15 is the Magic Number: Why 15 (or less) is Important to Your Business

Just how many employees should I have before I hire human resources (HR)? Many leaders think the number is 50. If a business owner waits until he or she has 50 employees that puts him behind the eight ball for many reasons, including potentially serious violations with compliance agencies. HR affects everyone in your company, even if you have only one employee (more on the one employee later).

Reasons HR is Needed

Mid-size and even small businesses need human resources for many reasons. Here are a few reasons. To:

• manage hiring, training, discipline, promotion, and firing of employees
• comply with local, state and federal laws and regulations
• create and maintain fair and consistent company policies, procedures and work rules
• protect your company from lawsuits, claims, and legal risks
• administer and manage group benefits and perks
• teach employees the ropes of their positions and the organization
• partner with and coach supervisors on managing employees and their performance
• assist with strategy and the company’s competitive advantage
• establish a presence to deal with employee and management concerns or issues
• recruit talent who fit, will love, and stay with your company
• help grow your business and revenues
• foster the culture and appropriate behaviors and norms within the company

Small Businesses Need HR Too

Think your business can do without those activities and be successful? If you answered yes, your business may be at risk of losing money and lots of it. Can your business withstand the loss of $50,000, $100,000 or even millions? That may be what you will face if you work without human resources. It is just not worth the risks if you give it enough thought. For example, take this article from Hearst, one of the nation’s largest diversified media companies who reported, “Even very small companies--those with one to 14 employees--must be compliant with the Fair Labor Standards Act (FLSA), the Immigration Reform and Control Act, the Equal Pay Act and others.1”

Companies need access to an HR expert to navigate the complexity of the workplace and today’s employees. Today’s employees are educated and can access information about their rights and related employment laws in seconds thanks to the internet. Gone are the days when only experts knew the law. Also, attorneys cost hundreds of dollars per hour (average is $300 per hour) to consult for advice on employment matters. I have no problem with attorneys. I have many attorney partners on speed dial myself. But using attorneys for HR activities can be very expensive for your business.

Reasons Companies Don't Have HR

Hiring an HR Consultant can give smaller companies great people, processes, protection, performance and profit (what I call the 5 Ps – check out Excel HR for more on this) without the higher expense of having an internal HR function. These five P’s can lead to running a successful business. If a stakeholder told you that you needed to invest $10k to $20k in your business to make it more profitable and to protect it, would you hesitate? For most, the answer is no. So why do businesses go without human resources? The author speculates that the answer is one of four reasons, they: 

1. don't understand why the company needs HR;
2. think they can do HR themselves (not a good idea);
3. think they can put HR off until later; or,
4. think the company cannot afford HR.

Is HR Affordable?

Which one did you pick? Several small businesses will agree that number 4 is a major reason they don’t prioritize HR. The average costs of hiring an in-house HR generalist is $45,000-$60,000 annually, plus benefits and perks. Note that amount is for a less senior professional. If you are only going to hire one person, you need a generalist, not a specialist. A generalist is an HR professional who can cover multiple specialities or areas of human resources. That can be a large expense for smaller businesses. 

Some business owners reading this article might say, “Well, I do not have 14 employees, I only have five (or say, 4, 3, 2, or even less) employees". In a Harvard Business Review article titled, “What If Companies Managed People as Carefully as They Manage Money"2, it was reported that companies invest and prioritize financial capital more than they do human capital. A company will buy a piece of equipment to generate revenues, but will think twice about paying for an individual to help hire the right person to run the machine. The result can be less return on investment for a resource like people that is very scarce in today’s business environment. Read on to see how employing as few as one employee may justify hiring HR.

Compliance and Financial Risks Without HR

So, let’s further examine why 15 is the magic number (for some). With so many federal laws (not to mention local and state) that apply to employers, businesses must comply with employment laws depending on the number of employees there are in their companies. Below are just a few* examples of laws and the corresponding employee count associated with business compliance:

FMLA, OSHA, EEOC, ACA…Does that acronym soup have your head spinning? Imagine being required to know, interpret and apply these laws in the workplace. This is what HR does and a lot more. Notice how many laws apply to employers with 15 employees. Though 15 employees is the count at which some sources recommend hiring a human resource professional, government requirements like those above suggests getting HR involved in your business much sooner. Employer Resource, a national PEO company, says that HR will spend a majority of its time working on compliance responsibilities such as those illustrated in the chart above.3

 As an employer, do you understand these laws or your responsibilities? Do you understand hiring trends or employee engagement? Have you evaluated the people portion of your business strategy? Some businesses do; however, many companies or owners do not. Again, this chart illustrates one of many reasons why companies need human resources; however, many more exists besides those listed herein. As the chart displays, even having one employee gives employers lots of responsibility. This doesn’t account for activities such as payroll, selection, performance management and other HR led programs or responsibilities.

In summary, hire human resources at the right time and don't put it off until it's too late. Despite 15 being the magic number, the bottom line is if you have any number of employees, even just one, you need HR.