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What is HR anyway?

By Gusto on August 30, 2019

My hunch is that when a lot of people think of HR, they think of big businesses. You know—a team of cheerleader rah-rah types who say things like “People are our greatest asset” and “We take every complaint seriously.”

But most people don’t think about HR in a small business context. “Why would a business with only a few people need HR?”

That’s what this post is all about—giving you an overview of critical HR functions, why you should think about them seriously, and how to implement them into your business.

What does the HR function entail?

Scratching the surface, it’s a handful of key things:

  1. Hiring—Businesses of all sizes require the effort of multiple people. That means finding and retaining talent, including interviewing, onboarding, assessing performance, and much more.

  2. Benefits—Hiring is a lot easier when you offer a compelling benefits package. Healthcare is the big one, of course, but benefits like retirement, family leave, and others are increasingly common. Businesses that want to compete seriously for the best people will need to think hard about the benefits they offer.

  3. Payroll—Once these people are hired, you have to pay them. Obviously! You won’t have a business very long if you don’t. But payroll can be a tedious process. It includes everything from taxes to overtime pay, to raises, to direct deposits. In short, it’s complicated, but you need to have payroll locked down and organized.

  4. Managing—Once you have a team, you have to manage them. And unless you want “manage” to be thought of in a sinister context, you’ll need to be careful, considerate, and strategic in how you approach it. Management includes things like assessing performance, learning and development, developing workplace policies—all while communicating effectively with the team.

  5. Compliance—Oh look, everything above has a compliance component to it: Did you remit payroll taxes? Is your business subject to federal and state unemployment taxes? Are you required to offer health insurance? Have you—gulp—discriminated against someone during the hiring process? Egad, this is a lot of work.

Depending on the business, this list might be just the tip of the iceberg—or it could be overkill. Again, knowing your client and their needs will be crucial. The whole point is that you want to make these HR matters…matter…so your business will need to build knowledge and credibility in these areas.

Why HR?

There are a lot of good reasons for choosing to build a robust HR function that we’ll get into later, But for now, let’s start with some basics.

As mentioned above, you might think that HR is something only big businesses need to worry about. That couldn’t be further from the truth. As you probably noticed in the above section, tackling these issues will be immensely valuable for your business and your people.

How do we know that it will be valuable? Science! A 2016 study found that “companies with a formal engagement strategy in place are 67 percent more likely to improve their revenue […] on a year-over-year basis.” An engaged workforce is a more productive one, no matter the size, and that increased productivity leads to more revenue for a business.

“What does HR have to do with employee engagement,” you ask? In a small business, driving employee engagement falls to the owner or owners of that business. It may seem like something that can be put off or delegated, but engagement will start at the top and include many things, such as:

  • Letting employees know how they can make a difference in the business
  • Compensation policies that incentivize employee engagement
  • Communicating company strategy and goals that employees can understand and connect to
  • Providing career paths for growth and development
  • Recognizing and rewarding exceptional performance
  • Offering benefits that show they care about their employees’ well-being

HR areas like recruiting, training and development, compensation, and performance management can all have an impact on employee engagement and business success.

How to launch your HR function

How can you best get your HR function off the ground? Here are a few ideas:

  1. Use the tools available—Most small businesses, believe it or not, rely on manual processes to manage HR. Not only is this unnecessary, but it’s wildly inefficient. There are lots of technology solutions out there to help businesses organize and automate a variety of tasks, from payroll to recruiting to benefits to employee engagement. Businesses that use these tools will have access to the experts and can start building out their HR function.

  2. Crunch some numbers—There are several different metrics you can track to help you stay on top of some of these HR areas. Analyzing things like cost per hire, absentee rate, overtime, and employee turnover will help you keep plugged into these areas and how efficient your HR function is.

  3. Consider outsourcing—Sometimes, the best thing you can do to jumpstart a new aspect of your business is to get it off your plate entirely. Talk to your accounting firm or another business advisor to find out if they can advise you on your HR function. They’ll be able to present different options, the pros and cons, and recommend actions that work toward building the HR functions you need.

Knowing the key areas like payroll and benefits, getting your employees interested in the business authentically, and using cutting edge tools like Gusto can result in a tidy and well-run HR function. It has the potential to transform your business into a people-minded organization with a happier, healthier, and more engaged workforce. No pom-poms necessary.



Ready to get serious about your HR? Learn more about Gusto’s people platform, including HR tools, along with payroll and benefits, for the modern small business.


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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