What Does “Human Resources” Really Mean?

October 8, 2017

Over the course of my career, I have had the experience of working closely with companies of many different sizes, from the smallest (under 10 employees), to the largest a company can be while still being considered a ‘small business’ (500+).

Obviously, the size of a company’s headcount will correlate with their stage of growth and as a result, their ”HR” needs, which is a factor we examine closely when determining what elements of our HCM (Human Capital Management) system would be beneficial for them.  But we have found that there is another, often more significant factor that determines a company’s “HR” needs. This factor is the velocity at which the company hires and terminates their employees, or the frequency of their turnover.

What the heck is “HR” anyway?

Ask 10 different business owners, especially of businesses of varying sizes, and you’ll get 10 different answers. Those answers are mostly a reflection of the relative challenges that particular business faces when it comes to employees, and the issues that face the team that manages the needs of those employees.

I asked my friend Peter, the managing partner of a professional services firm, to define “HR”. His answer: “HR is the most important function in our Company because human capital drives our business… Frankly, finding and retaining the right human capital is the toughest part of my job.”

Clearly Peter is not in manufacturing, and finds his people are the key, as they are required to perform services on behalf of his customers. So key, in fact, that the role of finding the right people exists at an executive level rather than an administrative one.

His is an example of where the quality and competency of his employees directly relates to the success of the business, which we find is common in service-based businesses. And Peter’s “HR” concerns are coming from a more strategic perspective – finding and keeping the right people.

For many smaller companies, the letters “HR” often correspond to the more transactional elements of dealing with employees, such as collecting and storing employee documents like I-9 and W4 Forms. When you ask them the role of the “HR Person”, many times you will hear the words ’employee benefits’ or ‘health insurance’ in the next few sentences along with ‘payroll’.  In this type of an organization, you often times will not find a trained or experienced human resources professional in place, but rather a very competent administrator whose responsibilities fall partially into “HR” and partially into Finance.  Their job is carry-out the functions required to maintain a body of employees.

Another role often performed by  the “HR” person is to make sure the company is “in compliance”.  Specifically, that their employment practices fall within Federal and State regulations, such as wage and hour law compliance, EEO and COBRA compliance, and other labor laws that govern an employee’s relative well-being.  It’s not unusual for companies to seek to outsource compliance due to a lack of internal resources and expertise (and sometimes they are looking to transfer their own liability).

What is an “HR” person?

The best “HR” people we have seen are complete synergists, balancing the strategic and transactional elements of HR by helping to define and implement best practices that support the overall HR mission (finding and retaining talent, in Peter’s case).  This is an easy thing to do with an “HR Team”, but what to do when your resources are not so plentiful? What to do when the “HR person” is doing payroll, accounts payable, accounts receivable and also other industry-specific tasks?  You implement an HCM system of course!

Why? Most business owners don’t include the cost of managing employees within their cost of goods sold. To them, the people managing “HR” are considered overhead. That’s why in an economic downturn, the members of the “HR” team are often among the first out the door. So, if we can limit the cost of that overhead by making the “HR” person more efficient by use of an HCM system, we keep overhead low, and processes are efficient.

Earlier I identified both the size and headcount growth of a company as factors when looking at the HCM solutions we implement at Commonwealth. Employee turnover is another one that we examine, to determine whether process needs to be created around recruiting and the process of vetting new candidates. The more hiring that is done, whether to fill new positions or re-fill existing ones, the more critical the recruiting tools become, which bring us back to the HCM systems, and our client’s specific needs within one.

It all really depends on how you define “HR”, because at your company, “HR” is your employee’s reality – and yours as a result.

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