Why Is HR Important? The Top 6 Reasons You Need to Know
Human Resources, or HR, is a vital part of any business – no matter the size. HR departments help to develop companies, teams and more. Whether the first port of call for staff members or managing pay and performance, human resources comes in many forms, which is why HR is important to a company.
Many founders and business owners are experts in their industry. However, management skills don’t always come as second nature. As companies grow, it can become difficult to juggle things like employee benefits, payroll concerns, and interoffice conflicts. Eventually, management has to decide whether to introduce an HR department.
So why is HR important for your business? Here’s a breakdown of why strategic human resource management is so important.
What Does HR Actually Do?
Many successful HR departments achieve their success by treating employees of the company as their customers. Looking at the relationship this way can help HR to remain focused on the ultimate goal: to help employees do their best.
While there are plenty of areas the HR department looks after, most of the team’s responsibilities fall under these six basic functions:
- Tracking applicants and hiring strategically. It’s HR’s job to supply the company with qualified, reliable talent.
- Managing benefits and time off. It also falls to HR to manage schedules, time off, and benefits like health insurance.
- Training managers and employees. Part of what makes HR so valuable is that they can help elevate the workforce, training managers to be better leaders and training employees to have a deeper, wider skill set.
- Streamlining the onboarding process. Not every company environment is one you can jump into with both feet and stay afloat; some businesses have a steep cultural learning curve, and it’s HR’s responsibility to make culture integration easier.
- Resolving interoffice conflicts. HR professionals receive specialized training to be able to mediate conflicts between employees and between employees and management.
- Handling legal concerns. Lastly, HR professionals are responsible for ensuring labor and employment laws are being followed, and for handling discrimination and harassment complaints.
All of these duties tend to grow as companies add employees, and it doesn’t take long before handling each one of them becomes a job in itself.
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Why Is Human Resources Management Important?
Human resources' importance can vary for each business. If you’re wondering why human resources management is important and if your business can get by without hiring someone to fill this need, we look at the importance of each HR function below.
Tracking Applicants and Hiring Strategically
On average, the hiring process can last between three to six weeks, but it can take months, possibly years.
Worse yet, there’s the chance you’ll hire a poor fit for the position or company, causing friction down the road that could even result in the loss of an employee. Then you’re hiring for the position all over again, and when turnover costs can be as high as 1.5-2 times the employee's salary, high turnover rates can bleed your company dry.
HR professionals help handle the recruitment process, making it easier to find talent, hire the right candidate, and get them up to speed quickly.
Managing Benefits and PTO
Compensation isn’t the only yardstick by which current and prospective employees measure a job. Benefits and time off are also serious considerations, and they’re pivotal to ensuring engagement in your workforce.
In 2023, there are four key categories of benefits employees like to see: leave and time off, health and well-being, work-life balance, and retirement and financial benefits. Without a professional who understands how to prioritize benefits, these important details rarely get the focus and strategizing they need.
Training Managers and Employees
It’s often said that “people don’t leave companies, they leave managers” – in fact, research conducted with over 7,000 participants found 50% of people who left their jobs, did so because of their manager. Now while it’s true in some cases, the answer to the entire problem isn’t that simple.
Few people feel passionate enough about what they do that they’re willing to stay in the same role all their working life. Most want upward mobility: additional challenges, additional responsibility, and additions to their paycheck. When employees feel like they will never be recognized or appreciated for their efforts or their talent, engagement drops sharply, and employees start thinking about leaving.
Having HR professionals who can help employees and managers develop their skills turns the tide in this struggle. Instituting employee training and development helps employees work towards qualifying for more advanced positions. Meanwhile, HR training and development for managers means they’ll be more capable of coaxing the best work out of their teams.
Streamlining the Onboarding Process
Too often, onboarding is left to chance. But having an effective onboarding process can help contribute to higher retention and productivity.
The importance of human resources can shine through here by crafting a more engaging, more effective onboarding process. What’s more, they can create onboarding that’s specific to the job in question.
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Resolving Interoffice Conflicts
In 2023, the average U.S. employee spends 2.8 hours per week resolving workplace conflict. With 85% of US employees, experiencing some level of conflict at work – managers spend an average of 6 hours a week trying to find resolutions.
