Can a Midsize Company Function Without an HR Department?

Even among midsize companies, HR responsibilities are sometimes delegated to existing, non-HR employees to cut costs or keep HR processes entirely in-house. Unfortunately, when payroll, workforce management, onboarding, benefits, or timekeeping fall on a finance officer, hiring manager, or another employee, this added burden -- and lack of effective HR solutions – can lead to a number of financial, legal, and workforce issues.

If you currently run a company without an HR department, it’s essential to reevaluate the potential risks of this approach, the common human resources needs of growing companies, and which HR alternatives for midsize companies are available to support your business and return focus to higher-priority tasks and projects.

In this article, we’ll explore the benefits of implementing proven HR solutions for medium-sized enterprises to improve compliance, employee retention, employee satisfaction, and long-term cost savings. Whether it’s developing an HR department, upgrading HR software, and/or working with a qualified HCM provider that specializes in supporting midsize companies, we’ll outline the pros and cons of each approach.

Challenges of Operating Without HR Solutions

Increased Costs

Although midsize companies may delegate HR processes to existing in-house employees, this is an unsustainable, risky, and ultimately counterintuitive approach that can lead to greater costs and employee retention issues. In general, HR tasks can be quite time-consuming without the right professional support or technology to support the process. Asking an employee without proper training or specialization to handle complex payroll considerations or ensure company-wide adherence to applicable labor laws invites compliance penalties, reduced employee productivity, employee dissatisfaction due to expanded job responsibilities, and a number of other issues.

Even when employees without HR training make conscientious efforts to support a business’ HR processes, it is likely to lead to inaccuracies, delays, redundant data entry, disorganization, and diminished focus on revenue-producing activities. Outsourcing HR to a qualified provider restores time, energy, and focus on core business tasks and projects while granting your business peace of mind about the efficiency and accuracy of important HR processes.

Outsourcing HR to a qualified provider can generate cost savings in the following ways:

• Reduced Hiring and Training Costs – Outsourcing to a qualified provider eliminates the need to train HR staff internally or hire a dedicated HR manager, and improves overall hiring practices by leveraging professional support and digital tools during recruitment, talent acquisition, hiring, onboarding, and all other phases of the employee lifecycle.
• Mitigate Noncompliance Risks/Penalties – Each business must negotiate a wide range of local, state, and federal labor and hiring laws that apply to its jurisdiction(s); even more regulations exist based on business size, industry, and a slew of other factors. Working with a qualified HR provider majorly reduces the risk of receiving noncompliance penalties or making reporting, payroll, or tax-related errors.
• Reduced Time Spent on HR Processes – A qualified provider not only frees up time for your employees to focus on central business tasks, but also streamlines and simplifies all of your HR and HCM processes so they support your business’ day-to-day operations. From integrating employee data across payroll, onboarding, and benefits to implementing automation that notifies managers or supervisors about employee progress on a given project, outsourcing HR functions lets your business prioritize productivity and growth.

Legal and Compliance Issues Without HR Support

Midsize employers are subject to a wide range of local, state, federal and industry-specific compliance obligations that can change frequently and often within the same calendar year. Without the aid of professionals who are familiar with the regulations that apply to your business based on jurisdiction, business size, employee classification(s), and many other factors, noncompliance (including subsequent penalties) is a major risk. Issues with noncompliance can also affect company reputation, employee retention, productivity, and company culture.

Without dedicated HR support from a qualified provider, your business is solely responsible for adhering to the following regulations (and many more):

• Adhering to Fair Credit Reporting Act (FCRA) and Equal Employment Opportunity Commission (EEOC) regulations and guidelines during the recruitment, hiring, onboarding, and overall employment process. Issues with either could lead to company discrimination lawsuits.
• Avoiding noncompliance issues and penalties due to violations of Department of Labor (DOL) or Occupational Safety and Health Administration (OSHA) regulations.
• Avoiding overtime disputes due to lack of employee monitoring or inefficiencies in payroll or timekeeping; addressing personal injury claims.
• Consistent I-9 completion, following guidelines outlined by US Immigration and Customs Law
• Navigating Pay Scheduling/Frequency requirements based on municipality or state
• For midsize employers, adherence to the Family and Medical Leave Act (FMLA) and Affordable Care Act (ACA) is mandatory and can sometimes be complex to navigate without professional guidance.

Diminished Employee Satisfaction and Workforce Retention

Without a dedicated HR department or effective HR solutions, employees are left to endure a lack of consistency, efficiency, transparency, and limited access to key HR processes that affect their employee experience. This can manifest in a variety of ways: late, missed or inaccurate paychecks; a cumbersome timekeeping system; limited access to resources regarding company benefits; receipt of traditional paychecks vs. direct deposit; and much more.

Your employees should not only feel supported, but have a clear lens into how HR works within your company and how they can exercise agency in updating employee information, banking information, benefits elections, or completing training, tax forms, and more. All of these processes are simplified through collaboration with a qualified provider that offers employee access to a self-service portal. An ESS portal offers mobile, 24-7 access for employees to complete timekeeping, scheduling, elections, and a host of other tasks while they’re on the go. Using the right HR and HCM tools also dramatically improves the onboarding process, making the employee experience stronger from the onset of employment and contributing to early productivity and long-term employee retention.

Alternatives to a Traditional HR Department

It’s understandable why some midsize companies forgo establishing or developing an extensive HR department due to the costs of hiring, training, employee management, and much more. However, handling HR responsibilities in-house with untrained employees – and without dedicated HR solutions (technology and support) – is ill-advised and likely to lead to compliance and workforce issues, especially as the company grows.

HR Software Solutions for Midsize Enterprises

A qualified HR provider that offers a combination of professional expertise, software, and customer support is the best alternative for midsize companies seeking to streamline and simplify HR and HCM without developing an extensive HR department from scratch. This is especially true for companies that may want to gradually outsource HR needs, beginning with payroll and expanding to other HR needs like recruiting, hiring, onboarding, benefits administration, workforce management, and more.

Generally speaking, a qualified provider should be able to support your midsize business in completing some or all of the following tasks:

• Improving talent acquisition, recruitment, hiring best practices, and streamlining onboarding for new hires and hiring managers alike.
• Managing employee benefits administration, including ease-of-use for employees through a self-service portal and access to company resources.
• Workforce management – including time & attendance, scheduling, and more.
• Handling and processing payroll – managing everything from deductions to implementing direct deposit pay that is compliant with employee preferences or local/state requirements re: pay frequency. We offer payroll solutions specifically designed to accommodate and address the needs of midsize businesses.
• Compliance management – ensuring the business’ practices are fully aligned with all labor and hiring regulations that apply based on jurisdiction, business size, and other factors.

Enjoy Long-Term HR Solutions

Beyond the risks of noncompliance and related penalties, handling HR and HCM processes exclusively in-house can lead to diminished focus on business growth and the day-to-day tasks and projects that advance your company. Considering the HR needs of your midsize company? Connect with us to explore customized, scalable solutions that fit your business. Click here for a free consultation and discover how we can support your growth.

DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting, or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.