Do Small Businesses Need a HR Department?

When you’re running a small business, a HR department might feel like something reserved for much larger organisations.

When you’ve only got a handful of employees, you probably know everyone personally.

Questions can be dealt with as they arise, managers handle their own teams and HR responsibilities often fall to the business owner, office manager or whoever happens to have the time.

So, do small businesses actually need a HR department?

The short answer is no – you don’t necessarily need a HR department per-se.

But if you employ people, you do need to think about HR.

HR starts earlier than you might think

There’s often a perception that HR becomes necessary when a business reaches a certain number of employees. However, people-related responsibilities begin as soon as you start employing people.

Employment contracts, policies, holidays, sickness absence, recruitment, onboarding, performance, workplace concerns and employment law all need managing regardless of whether you employ five people or 100.

When a business is small, it’s sometimes possible to manage much of this informally. However, when you begin to grow; processes that worked when you had three employees don’t always work when you have 10, 20 or 30.

Even with a smaller team, we would always recommend having the right documentation and processes in place rather than dealing with things informally as you go.

In fact, people issues can sometimes have an even bigger impact in a small business. One difficult situation, prolonged absence or unresolved conflict can quickly affect workloads, morale and relationships across the whole team. Larger organisations may have more people and resources to absorb that impact, whereas in a small team, the ripple effect can be felt much more quickly.

Having clear HR foundations in place helps you manage those situations consistently and confidently when they arise.

HR isn’t just there when something goes wrong

Another common misconception is that HR is only needed when there’s a problem.

Someone isn’t performing, an employee has raised a grievance, a disciplinary issue, a long-term sickness problem.

Those are certainly situations where good HR advice is valuable, but effective HR should also help prevent some of those problems from escalating in the first place.

Good HR can support businesses with recruitment, onboarding, management development, policies, employee engagement, performance and workplace culture.

It can help managers become more confident dealing with their teams and give employees clearer expectations about how things work.

In other words, HR shouldn’t just be the person you call when something has already gone wrong. HR can, and should, be an integral part of your business. Including HR professionals in leadership conversations and key decision-making wherever possible means the people impact is considered alongside the wider needs of the business. This can support you in building a strong workplace culture, developing a reliable and engaged team, making better-informed decisions and ultimately setting your business up for long-term success.

What happens when nobody is responsible for HR?

In smaller businesses, HR often becomes a collective responsibility; which can sometimes mean there is no clear framework for how people-related decisions and situations should be handled.

A manager deals with sickness one way, another manager handles it completely differently, an employment contract gets copied from an old template, or a performance issue gets ignored for six months because nobody wants to have the conversation.

And suddenly, they pile up. Minor issues and situations that could have been relatively straightforward become much more complicated.

A lack of structure and consistency can create further problems too. If one employee is treated differently to another in a similar situation, it can lead to frustration, questions around fairness and a loss of trust within the team. Clear HR frameworks give managers something reliable to work from, help ensure decisions are made consistently and give employees a better understanding of what they can expect from their employer.

Having someone responsible for HR, whether that’s internally or through outsourced support, also creates a clear point of accountability. Rather than people issues being handled differently depending on which manager they land with, there is someone helping to ensure the right processes are followed, and decisions are fair, consistent and appropriate for the business.

HR support that grows with your business

The level of HR support you need when you have five employees probably won’t be the same as the support you need when you have 25 – and that’s okay.

HR should grow alongside your business.

In the early stages, that might simply mean making sure you have the right contracts, policies and processes in place, alongside access to professional advice when you need it.

As your team grows, you may need more regular support with recruitment, employee relations, performance management, leadership development and the day-to-day challenges that come with managing a larger workforce.

For some organisations, that will eventually mean building an internal HR team. For others, outsourced HR support continues to make more sense, giving you access to experienced HR professionals without the need to employ someone in-house.

The important thing isn’t whether you have a HR department. It’s whether the people within your business are being managed fairly, consistently and effectively – and whether the managers making those decisions have the right knowledge, processes and support behind them.

So, does your small business need HR?

You might not need a HR department, but if you employ people, HR is already part of running your business.

From the moment you take on your first employee, there are responsibilities, processes and people decisions that need to be managed. As your business grows, so does the importance of getting those things right.

The question, then, isn’t necessarily “Do we need a HR department?” but “Do we have the right HR support for where our business is now?”

For some businesses, the knowledge and experience already exists internally. For others, having an experienced HR professional to turn to can provide reassurance, consistency and a different perspective when making decisions that affect their people and their business.

You don’t need a full HR department to get HR right.

At Holla HR, our support is completely bespoke. We take the time to get to know your business, your people and the challenges you’re facing before recommending the level of support that’s right for you.

No unnecessary packages or services you don’t need — just practical, tailored HR support that works for your business.

Get in touch with Holla HR to find out how we can support your business and your people.