Three Reasons Startup Companies Don’t Need an HR Department

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Startup-companyWhether it’s your first company or your fifth, starting a new company is hard! You’re faced with limited resources and trying to figure it out on a moment-to-moment basis. You’ve poured your heart and soul into your business, investing your money and sacrificing time away from your family. With so much on the line, why wouldn’t you protect it with an HR department?  Here are three good reasons:

Startups are collaborative. The purpose of an HR department is to ensure that your team is in alignment with the strategic business goals. This is achieved by hiring, training, tracking performance and providing guidance to your employees. This strategic alignment is a minor factor in the early stages of a new company.

Before a company reaches the 50-employee mark, these functions are largely collaborative, and you are working closely with your team every day. If someone is not pulling his or her weight, or is no longer in line with the objectives set forth, that is noticed immediately. Employees of a startup company are there to help grow the company, and everyone must be invested, working collaboratively on recruiting, setting company goals and procedures.

PEOs provide the support needed.  Employees must be paid, receive benefits, and have taxes properly withheld and paid…in addition to growing the new company.  Hence, many successful startup companies align themselves with professional employer organizations (PEOs).  According to a recent study by noted economists Laurie Bassi and Dan McMurrer, small businesses that use PEOs grow 7 to 9 percent faster, have 10 to 14 percent lower employee turnover, and are 50 percent less likely to go out of business.

The PEO allows the company to have an HR infrastructure; it’s just outsourced to a company like Staff One to handle payroll, benefits, workers’ comp and HR needs. There are many advantages to the company, including tax savings, and the ability for small companies to offer benefits to comparable to those of their competitors…and the cost of using a PEO often is less than hiring a certified HR manager.

As a company grows, reaching different employee thresholds, a variety of laws and regulations begin to affect it. The ADEA (Age Discrimination in Employment Act) begins at 20 employees, compared to that of the ADA (American with Disabilities Act) that comes into play at 15 employees; and the ACA (Affordable Care Act) takes effect at 50 employees.  A PEO will help you stay in compliance, ensuring that you are on track and reducing your liability, so that you can focus on growing your business.

Page 149 of The Daily Drucker reads, “According to a study by McKinsey, the management consultancy, outsourcing human resources management in these ways can save up to 30 percent of cost and increase employee satisfaction as well.”  If you are not outsourcing your HR functions today, or have questions about PEOs, feel free to contact author Heather Wood at

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