Larger companies tend to set aside an entire department to handle the gamut of HR functions. Depending on the size of the organisation, there would be levels of management hierarchy. Each HR function would be handled by one or more persons, as per the requirement. Whether it's payroll management, statutory compliance, compensation & benefits, rewards & recognition, policies & procedures, employee relations, talent acquisition, talent management, performance management, workforce safety, learning and development etc. There is no single person trying to handle everything and instead each function has an experienced person(s) in the lead. Strengthening the HR department is the key, and large companies have it from within.
Now, all the functions mentioned above are required in smaller organisations as well. Many small businesses today adopt HR process transformation to streamline these functions efficiently. But can a small businessman afford time, energy & money in a good to have and not must have HR department? If not, can the HR functions be ignored or kept in the back seat?
In smaller organisations, irrespective of whether it has 2 or even 30 employees, the business owner needs to take care of the following HR functions:
Foster an accountable work culture - creating an environment where employees take ownership of their responsibilities and deliverables.
Engage and motivate employees - keeping the workforce invested in the company's success and their own growth.
Manage compensation and benefits - ensuring fair and competitive pay structures along with appropriate benefits.
Compliance with the labour laws - adhering to all statutory requirements and regulations.
Handle employee grievances - addressing concerns and conflicts in a timely and fair manner.
Attract and retain talent - bringing in the right people and keeping them engaged long-term.
Performance management - setting expectations, providing feedback, and evaluating employee contributions.
Upskill existing employees - investing in training and development to enhance capabilities.
So, even if the enterprise is small in size, there has to be someone, either the business owner himself / herself or an accounts / admin person taking care of the above functions. Another possible way is to outsource it to an external consulting firm offering payroll management services and HR support. Before deciding on what is best for them, the business owner need to think on the following lines:
Can s/he put different hats for marketing, sales, operations, innovations, accounts, HR etc, be an all rounder and grow the company? In all likelihood, its not possible and that is where most of the businesses fail to grow, succeed or scale up. Even if the business owner is willing to spend the time and has the inclination to take care of HR activities, s/he need to ponder whether time spent in marketing, sales, operations will help the business grow or priority to be given to non-core activities like accounts, HR, IT?
Should an HR generalist be appointed for managing HR functions? Our take is - not to appoint an HR generalist till the business reaches a stage wherein s/he has an average of 5 to 6 hours of workload per day related to HR functions. Again getting an HR generalist with experience and expertise in all the above mentioned functions is a challenge.
Should HR functions be outsourced to an external consulting firm? We recommend you to read the articles Outsourcing HR functions and Selecting an external HR partner published earlier, before coming to the conclusion.
Now, what about the mid-size companies?
Mid-sized companies can appoint 1, 2 or more HR persons depending on their needs. However, they often rely on payroll management services and partial outsourcing for efficiency. Experience and expertise of these employees, their roles & responsibilities largely depend on the vision, mission, strategy of the top management, and their willingness to allocate funds to the HR department. Getting experienced and experts in HR is very crucial. Even in mid-sized companies, a couple of HR functions may be outsourced.
In nutshell, if the business owner is not pursuing an expensive hobby of running a business and instead wants to build a stable and successful business, HR should be given due importance especially in talent acquisition (recruiting is an art and science), people development resulting in higher employee engagement and employee satisfaction.
Resource availability is the main difference between small, mid-sized businesses, and large companies. While smaller businesses may have limitations, they cannot ignore critical HR functions.
With the right approach—through structured systems, payroll management services, and HR process transformation — small businesses can improve efficiency, ensure compliance, and scale sustainably.
Frequently Asked Questions
Is HR only important for large companies?
No, HR is essential for businesses of all sizes to manage employees, compliance, and growth effectively.
What is HR process transformation?
HR process transformation involves redesigning HR workflows and systems to improve efficiency and business outcomes.
Why do small businesses need payroll management services?
Payroll management services ensure accurate salary processing, compliance, and employee satisfaction.
Can small businesses outsource HR functions?
Yes, outsourcing HR functions is a cost-effective way to manage HR without building an in-house team.
What HR functions are critical for small businesses?
Key functions include payroll, compliance, recruitment, performance management, and employee engagement.