What does Human Resources do and when do you need them?

Human resources or HR departments have a wide range of responsibilities associated with managing employees, such as handling recruitment, payroll and employment policies. In some cases, even for SMEs, the answer could be a definitive yes.

They tend to be more common at larger companies due to the greater volume of personnel tasks associated with having many workers. However, for the UK’s small- and medium-sized enterprises (SMEs), having a dedicated HR person — let alone an entire department — may seem unnecessary. After all, why do you need HR for in-house employment expertise when you have relatively few employees?

Yet even SMEs could benefit from the functions of a dedicated HR resource. Here’s why.

What is HR?

To start, what is human resources and what do they do? HR has a wide remit, helping with the processes employees undergo throughout their lifecycle at the business.

This includes:

• Recruiting/onboarding
• Training and development
• Managing workers’ employee benefits packages, including pensions
• Aiding with progression through the company, e.g. administering pay rises and enhanced benefits after promotions
• Operating bonus schemes
• Keeping employees safe at work by implementing/updating health and safety regulations
• Managing employees’ key life milestones, such as parental leave
• Supporting employees with sickness absence/sick pay
• Helping staff exit the company well, whether retiring, resigning or facing redundancy.

Although some may have a negative idea of HR, with a referral to human resources conjuring up disciplinary action or layoffs, the reality is that HR is a dedicated function with an extensive role that touches most parts of the business and all employees in some way.

Why does a company need human resources?

Every company is different. Some, particularly the smallest companies, may find a dedicated HR function unnecessary. On the other hand, another company of a similar size may find it vital.

Broadly speaking, you may wish to consider a HR function if:

You’re growing fast

At rapidly growing companies, human resources can help with a high volume of recruitment, training and development. They can also manage fiddly onboarding tasks, such as benefits rollouts. As your workforce expands, HR can support with performance reviews and compensation discussions. Human resources can also ensure your employment offering is competitive, giving you the best chance of attracting top talent.

You can’t keep up with employment law changes

Employment law can change rapidly. In recent years, we’ve seen:

• Changes to IR35 to tackle ‘disguised’ employment
• Amended ‘fit note’ rules for sickness absences
• Gender pay gap reporting for companies
• Centralising certain right to work checks for non-British and non-Irish workers in the Home Office
• The introduction, and subsequent rapid scrappage of, increased National Insurance Contributions to fund the NHS and social care. 

Keeping up with such legislation is crucial for any employer and is something a HR professional can support with.

You’re spending too long on personnel issues

Although cost may deter companies without HR from introducing it, there are potential costs from not having human resources. There’s a risk you get bogged down in personnel issues such as policies, procedures, training, development, employment law, recruitment, onboarding and more. This could stop you doing vital work that actively grows the business.

You want to build a positive company culture

With responsibility for employment policies and working conditions, human resources help shape, enhance and maintain company culture. This can be important when recruiting and retaining staff. For example, 2022 research from Unum¹ found that more than 1 in 3 (36%) employees who’d left an employer would ‘boomerang’ back to that employer due to a combination of work culture and better employee benefits at that old employer.

You’re introducing employee benefits or upgrading an existing offering

Employee benefits are key to rewarding and ultimately retaining staff. 

If you’re thinking of introducing employee benefits or upgrading your existing package with this in mind, HR will be key to this. This could be especially important if you want to offer a benefit that interacts and complements your existing employment policies, such as Group Income Protection that kicks in after your sick pay ends to support an employee during an extended period of sickness absence.

Given few insurers offer sales of employee benefits direct to businesses, finding an independent financial adviser specialising in this area is an important first step. There are multiple sites with directories of financial advisers, including Unbiased. You are likely to particularly benefit from an adviser when figuring out how to set up any employee benefits to work alongside your existing employment policies.

Wrapping up: the benefits of HR

For many businesses, the points in this article make investing in HR worth considering if you don’t have anything in place already.

While of course not right for every business, a good human resources person or team works with managers to develop long-term strategies for growth and development. This can be a key contributor towards a company’s future success.

Ultimately, by caring for employees, keeping up with employment law and health and safety regulations and reducing the burden on yourself as the business owner/director, human resources could turn out to be just as vital, if not more so, as any other department in your company.

_{1 Research by Opinium Research between 4-8 March 2022 amongst a nationally representative sample of 2,000 UK adults}