By Chris Lennon
Some companies think it’s okay to overlook HR. Especially in small and mid-sized firms, there are managers who think they can deal with employee issues themselves. After all, HR isn’t a highly technical field, like drawing up engineering plans or managing a manufacturing process. It’s not as though an HR department is essential to keep the business running, right?
More and more companies are giving this way of thinking a try. HR departments are disappearing, particularly among companies with flat management structures which want to encourage more accountability among their employees. And with the proliferation of easy-to-use payroll and benefits software, it seems easier than ever to outsource HR duties and let managers handle the rest of an HR department’s duties.
This can be dangerous—just ask the former CEOs of Uber or THINX. Without proper HR, things can go wrong enough to seriously disrupt your business.
Here are some of the pitfalls of operating without an HR department as well as advice on how to cope if you or your company are in a similar situation.
What happened to Uber can happen to you
Companies without formal HR departments rely on their management teams to establish workplace norms, oversee hiring and promotions, and ensure ethical behavior. But if management goes off the rails and there is no HR department that can (or is willing to) step in, the entire company can suffer.
Take the example of Uber. It hired its first HR professional in 2014 when it had already grown to more than 500 employees. While Uber isn’t cash-strapped, its leadership waited until it had hundreds of employees in place before hiring an HR professional because it viewed HR the way many emerging companies do: as a killjoy in a “growth-at-all-costs” environment.
Even when Uber did expand its HR department, management mostly prioritized recruitment duties over legal compliance, ethics, diversity, and other important HR functions. Tasks like addressing sexual harassment, establishing fair compensation, and accurately assessing performance were not among HR’s priorities. No wonder Uber’s high-profile HR issues eventually led to the resignation of its CEO, Travis Kalanick.
Similarly, HR issues were the downfall of Miki Agrawal, the CEO of underwear brand THINX. One week after Racked published an expose of Agrawal’s abusive management tactics, she stepped down. She admitted in a statement that it was a mistake not to hire an HR person.
Even if your HR issues don’t make the news, sites like Glassdoor allow employees to leave anonymous reviews of their employers. More than ever, when 85% of all jobs are filled via networking and some industries are suffering from a skills gap, your company can’t sweep its HR issues under the rug.
RELATED: How to Chase Away Your Best Employees
The challenges of operating without HR
Beyond sexual harassment claims, compensation issues, and improper (or nonexistent) performance reviews, as evident at Uber and THINX, there are other challenges and risks to operating without proper HR. And even companies working in the HR field aren’t immune to HR problems.
Parker Conrad, the CEO of Zenefits, a company offering cloud-based HR solutions, found an ingenious (and unethical) tool to get around the licensing requirements restricting his employees’ ability to sell insurance legally. He created a browser extension to make it appear as though employees were spending time on an online training course to sell insurance in California, even when they weren’t. This got around the rule that California brokers had to spend at least 52 hours in training.
It didn’t last. The California Department of Insurance opened an investigation on Zenefits. Other states have opened investigations too, though Zenefits won’t confirm which ones or how many.
In industries like construction, engineering, and manufacturing, safety and accreditation training is key to a company’s success. A robust HR department will steer your business clear of liability issues like these by ensuring all employees are properly accredited and prepared for their roles.
Less efficient HR decisions and processes
The hiring process can take much longer if senior management has to sign off on every decision. At Zenefits, Conrad personally approved every vacation request for hundreds of employees. Not only did this slow down the vacation approvals, but it was an inefficient use of the CEO’s time.
It can also result in poor hires. In her statement, Agrawal admits to skipping the crucial step of calling references because she needed employees fast. This lack of due diligence can easily lead to poor hires, which can have a real impact on your company’s bottom line. Bad hires can cost your business tens of thousands of dollars.
What to do if you’re in charge of HR
The risks of operating without HR is why the Society for Human Resource Management recommends taking on an HR staffer when a company reaches 15 to 25 employees. If that’s not possible for your firm, or if you’ve been handed the HR portfolio and don’t have an HR background, there are a few things you can do:
Bring in outside experts to handle sensitive issues. Most managers can address key HR matters like performance issues and vacation leave. When more sensitive issues arise, such as allegations of sexual harassment, bring in an expert to resolve the issue.
Know the law. Workplace legislation varies by state and changes often, and different rules apply to companies depending on their size. If you belong to an industry association, it may be able to keep you updated on relevant legislation, or you can find a corporate attorney or HR consultant to make sure you know which laws apply to your company.
Use people-management software. Whether it’s recruiting or payroll and benefits, wherever you can, automate HR functions to keep them efficient and consistent.
Train your managers. Many people are promoted to managerial roles without any training in managing people, conflict resolution, or recruitment. Ensuring your managers are adequately equipped for their roles will go a long way in preventing HR problems.
Counterintuitively, HR can have a greater impact on small and mid-sized businesses than it does on large ones, as costly HR mistakes often have a comparatively bigger impact on smaller companies. Whether your business has a robust HR department or someone managing HR off the side of their desk, make sure to give HR the time and resources it deserves. The success of your company may very well ride on it.
RELATED: Hiring a Human Resources Manager
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