That’s why it’s helpful to have HR professionals that employees can reach out to. HR teams who have trained in conflict resolution are prepared to handle the difficulties of interpersonal conflict. Besides, training a single HR department is far easier (and less costly) than training an entire organization of managers. The less conflict you have in the office, the happier your employees will be and the more engaged they will be in their work.
Handling Legal Concerns
In 2022 alone, the EEOC resolved over 65,000 charges of discrimination. That’s not taking into account all the charges that were filed – it’s safe to assume many more incidents went unmentioned due to factors like fear of retaliation, lack of evidence, and lack of legal understanding.
Without a dedicated HR professional, it can be difficult to keep track of all the applicable laws and regulations that can ensure a company is on the right track. What’s more, with no HR professional to turn to when there’s a problem, issues may go unresolved (and unnoticed by the company) until it escalates to litigation.
How Do I Calculate the ROI of HR?
There are two key performance indicators to measure the ROI you’re getting from your HR efforts: turnover rates and absenteeism.
Absence Rate = Total Absentee Workdays ÷ (Number of Workdays in the Year x Average Company Employee Population)
If you want to measure turnover rates, use the following example:
Say you employ 30 people. Five of them leave the company and are replaced during the quarter.
Your equation should look like this:
- 30 employees - 5 employees who left = 25 employees
- 25 current employees ÷ 30 original employees = .83
- .83 x 100 = 83%
This gives you your retention rate. If you want the turnover rate specifically, the extra step is easy:
- 100%-83% = 17%
Most industries aim for a ratio that sits around 85% retention / 15% turnover (or better).
The Cost of HR’s Absence
It’s important not to dismiss an HR strategy, as it can have severe consequences such as:
Poor Hiring Practices
If you’re carelessly throwing a job listing out there, odds are you’re not giving the actual interview and hiring process the attention it needs. This can result in failing to attract the right talent and failing to hire the right employees. And no company can afford bad hires.
Subpar Benefits Management
These days, you can’t offer a couple of days of PTO and call it good. Nor can you simply trust people to sign up for insurance. Without an effective HR team, you also run the risk of being less than competitive in the area of benefits and pay.
Low Commitment to Your Organization
20% of employees say they would take a pay cut of 10% if it meant they could have better hours—with 56% saying they consider prioritizing stability over a larger salary. Without an HR professional to ensure that they’re getting the support they need, they may consider leaving.
Negative Employer Branding
We mentioned above that a lot of employees are unhappy with their company’s onboarding process, and a bad first impression can lead to problems. A lack of onboarding processes could go unremedied unless there’s someone assigned to the task, and without HR professionals, there’s rarely anyone at the company who has time to devote to onboarding.
Toxic Work Environment
Toxic work environments are no joke. They can seriously impact your health. Whether it’s friction between co-workers, a boss who won’t listen, or a company culture that’s grown downright malignant, they all take a toll on your workforce. Without an HR strategy in place to help improve company culture and moderate conflicts in the office, employee disengagement and turnover rates will continue to be high.
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Tips for Implementing HR Management
If we’ve convinced you of the importance and value HR professionals and HR strategy can bring to your organization, the next step is to begin transitioning into using them. Here are a couple of tips to get you started:
Build a cultural vision. It’s better to have a plan than to allow culture to develop on its own as the company grows. Think about policies, training, and resources.
Begin tracking key indicators. If you think measuring your success is important, you’ll need a baseline to measure against. Track or calculate some or all of the KPIs we listed above, as well as any more that apply to your industry.
Use available technology. The best HR software suites make it as easy as clicking a button to request or approve time off. There’s a range of tech that can simplify processes for you.
Be prepared to give more regular feedback. Be ready to talk more with your team. Your people will thrive on the positive feedback, and you’ll have a chance to improve their workflows.
Build an HR strategy that seeks to succeed. Start with the HR functions we mentioned earlier and be sure to include initiatives that help your employees pursue a good work-life balance.
Consider outsourcing. Hiring an HR provider isn’t the same as having a full-time HR team, but it can help to provide essential services, as well as to look after issues managers may not have time for.
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