Why operate with a Human Resources (HR) Function?

In traditional businesses and smaller companies it is the Company Secretary, CEO’s Secretary or line manager who is normally responsible for hiring and firing staff. Matters of compliance with employment law are left to individual managers and leave requests handled through a payroll clerk in the finance department. When things go wrong then it is usually an external law firm or an in-house accountant who is called in to fix it.

In unionised businesses with difficult labour relations it has long been realised that it was necessary to employ a skilled negotiator to ensure that threats of industrial unrest do not get out of hand. A feature of many companies until the middle of the twentieth century was also a ‘welfare officer’ who dealt with sickness absence, health and safety incidents and individual cases of hardship affecting valued employees.

As companies grow in size and their pace of development quickens such arrangements soon become unstuck. Few people have the time or expertise to ensure that ‘people issues’ are dealt with appropriately. People tend to act in a reasonable way until it comes to their discipline, an award of a lower than expected pay rise or the promotion of a rival into a more senior post. Employment laws are also so complex and ever-changing that compliance is always an accident waiting to happen when left to non-specialists.

An effective HR department can take a considerable weight away from line managers, reduce the risks of litigation, widen  ‘labour relations ‘ to the concept of  ‘employee relations’ and add another strategic perspective to corporate plans and decisions.

The professionalisation of the HR function has been taking place now for several decades in most advanced economies of the world. HR managers are also almost exclusively graduates with good honours degrees or even higher degrees and many of the most able started their careers in production jobs.

The modern HR department operates to a widening brief with all the key elements so far mentioned, plus organisational planning, job design, job evaluation, performance appraisal and incentive system design, employee communications, benefit systems and employee engagement reviews, talent management strategy development, data protection, security, in-house medical services and even payroll. Larger companies also often employee their own legal counsel and may have a specialist employment in-house lawyer.

Multinational HR Departments

A business frequently becomes internationally orientated in stages. Initially it may export its goods or services, then it may appoint commercial agents or distributors abroad – and then, finally, sales representatives or service engineers. It is only when it appoints direct employees abroad in significant numbers that it can claim to be a true multinational.

Yet difficulties will emerge even at the stage of making individual sales or service appointments. How will such individuals be supervised? Who will handle their payroll and regular income tax and social security contributions? How will the company handle a frequent requirement for it to have a designated company representative? How can sales functions be handled in countries such as China where registered representational offices cannot sell anything directly and self-employment is unlawful? How can legal compliance be ensured when no-one is on the spot to enforce it?

Such questions magnify many fold as soon as employee numbers rise and country offices, production, service and distribution centres are established. New country operations are also frequently established by sending out a seasoned manager from the head office. These ‘expatriates’ (commonly called ‘expats’) are often treated differently from those employed locally. Some countries also encourage this by offering tax incentives and special immigration terms for expats. Although such posts generally last only as long as it takes to make the new operation fully functional it is sometimes the policy of companies to leave one head office ‘expat’ in the local operation to oversee its operation. If a company has several expats in post it is normal for them to have a designated HR professional to manage their often sophisticated and complex employment affairs and requirements.

The HR department in a multinational business differs in kind rather than purely size from one in a nationally-bound business. In fact, multinational HR departments may, in certain circumstances, be smaller rather than bigger than those in equivalent national entities and one of the biggest differences is the calibre and capabilities of the HR Director.

How big should HR departments be?

HR departments are generally much bigger relative to organisational size in the public sector rather than the private sector. A private sector company will normally appoint its first HR specialist when it reaches around 150 employees. However, this can vary according to sector within a range from 25 employees up to 500. It is rare to find a company with over 250 employees without such a function.

The first appointment apart from the generalist HR manager is normally a recruitment officer. Although in a heavily unionised company a separate IR officer position may exist from the outset. The next appointment is normally an HR administrator to take away the more routine elements from the HR Management job. Expansion thereafter varies greatly from business to business but the case for a further HR professional generally arises when the company grows in units of 125 – 200 people. It is possible to find companies with 1,000 people on the payroll and only two HR people in post – but they would need to be companies with very little labour turnover, near perfect employee relations and a simple and highly stable organisational structure.

Setting up an HR department or going global

Companies take a significant risk when they go through the transition phase of setting up an HR function for the first time or seek to transform a one-country department into one with a transnational remit. As the consulting arm of the Federation of International Employers, fedee consultancy can advise, support and even fill key roles on a temporary basis.

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