How to Structure an HR Team of Any Size
Human Resource (HR) management is one of the most important functions of any business, irrespective of size or type. Whether there is a large HR team or just a single HR manager, their role will essentially be the same, and will focus on the people in the business, including the hiring, training, and firing (if necessary) of employees.
HR managers and teams generally handle every aspect of labor relations within the business, playing a pivotal role in ensuring organizational continuity and long-term productivity. Functions include overseeing interviews for new staff members; induction and training of the people chosen for various positions; evaluation of how employees perform; and dealing with grievances that employees and management might have.
HR professionals also have to be able to accurately project business needs for employees, so that if someone leaves or is unable to work due to illness, it won’t impact adversely on the business. This can often mean additional training is needed for those who might have to step into other people’s positions, even temporarily. Alternatively they might rely on outsourcing temporary employees to fill the gap.
To be able to fulfill the HR function adequately, the team needs to be structured in such a way that it can cope with the business needs, whatever these are.
In this article, we will start with 1) an introduction to HR and HR department, and continue then with 2) organizational structure of HR teams, 3) a model for modern HR, 4) whether HR:Employee ratios matter.
INTRODUCTION TO HR AND HR DEPARTMENT
To be able to structure a HR team of any size it is important to understand the goals and challenges of HR, as well as the key functions most HR departments fulfill.
Human Capital and What it Means
Much of what an HR department deals with – from recruitment to training and then dealing with employees who work within the business – has to do with the management of human resources. But employees are much more than simply a tangible resource, and are rather regarded as valuable “human capital” that is able to produce results for the business.
Most importantly, HR aims to maximize return on investment in terms of what is spent on employees (the human capital). It does this through communication and empathy, by focusing on issues like motivation, making employees feel recognized, and by encouraging effective leadership. To get the most out of the company’s human capital, HR also tackles problems and potential problems, including lost creativity and productivity, as well as time, money and resources that are wasted if human capital isn’t maximized.
While the benefits that are usually achieved by an effective HR team are not always tangible, they have a tremendous impact on both company performance and the resulting bottom line. Ultimately, when an HR department recognizes human capital, it puts its people first. Furthermore, by doing this, it helps to minimize financial risk and increase capital gain within the business.
Goals and Challenges of HR
HR teams within organizations and businesses are usually comprised of largely administrative personnel who are responsible for the management of employee performance, employee relations, and resource planning.
Goals of HR
The primary goal of HR is to help ensure that businesses are able to meet strategic goals by finding suitable employees and then managing them effectively. It does this by:
- Becoming a strategic business partner within the company
- Acting as an agent for change
- Being a champion for employees
- Fulfilling an important administrative role
The challenge when it comes to meeting these goals in today’s business environment is for HR departments to be strategically proactive partners acting on behalf of management or business owners. In the past the primary function of HR focused on administration and employees, and this role was commonly seen as reactive. Also, there was no proven method of measuring the value of HR.
Challenges of HR
Because of the traditionally administrative role of HR, today’s HR professionals face enormous challenges. In many companies they have very little control or influence largely because HR is still often viewed with skepticism. This negativity makes many HR professionals feel overwhelmed and vulnerable.
In a 2005 report by the Society for HR Management (SHRM) titled The Maturing Profession of Human Resources Worldwide, statistics showed that more than half (54.8 percent) of HR professionals considered themselves unable to advance in their careers because the organization did not hold them in high esteem – even though most hold at least one university degree. The report also identified a major challenge to be the need for HR professionals to show they can add value to the business or organization in the fields of talent management and human capital. It also stated that it was imperative for them to focus on their strength as a professional group with recognized certification.
So for starters, irrespective of the size of the HR team, it must comprise suitable professionals.
Major Functions of HR Teams
The primary function of HR teams has always been to provide a basic support function, mostly doing admin and dealing with staff matters. In addition to recruitment, placement, training, career development and so on, HR teams will usually facilitate all forms of documentation both within and outside of the company, from contracts to passports. If staff members need to travel, HR might do flight reservations, hotel bookings and anything else that is needed.
To be really effective it is essential to structure the HR team so that it is also able to deal with a full range of policies and procedures including:
- A business staffing plan that will budget the costs of manpower, reduce costs of recruitment, and allow existing employees to be promoted (or moved) to vacant positions. This plan would usually be updated annually.
- Recruitment of new staff and internal selection to vacant positions if necessary.
- Implementation of a graded salary structure that is competitive in the market place.
