Harsh realities of HR for small businesses

Frank Talbert is not in business to motivate employees or manage office conflict. He’s got better things to do.

By T. SHAWN TAYLOR
Chicago Tribune The Billings Gazette

Talbert, managing principal of the Proteus Group, a Chicago architecture firm, is up to his neck in the office’s redesign right now, but that’s not all. He’s interviewing job candidates, making sure employees meet continuing education requirements and trying to figure out how to reward his star performers without alienating others.

"Sometimes, I want to make an exception for someone who is performing well. The key is good people. But how do you attract and how do you retain them?"

A human resources person would know, if he had one. Instead, personnel matters fall to him, and it is frustrating.

"It’s a constant distraction," said Talbert, who has been in business 18 months and employs 30 people.

Many small-business owners complain they spend more time worrying about who called in sick, who’s not getting along and screening job candidates than expanding their businesses. But because they tend to view HR as an expense and are sometimes reluctant to relinquish control, they may not recognize when it is time to bring professionals on board.

"It took me 14 years to get to the level of management that will carry us to the next level, and that’s because I viewed HR as not that important," said Richard Smith, president of Ready Computer Source Inc., a Chicago distributor of computer and office supplies. "Now, I see why we have HR people. They are important."

Like a car without a muffler, small businesses can run without a human resources component. But business owners can often become so distracted by dealing with the noise that comes from nonentrepreneurial tasks – personality clashes, employee apathy, poor performance, government mandates – they can lose their way.

"I do all the interviewing, all the placing of ads, all the initial screening, and it’s very time-consuming," said Rebecca Atwood Langeler, president of the Atwood Group LLC, publisher of the Women’s Business Source, a directory of women-owned businesses and female executives.

Langeler, who bought the business in September 2001, estimates she spends 30 percent of her time on HR-related duties. She hired a private human resources consultant once for $95 an hour to handle recruitment while she was expanding her business. But she said she couldn’t afford to do it again.

"It was absolutely something I had to do," said Langeler, who employs four people. "I don’t know if it was worth $95 an hour. … Some part of me thinks that maybe I can find a business colleague or a friend to do HR and just buy them dinner."

Human resources professionals, however, wouldn’t recommend it. Having trained human resources staff on board can benefit small-business owners in numerous ways, they say.

"The biggest way is they make sure (the owner is) compliant with the legal requirements and legislation that hit all businesses," said Mary Jo Case, a senior practitioner of human resources, and president and chief executive of Alliance Resources Inc., a full-service human resources consulting firm in Portage, Mich.

Rick Fazio is regional sales manager for Administaff, a type of human resources outsourcing firm called a professional employer organization, or PEO. Fazio said an HR professional handles almost everything that revolves around people and offers an unbiased view.

"In small businesses, owners tend to be nicer. That’s not necessarily a good thing," he said.

An HR person could help Talbert by bringing consistency to the firm’s rewards and compensation policy while also allowing the owner to use his own system to reward top performers, Case said.

Despite the benefits, one of the biggest reasons small-business owners do not have an HR component is the cost, said Kim Maisch, state director of the National Federation of Independent Business.

"There are administrative nightmares and employers continue to try to handle them because of the cost of hiring an HR person or outsourcing it," said Maisch. "They must weigh the benefits against the costs."

Outsourcing firms that allow business owners to customize services, sometimes on an as-needed basis, charge between $800 and $1,500 a day, Case said. Rates for project work start from $125 to $300 per hour. PEOs that sell a package of services may charge from 2 percent to 4 percent of a firm’s gross payroll.

"For some, it’s a break-even. Some clients, we save them money," Fazio said.

Hiring a full-time HR professional could cost $60,000 or more per year, plus benefits. Outsourcing the work is the preferred method for businesses with fewer than 100 employees.

Maisch said the majority of the federation’s members do not have a human resources person on staff.

Professional employer organizations offer the experience and expertise of a full HR department but typically come as a package deal and do not allow employers to customize services.

Business owners who are interested in select HR services can turn to a private consultant, as Langeler did.

Fazio said he has found it can take years before a small-business owner warms up to the idea of human resources. "When I’m in front of new prospects, they’re gung-ho and think they can conquer the world. Around five years, they are more open to it but not convinced. After 10 years, they say, ‘Where have you been all my life?’ " he said.

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