How Many HR Pros Does a Growing Company Need? More Than You Think
Sooner or later -- and it should be sooner, not later -- every growing startup needs to have an HR professional on staff. We explained in a post last fall how to know when it's time to bring that role in-house. Today, we'll talk about how to know how large an HR staff is necessary for your company -- startup or not.
And, pardon us if we sound like a lawyer, but the right answer is "It depends."
Before explaining that, a little background. The old rule of thumb for human resources was one HR staffer per 100 FTEs. It worked because business demands were different in the "old days." Tasks were not as specialized as they are today. Recruiting, for just one example, involved placing ads in the newspaper and waiting for resumes to come in. And the number of required government reports was a fraction of what it is now.
The formula today works only for the largest employers where HR departments will have dozens of workers. It also works for small employers with a fairly traditional workforce of mostly full-timers in similar jobs and not much turnover. Even then, many employers turn to outside HR consultants and Professional Employer Organizations for additional help.
In 2015 the Society for Human Resource Management surveyed thousands of HR professionals about HR staffing issues. Turns out that for small employers, with a workforce no larger than 250, the ratio averages 3.4 HR staff to 100. As the number of workers approaches 1,000, the ratio drops dramatically to 1.22 per 100. Only as the workforce moves toward 10,000 does the ratio approach the 1 to 100 ratio.
The SHRM survey report pointed out that, "There are various reasons this difference in ratios exists as organizational size increases." Hence, our "It depends" answer.
The reasons SHRM cited are what you might expect: A larger HR team allows for flexibility in deploying staff to fill-in and backstop. Having specialists handling just one area enables greater efficiency and productivity because of their expertise. And, some functions may simply be outsourced, reducing the need for some staff, but adding to the overall department budget.
There's another reason larger employers have a lower HR to FTE ratio and that's technology. Bigger employers invest in applications that enable workers themselves to do what HR generalists in less digital workplaces must do. In the most digitally sophisticated workplaces, workers can logon to see work schedules, request vacations and days off, check benefits status, review payroll information and submit time sheets and file HR reports.
Smaller employers may make do using the 1 to 100 ratio -- and in fact there are many HR departments of one -- but they can't escape the expense. SHRM's survey found that on average, businesses of up to 250 workers spent $3,592 per FTE. As the size of a company increases to up to 1,000, the per FTE cost for HR drops by almost half.
"Early development of the HR function in small organizations requires higher infrastructure and outside consulting investments," the SHRM report explains.
The upshot of all this for small and growing businesses is to ignore the old advice of having one HR professional on staff for every 100 FTEs. It's a complicated world and hiring and retaining people is more difficult than ever. You need professional help, so don't think you can get by distributing HR tasks to your managers. One missed report deadline; one missed recruiting opportunity; one avoidable vacancy can cost you more than the HR professional to have handled it.
When you do make that decision to hire a human resources professional -- or when you start thinking it may be time to enhance your HR team -- give us a call here at Green Key Resources at 212.683.1988.