- A transparent table of company benefits and allowances that relates to positions, experience and achievements.
- A properly scheduled leave and company holidays plan.
- Employee performance evaluation systems that can be used for salary reviews and promotional considerations.
- Promotion and merit increases that follow the organization’s business plan. It is important that HR works closely with management on this.
- Well thought out policies that relate to financial loans, housing and salary advances.
- A clearly defined policy for business travel. Generally this could be based on actual costs or according to a predefined maximum budget.
- Time, attendance and overtime policies that ensure proper control, remuneration and penalties (where necessary).
- Systems that enable employee suggestions to help increase profitability or reduce cost, and help to motivate employees perhaps with rewards.
- Termination of employment procedures that relate to both firing and resignation.
In large companies, team members might only be responsible for one or maybe two critical function. If the business is very small, one or two people might handle everything.
Regardless of the size of the business and the HR team, once the policies and procedures have been developed, it is essential to find a reliable information system that can be used to inform and educate employees. Not only should they be aware of the policies and procedures in place, but they should also be kept up-to-date if and when they don’t comply, or if circumstances require them to take some type of action.
In real terms, what this means is that the HR team helps the business operate as well as change if need be – for instance if it is going to downsize, restructure, or merge with another business.
Evolution of HR Functions
Business modes and methods have changed so much in the past 100 years, it really shouldn’t be a surprise that the relatively new HR function continues to evolve. Although people have done business for centuries, and various concepts including labor relations, industrial relations, and even personnel administration existing from the early 20th century, it wasn’t until the 1980s that the term human resources was mooted. It took another couple of decades for the idea of human capital to emerge, and the whole concept of HR continues to grow and evolve.
In his paper The Evolution of HR: Developing HR as an Internal Consulting Organization Richard M. Vosburgh (Exhibit 5, page 16) shows the impact and contribution of HR to business as it both limits liability and protects the downside, while maximizing the upside and adding value to the business.
From a function that really only dealt with labor relations, as HR has evolved, it has gradually embraced employee relations, personnel, a greater realm of human resources, and added immensely to organizational effectiveness. In the beginning it was mostly concerned with safety and workers’ compensation issues, and labor and union relations. Then compliance, benefits and general employee relations became more and more important.
As HR became a recognized term, compensation, training and development, survey action planning and staffing and talent management became vitally important, with organizational design and strategic HR planning gaining increased impetus. Latterly, the continued evolution of HR functions have been seen to encompass HR information systems, performance management, diversity and equal employment opportunity (EEO), as well as the value and importance of HR as a business partner, and the culture and image that goes hand-in-hand with it.
ORGANIZATIONAL STRUCTURE OF HR TEAMS
The internal structure of an HR team or department is hugely important. Governed by function, it should have a hierarchical structure with one person heading the team. Unless it is a small business that relies on a single manager or just a couple of people, this organizational structure should comprise separate units that specialize in key human resource management functions. Each unit should have a unit supervisor who reports to the team leader – or an HR person responsible for each function.
The most efficient way of organizing the structure of an HR team is to have units that each specialize on key HR functions. So for instance, one unit might focus on training and development, another on issues that involve money (salaries, compensation, benefits and so on), and another that only deals with employee and labor relations. Ultimately the units that form the team structure will be determined by the business itself.
Typical Units in a Hierarchical HR Team Structure
While function is closely related to any HR team structure, the units themselves need to be carefully defined depending largely on the size of business. Typically, a medium-sized business would have six units dealing with:
- Training and career development
- Administration of compensation and benefits
- Health and safety
- Employee relations
Recruitment is all about finding the right employees for the business, and placing them in the best position (for the business and the employee). So this unit would cover aspects of business staffing as well as internal selection when needed.
The main function of the unit would be advertising jobs, sourcing potential employees and screening them, doing preliminary interviews, and then coordinating meetings for managers that are responsible for making final decisions.
Training and Career Development
Even though the unit responsible for recruitment would ensure that new employees (or those filling other positions) have the right qualifications for the job, there is also a need for further training and development. For example, many HR departments offer leadership training that is designed to give employees the skills to take on supervisory or management positions. Other opportunities might include career or personal development for those wanting to improve their qualifications or personal goals. The HR unit wouldn’t normally provide the training, but would rather simply facilitate.
Compensation and Benefits Administration
This unit would be tasked to handle all types of compensation and benefits including insurance, personal benefits, and sometimes payroll. Compensation, specifically, would include the setting up of structures that would ensure wages and other payments were competitive. Benefits would include negotiating insurance, group health benefits, retirement funds and so on.
