At what size should a small business consider hiring a full time HR Manager?

It doesn't so much depend on the value of the company or the size but the industry. Some companies have very stable employee histories while others have a high turnover rate just by virtue of their industry. At the moment, I have a client in the commercial janitorial industry which has a traditional turnover rate of up to 200%. In high turnover rate industries, it may be necessary to have a generalist on staff just to keep up with the paperwork and compliance issues. Otherwise, putting everything in place and in compliance can allow an office manager or another position to take care of HR matters.

There is no excuse for an internal HR generalist or manager to not stay up with compliance issues. Anyone can get automatic updates on everything from wage and hours to tax issues from almost every US government agency.

I can understand why many organizations don't believe they need HR folks on staff and as a consultant, I work with many of them myself. The problem is, the area of HR is more than just filing papers and administrative work. In fact, that is specifically why I chose to become a consultant - so I could work on the things I do well. One of those things is in helping organizations understand the employment relationships. I see HR as kind of an insurance policy - no one believes they need it - and they definitely don't want it until a problem arises. Then they are dealing with lawyers that are far more costly. If you want someone to shuffle paper I would have to say I agree with organizations that don't feel they need HR - if you want someone to protect your organization, ensuring compliance with various employment and labour laws as well as human rights - then I would recommend you get someone at a management level of HR - or one that specializes in human resource training and development.

Expanding on Karin's comment, the need for HR support also depends on the environment. The number of Workman's comp claims that must be managed. The number of Title VII complaints that must be investigated. From all the comments it seems obvious that there isn't a clear cut answer. I always recommend that a growing company utilize an HR Consultant to satisfy their HR needs and if they keep growing it will become economically feasible to hire an HR person in place of that Consultant.

I have been involved in 3 small businesses ranging in size from $500K to $30MM and, in no case, did I ever see a need to spend money on an HR manager. Please, if you are an HR person, do not be offended by this. I have always seen this role as non-productive use of financial assets and a drain on time management from a corporate standpoint. However, I did outsource the function to an HR provider in one case since it was never a full time role in my estimation. So there is value to be brought to the table with new laws and regulations coming out faster than a Nebraska snow storm. However, internal HR managers rarely keep up with them while a third party provider generally does.

This is an 'it depends' situation. It depends on the complexity of the business (unionized, heavily regulated, growth pattern, industry sector); it depends on how skilled the management team members are at coaching, supporting, hiring, and developing employees; it depends on whether the organization is not-for-profit, for profit, government etc.; it depends on the projected sustainability, the agility of the organization. There are administrative tasks that can be outsourced and there are very valuable HR contributions that can make a siginificant difference in how agile, sustainable and customer experience focussed the organization performs. The question that should be asked is "how can a skilled HR pratictioner contribute to the success of my business/organization"- that is the question.

And it depends on the other side of the equation-there are HR practitioners that are value added and make a significant con tribution to the sustainabilty of the organization-and when you need to hire someone, that is who you need to look for.

Kevin, you are right in some degree as there are many CEO's who need to be educated on the value of HR if it is properly utilized and you have an HR person who knows your business. It is unfortunate that there are not a lot of HR people who have this skill. Yes, it is a fundamental misunderstanding of what HR ought to be, but it is often difficult to educate a CEO on this. I have worked for some bosses who got it and others who thought that as long as we had hot dogs at the company picnic all was good.

I have had others who I was able to change the thinking, but in most cases the CEO already had his/her philosophy and there was little we could do to change it.

I didn't last with the hot dog people for very long.

I would say it would depend of what can be outsourced, what needs special attention,etc. I think once a company has 50 employees a Generalist is a must and at 150 employees a Manager is a must.

Human Resources is one of the most crucial parts of the organization as you are growing. Don’t short change it. Outsourcing is good for things like payroll, benefit management and developing a handbook at a small size. When your firm gets to the point where you have layers than it might be the right time. The right recruitment efforts, organizational development, training and people development will become the crux of what this person does at this stage

Excellent points Karin.

An awful lot depends on what the business owner wants the HR Manager to actually do. With 50 employees, the time spent on the compliance element might be significantly less than with a company that has, say, 1000 employees. But equally it might be quite routine and capable of being outsourced.

If you want an HR person to contribute to company growth, help to develop skills, train and coach etc it may be less of a case of "if" you need an HR person and more a case of "what type?"

