUMEROUS OPTIONS FOR HR

There are numerous options for managing and outsourcing any and all of the above, including HR associations, payroll companies, training modules, subscription services, HROs (Human Resources Outsourcing), ASOs (Administrative Services Offering), PEOs (Professional Employer Organization) … there is no shortage of ways to help supplement an HR department.

A large majority of HR activities can still be outsourced even when or if additional HR positions are being added to the organization. Continued focus on strategic HR activities will likely dictate that the more tactical portions of HR continue to be outsourced. I see companies that outsource many task-related components of the HR function even when growing past the 50- or 100-employees mark.

Keep in mind, there is more to HR than just hiring, firing, and paying employees. As we look to expand the role of HR in growing organizations, owners should recognize the entire picture of what HR encompasses. The Human Resources job includes, but is by no means limited to, recruiting, hiring, onboarding, training, compliance, payroll, mandatory and voluntary benefits administration, understanding and enforcing labor laws, disciplining and terminating employees, policy creation and enforcement, employee development, and culture creation and maintenance. Each of these can be an exhaustive study by themselves. Keep in mind they are all individual job functions, and sometimes entire departments, in Fortune 500 organizations.

In conclusion, there is, unfortunately, no exact answer to the question of how many employees a company should have or revenue they should reach before employing a full-time HR person. The answer depends on many different factors, and exactly when can ultimately be answered only by the business owner. In doing so, they should evaluate the planned growth of the business, the budget, the talent of the current staff, and what can be outsourced. These evaluations, along with some soft number targets provided here, should make answering the ultimate question of when to hire an HR person a bit easier to answer.