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Does Your Startup Really Need HR?

Your startup consists of you and a couple employees in the back corner of a co-working space. All of you are putting in more than your share of hours and effort to accomplish goals — goals that are shifting and changing almost as soon as they appear. Even as you work the hardest you ever have, you and those around you are likely being paid less than ever before.

And it’s wonderful.

Workers at startups tend to be more satisfied with their work for several reasons, including tighter relationships with co-workers, greater responsibility and opportunity, and a lack of bureaucracy or formality. Yet, as startups grow, they tend to shed those aspects that workers most like; most notably, they get an HR department.

And that’s terrible.

There is nothing wrong with HR. In fact, HR provides a number of invaluable services that businesses cannot operate without, including payroll and benefits administration, conflict resolution, recruitment and termination, training and career development, and more. However, startups and small businesses don’t need to waste time, energy, and money with an in-house HR department. Here’s why.

Costs Are High

In-house HR is unbelievably expensive. First, you have to pay the salary of every HR employee, which according to the Bureau of Labor Statics (US) is a median of about $60,000 per year per worker. Then, you have to pay for all their tools, which range from computers and exclusive software to immense amounts of office supplies. Finally, you have to pay for space to house everything HR-related, from the personnel to the paperwork.

Unfortunately, none of these costs directly translate into profits, as they do with sales, marketing, and other essential departments. Every program run by HR costs your business money and does little to recoup it, which means the more you can do to cut HR expenses, the better.

Benefits Are Low

Having HR workers on-hand isn’t as valuable as you might expect, especially when you are still a startup. Larger companies typically have a disconnect between those in charge and those completing the work; thus, they rely on HR to bridge that gap.

However, when you have fewer than 50 employees, you probably aren’t struggling to keep everyone focused on the organization’s goals; you probably recognize when one worker isn’t pulling their weight. Instead of relying on an HR department to monitor your team’s performance, develop programs to keep everyone on-task, and reprimand those few who aren’t behaving appropriately, you and your other workers can (and should) perform those responsibilities yourselves.

Then, more technical aspects of HR — namely, the payroll and benefits administration as well as the recruiting and terminating — don’t need to be handled on-site. In fact, they don’t need to be handled by your startup, at all.

There Are Alternative Solutions

There is even less reason to bother with in-house HR considering the bevy of third parties who can perform those critical services for less money and with better efficiency. If you are interested in outsourcing your HR — and even after your startup graduates into a small business, you should be interested in outsourcing as many non-essential business functions as possible — here are a few options:

  • PEOs. Professional Employer Organizations co-employ your employees, which means they take legal responsibility for hiring, firing, and paying your workers. PEOs can provide a full suite of HR services.
  • BPOs. Business Process Outsourcing applies to any services you might outsource. In HR, BPOs are specifically focused on augmenting services with technology; for example, they might provide self-service HR or HR data warehousing.
  • ASPs. Application Service Providers develop and offer HR software-as-a-service. Some are pre-packaged products and others are custom programs build for specific companies.
  • E-services. Using web-based HR providers, you can mix and match the services you need. For example, you might want to handle the hiring and training process but use business online payroll services from a provider. This is also called single-sourcing, and it can usually be acquired from non-web PEOs, BPOs, and ASPs, as well.

Eventually, you might recognize downsides to outsourcing, such as a fundamental understanding of workplace culture or a lack of incentive programs, organized birthday celebrations, or similar targeted employee management options. However, that is in the distant future. For now, you know all your workers by name, and you don’t need someone from HR to come between you and your people — financially or emotionally.



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