Hello, Vendors: 70% of Small Businesses Put HR in Untrained Hands

Small Business

Up to 70 percent of U.S. small businesses, or roughly 1.5 million companies, have assigned HR responsibilities to staff members who handle the tasks in addition to their primary role, according to a study by ADP. The company found that such ad-hoc HR managers spend an average of more than 13 hours a week on workforce-related issues, meaning they spend more a quarter of their time on tasks outside of their core responsibilities.  

Based on this time spent and the average wage of a small business employee, ADP calculates that these small businesses essentially spend $18,800 a year to have untrained staff manage their HR. Despite that, 98 percent of the survey’s participants don’t plan to hire trained HR staff. 

Depending on the company, the ad-hoc HR manager may be the business owners themselves, other managers or supervisors, office managers, or accounting and finance staff. These aHRMs, as the study calls them, would prefer to hand off their HR responsibilities to someone else, the study found.

“Managing the HR function traditionally has been challenging for small businesses,” Brian Michaud, senior vice president of ADP TotalSource, said in a press release. “So it’s not surprising that small business owners have had to resort to handing the HR function to an employee who might not have an HR background. That’s just the way many small businesses evolve.”

More than 1,000 U.S. businesses with between five and 49 employees responded to ADP’s survey. Of those, 75 percent characterized their firms as “established” or “mature,” indicating a lack of HR resources isn’t simply a startup business phenomenon, as one might expect. At the same time, those who’ve taken on the HR responsibilities have a number of specific concerns. Among them:

  • Almost 75 percent worry about accurately and consistently adhering to HR compliance regulations. Also, 78 percent are concerned about keeping up with changes in regulations.
  • 82 percent have no formal HR education or certification.
  • Half aren’t certain that their business’s employees know where to turn with HR questions, and two-thirds have concerns about employees getting correct benefits information.
  • Half of aHRMs handle HR tasks manually using paper or spreadsheets. Fewer than one in four fully agree they have the tools to do the job properly.

Human Solutions, For Now

While ADP understandably puts the survey in the context of its TotalSource HR outsourcing service, its numbers also underscore the opportunity for technology solutions designed around the needs of such microbusinesses. As we’ve previously reported, we’re hearing of more HCM technology companies mulling over that market’s opportunities and expect more vendors to actively target these companies within the next several years.

Some of these vendors are looking at products that will combine technical tools with easy access to human expertise, while others plan to offer templated versions of their existing services with few customizable options. Whatever their approach, they’re targeting a big market: In 2014, the Small Business Administration estimated 4.6 million U.S. companies had fewer than 20 workers. Of those, 78 percent had less than five.

Put this all together and you have an awful lot of small businesses putting themselves at legal risk, wittingly or not. No matter what state they operate in recruitment, hiring, day-to-day management and offboarding all offer ample opportunities for a business owner to, at best, step on thin ice.

Indeed, Gene Marks, owner of The Marks Group, a small-business consulting firm based in Bala Cynwyd, Pa., told the website Finance & Commerce that many small business owners don’t realize the risks they’re running until they run into problems. They start realizing they’re in “over their heads” when they miss a deadline for paying payroll taxes of submitting required filings to the government.

Image Copyright: Aleksandr Davydov via 123RF.com

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