OneSource Business Solutions Blog

An HR Model for Small Businesses


All companies (except sole proprietors with no employees) have HR needs. However, those needs can vary by the size of the company. Larger companies often have to deal with more complicated state and federal mandates as well as laws that kick in at a certain number of employees.

Smaller companies have much less complex needs, but there comes the point in growth when dedicated HR support becomes necessary. Otherwise the business will stagnate as business owners spend time on HR matters instead of the core business.

Why Businesses Need HR Teams

All businesses that have employees need some kind of HR. No matter how small your business is, you still need people to handle hiring and recruitment, onboarding paperwork, payroll, compliance, train new employees, etc.

For very small businesses, the first answer might appear to be “do-it-yourself" HR. This means that the business owner or another staff member (often an administrative assistant or business manager) handles HR alongside their other duties. This is still an HR team, but it may not be the most effective way of handling things.

The Problem With DIY HR

DIY HR may work well when you have just hired your first employee, but it rapidly becomes a problem. The biggest issue is that you are taking time away from revenue-generating activities and core competencies. Processing payroll alone can take significant amounts of time, especially if you have hourly employees you are paying weekly. This is just one obvious downside; there are others:

  1. It's harder to maintain good relationships with your employees. HR mediates between you and your employees, and without that middle step, it can be tough to get employees to communicate their concerns. Most people are unwilling to complain about their boss to their boss.
  2. You may not be the best person at hiring and finding new employees. Having an HR team means you only have to interview the candidates they select, and you can skip the early stages such as posting job ads and looking over resumes. You can trust their judgment to help eliminate the large number of underqualified and unsuitable candidates who apply for any given opening.
  3. An untrained person (which includes you) is much more likely to make costly compliance mistakes. Forty-seven percent of small businesses that process their own payroll admit to paying employees late, which can cause compliance issues, lower morale, and encourage employees to seek opportunities elsewhere.

Mostly, the issue with DIY HR, though, is wasting your time on it when you could be working on your business strategy. Small businesses spend between 18 and 40 hours a month on HR-related tasks, depending on whether they outsource payroll. 

What is Small Business HR Outsourcing?

HR outsourcing is a good solution for businesses who need dedicated HR, but have not yet grown to the point where a dedicated, in-house team is feasible. Many small businesses fall into the awkward place of not needing a full-time employee to handle HR, but not continuing to do it themselves.

You can outsource most HR functions, including payroll, risk management, compliance, onboarding, benefits administration, and even some employee training. By doing so, you free yourself and others to focus on core competencies and the growth of your company. Outsourcing the most routine tasks can help even after you have hired a dedicated HR specialist, by allowing them to focus on things like employee relations and building company culture.

Depending on what kind of outsourcing solution you choose, you may be able to save money on benefits and workers' comp insurance. For many small businesses, affording good benefits can be cost-prohibitive due to the small number of employees. Economies of scale help a lot, and some solutions allow your employees to sign up for the outsourcing partner's plan. Using their workers' comp insurance reduces the risk of large premium hikes after a single incident.

PEOs as a HR Model for Small Business

The best model for HR outsourcing for small businesses is to work with a professional employer organization. When you partner with a PEO, you get an end-to-end HR solution that uses a unique partnership system called co-employment. Under co-employment, the PEO becomes the employer of record and thus responsible for taxes, compliance, etc. Meanwhile, you retain control of hiring, firing, work conditions, and your employee's day to day activities. 

If you are spending too much time on routine HR activities, then HR outsourcing is the obvious solution. Choosing a PEO gives you additional advantages, including the ability to get cheaper benefits, lower workers compensation premiums, and access to compliance and payroll expertise. It is simply the best HR model for small businesses out there.

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