My HR Executive sat at my right hand as this is the person who was going to support the organizations efforts to change the culture, achieve growth and ensure we had the right people on the bus and trained to execute the plan. Don’t look at HR as a function or spoke compliance arm. Although extremely important, not critical to the overall success. The areas I have described are the crucial aspects of a HR professional who can really impact the ability of the company to reach its vision and goals. I have seen over and over again in my corporate and consulting career that when business owners and CEOs do not value HR in the way that I suggest that the organization will eventually stumble and struggle to maintain sustainable results.

Bob, I am struggling with all the answers that put the focus on what the CEO wants. The issue is that CEOs need to be educated on what a true HR presence can bring about, even in a 300 member declining business. One could argue that that company needs a stronger presence than some others. Too many CEOs today are short sighted and believe they along can communicate and carry the vision. Although they have to be seen as the main thrust of that vision, without a solid focus on developing a learning organization, organizational design to carry out the vision and a focus on having the right culture no one person will be able to manage that. Yes, at 6 people it may very tough to afford that investment but there are ways around that with the right CEO peer group, consulting support and employee engagement practices. As a CEO of businesses from $20MM to over $300MM, I have a strong passion on this subject and it transcends into my current consulting practice focused on the acceleration of achievement of sustainable economic change through transformation leadership and strategies of growth, expansion and operational excellence.

I very much agree with Bob, Gail and Karin, there is more than just one variable. It is not just the company size but the industry, the relationship the company has with its staff and the outcomes required, as well as the current level of in-house expertise.

The same question can be asked with other support type roles: when do you need to hire an IT Manager, Supply Chain Manager, Customer Service Manager?

It sounds as if Bill has only dealt with those that "fell into HR" rather than professionals or been stuck with HR administrators calling themselves Managers.

It depends of two things:1)If in its total cost structure when increase the personnal with skills in the function of HR no decrease its profitability or its productivity.I suppose that this enterprise has operations in one enviroment of cost reduction and continuos improvement.When its profitability is not affected by increase spend maintained lower the total cost and a competitive price.
2)When its is culture and vision in this enterprise is people focus and driven.When it thing will be happen and the employee sastifaction is very important the HR function will be a core function.

All excellent responses. HR functions can be fairly easily outsourced. So, from a purely analytical perspective, you should look at the relative costs involved. Not just out of pocket costs, but opportunity costs should be evaluated as well. You have to weigh the relative merits of insourcing versus outsourcing. There is also the choice of using a PEO. As with most business decisions, using a systematic approach in reaching the decision that will be the deciding factor.

Don't assume you need an HR function. I have worked in companies with thousands of employees and hundreds of million in turn-over and no HR function or HR staff. The best places I have worked.

Managers were expected to understand basic employment law, they were expected to manage their people. And when it comes down to the basics, if managers treat people well getting the best from them for both the employee and the business, there are far fewer problems. Yes there is always a number of recalcitrants, but in my experience there are far fewer issues.

As an executive search agent, I find most of my clients turn to me even when they have a dedicated "recruiter" in-house. When hiring at the senior management level, the incumbent HR professional is kept too busy recruiting technical and administrative staff to put the effort required into a C-level search. It takes someone with knowledge of the field and a network of professionals who can do the job and have the competencies to do it well. There is room for both in almost any company.

It appears some believe an HR Manager is just an administrator (pretty common), to some a dedicated recruiter and to others a report writer. Yet these are only aspects of their role and like managers in any other department, they may do some tasks themsleves or outsource, or as the company gets larger - delegate, depending on workload, the complexity of the task and their own expertise.

It seems more fundamental questions need to be asked first (As with any role being filled): "What is the role of an HR Manager and is this the role required" Once these are known, it will be easier to acsertain the position being filled and when they are needed - and waiting until it is absolutley necassary may be too late.

Gail noted that need for HR is dependent on employee turnover. For a small business it also depends on corporate structure. The most common business is one person (professional incorporation): should have legal and accounting services on retainer. Up to 25, usually have a designated Accountant or Bookkeeper that doubles as HR, and Lawyer on retainer. Definitely want HR above the Federal 500 employee threshold. The IRS/NLRB problems deal is someone's scam that 'everyone is a contractor so I don't have to pay taxes'. (You can contract for a product but can't have control over how it is produced.) Labor outsourcers like Volt or Manpower (or Longshoreman's Union) can be paid to provide labor and often have their own on-site HR person.

It the oportunity cost that I use in the second thing.To affirm That the employee satisfaction is an excellent value for affirm that this function is a core function.