In a large company these two functions (compensation and benefits) could be split into two units. Payroll might be a third unit, or it could be outsourced.
Health and Safety
This is a vital HR unit that plays a critical role in ensuring that the workplace is safe and healthy. Operated according to the Occupational Safety and Health Act (OSHA) by HR risk and safety specialists, the unit would work closely with those in charge of compensation and benefits.
OSHA requirements are very clear, and amongst other things, the HR unit would need to maintain proper logbooks where workplace incidents and injuries are reported. Those in charge of the unit would also have to ensure that all other environmental and personal safety regulations are adhered to, and that emergency, first aid and personal safety equipment is provided to employees.
As mentioned previously, labor relations have always been at the forefront of HR, even before it was a defined concept. So employee relations go with the territory, and are a very important part of any business. As an HR unit, employee relations will help to strengthen relationships between employers and employees, by focusing on job satisfaction and resolving any conflict that might arise in the workplace.
Some businesses deal with unions, in which case this function would usually be handled by HR. While a separate union-orientated unit may be required by larger businesses, functions would normally include negotiations and bargaining as well as development of management response and interpretation of labor union issues, including contracts.
A critical issue for employers and employees, compliance relates to fair employment practices, working conditions (including health and safety), and a myriad of working conditions and issues that have the potential to adversely affect productivity and impact on profitability.
There are a number of federal laws as well as other rules and regulations that those responsible for this HR unit need to be aware of and well versed with.
A MODEL FOR MODERN HR
The organizational capability of HR teams is something relatively new that has only been evolving since about 2000. The earliest accepted model for modern HR was propounded by Dave Ulrich in his book Human Resources Champions first published in 1997. Developed by the need to ensure that HR meets the needs of both the business and the people working there, his model is a simple yet effective one that presents four basic functions or roles. Two of the functions focus on processes and people, and the other two on day-to-day operations and future strategies, and together they form the accepted goals of HR in today’s business world.
The four basic roles include:
- Process and strategic focus – in the form of a strategic partner
- People and strategic focus – in the form of a change agent
- Process and operational focus – in the form of an administrative expert
- People and operational focus – in the form of employee relations experts
Each of these roles relates directly to the goals of HR mentioned earlier, and each has three or more accountabilities for which HR is expected to take responsibility.
Accountabilities for strategic partners are strategic HR planning, HR as a business partner, and culture and image.
Accountabilities for change agents are staffing and talent management, organizational design, survey action planning, performance management, and training and development.
Accountabilities for administrative experts are compensation, benefits, HR information systems, and compliance.
Employee Relations Expert
Accountabilities for employee relations experts are employee relations, labor relations, safety and workers’ compensation, diversity and EEO.
The larger the size of the business and its complexity, the larger the size of the HR team plus the more complex its design model will be. It is vital that the design of HR departments match all dimensions of the business. If there are multiple products, customers, and service lines, HR needs to support them all. Ultimately, HR may be seen as an internal consulting organization that (provided it is properly structured) can have a profound impact on your business.
DO HR:EMPLOYEE RATIOS MATTER?
When evaluating HR:employee ratios, the question ultimately is, does size matter? Even though we are discussing how to structure any sized HR team, it’s important to evaluate the size of the team before you start structuring the department. By the same token, HR-employee ratios are a controversial issue that people often use to try and measure the effectiveness of HR. One of the dangers, according to PricewaterhouseCoopers is that company executives sometimes manipulate the ratios to cut HR staff.
The norm used to be to have a dedicated HR person for each executive in the management team. Today ratios of 500 or more employees per HR have become increasingly common.
An SHRM Human Capital Benchmarking Study suggests that businesses with fewer than 100 employees hire two to three HR professionals, decreasing this figure as the size of the business increases. So for 7,500 employees the ratio would relate to 0.42 HR people, and for 500 to 999, 0.82. But there’s no real agreement on the ratio, and so companies need to assess how much value HR can add to the business.
Experts from PricewaterhouseCoopers point out that HR professionals often have different skills, so this also needs to be factored in before the ratio is decided. For instance if the HR department offers strategic partner skills, a company can justify a higher ratio of people. But if they simply do largely automated admin, the ratio should be lower.
The irony is that while HR departments are there to determine staff quotas and quality, there’s often nobody there to determine the quotas and quality required to set up an effective HR division.
In San Francisco, we talked with venture capitalist and the founder of Blumberg Capital, David …