My Small Business Doesn’t Have an HR Department—Is That OK?

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Human resources concept

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.

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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.



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