As a company grows and expands its workforce, the need for a robust and effective human resources (HR) function becomes increasingly important. This is because HR plays a vital role in managing and supporting the organisation’s most valuable asset—its employees. From recruitment and onboarding to performance management, employee development and compliance with employment laws, HR professionals ensure that the company attracts and retains top talent while fostering a positive work environment. But how is the exact level of HR support required at different stages of employee growth determined? After all, the specific level of HR personnel required in small businesses or companies can vary depending on several factors:
Requirements by sector/industry
“Optimal HR staffing levels should be determined by considering the specific needs and dynamics of each industry,” points out Tanaya Mishra, VP-HR, Endo International. Every industry has specific considerations that come into play when determining the appropriate level of HR support.
For instance, in a BPO setting, the workforce often consists of a predominantly young age group. As a result, a significant amount of time is dedicated to employee engagement, fostering conversations, addressing nutritional needs and implementing initiatives for the well-being of the employees. In this context, a general guideline can be to stick to an appropriate rate of one HR professional per 150 employees.
“Optimal HR staffing levels should be determined by considering the specific needs and dynamics of each industry.”
Tanaya Mishra, VP-HR, Endo International
In the manufacturing industry, where employees are engaged in physically-demanding tasks such as steel or cement production, interventions are necessary, but the work is often standardised and repetitive. As a result, the level of HR support required may be lower, with a suggested ratio of one HR professional for every 100 to 200 employees.
When it comes to the retail industry, the dynamics can be comparable to the BPO sector. In some cases, the ratio can be as high as 300 employees to one HR professional. This is because HR involvement is extensive in retail, involving constant training, monitoring grooming standards and addressing grievances.
Therefore, as Mishra rightly puts it, “It’s important to note that each industry has its own unique characteristics and requirements, and is not the same for every industry.” For instance, the media and entertainment industry operates differently, where individuals often work independently. Therefore, the significance of HR may be diminished to some extent.
Nature of the business
Citing another significant factor in determining the level of HR in alignment with an increase in employee strength, Uma Rao, CHRO, Granules India, opines, “The ratio depends on the nature of work and the nature of business.” For instance, in a recruitment-focused organisation where the primary emphasis is on staffing, a ratio of one HR professional per 150 to 200 employees may suffice, considering the repetitive nature of the work and the lower complexity of managing the workforce.
“As the company reaches a critical mass, typically around 100 employees or more, it becomes advantageous to have a capable HR professional, on site, to manage various HR functions.”
Uma Rao, CHRO, Granules India
However, a scenario involving learning and development (L&D) professionals, high-tech specialists, or niche industries such as pharmaceuticals, requires individualised attention to each employee. This is because there are conversations around career development, career path, team building for high performance and leadership coaching. These aspects cannot be treated as mass processes; they require dedicated time and focused attention. “Consequently, it is advisable to have a slightly higher count of HR personnel to ensure accessibility and effectiveness in addressing these specific needs,” points out Rao.
Volume of operation / scale of business
The appropriate HR staffing level also varies depending on the extent of HR involvement required. In cases where the company is engaged in high-volume operations or operates on a large scale, a ratio of one HR professional per 200 employees may be considered reasonable. However, it is important to note that this ratio can fluctuate based on the specific demands and characteristics of the business.
“In the context of startups, there is often a misconception that HR is not necessary and that the founders or existing employees can handle HR-related tasks on their own. However, it is important to recognise the significance of HR as the foundation of any company,” believes Mishra. This includes establishing company policies, drafting appointment letters, managing the selection and hiring processes, conducting training and facilitating onboarding. While these tasks may seem straightforward, some startups may not have the budget to hire a full-time HR resource. In such cases, engaging a consultant who can ensure the essential HR functions are in place can be a viable option.
Rao points out, “The financial constraints often determine the number of HR professionals a business can afford to have. However, if we consider the ideal scenario, a ratio of one HR professional per 150 employees is recommended. Good organisations understand the importance of investing in the right places to ensure proper growth.”
Citing the example of family-led businesses, Rao explains that, initially, a family-led business may start with just two HR professionals to manage its needs when it has a relatively small workforce of around 100 people. However, as the business scales up, those same two individuals may be expected to continue to handle the HR responsibilities, which may be asking for too much.
It’s important to have some bandwidth in the HR function from the very beginning so that as the company grows, it can consider hiring a more senior HR professional to meet the evolving needs. The profiles within the HR department may change over time to adapt to the requirements.
“I strongly advocate against compromising on the HR function during the setup phase, as it becomes challenging to introduce proper HR principles later on,” asserts Rao. It reflects the maturity of the organisation and its decisions regarding HR management. Nonetheless, as the business grows, the HR function needs to evolve and cannot remain stagnant.
Speaking on the start-up businesses, Mishra also believes, “As a startup progresses and reaches a stage where it has around 50 to 80 or 100 employees, the need for an HR executive becomes evident.”
As small businesses, startups and even family-led businesses face financial constraints in the initial stages. However, there are possible ways to tackle the HR needs required as their size grows.
“One option is to hire an HR executive who can handle the HR responsibilities internally. The other option is to engage a senior consultant, externally, with the necessary expertise,” points out Mishra.
Agreeing with the same, Rao also opines that at this early stage, it is common to rely on individuals who possess the necessary expertise to handle hiring and onboarding efficiently. Some companies may choose to hire people on a contract basis or outsource the HR function rather than establishing an in-house HR team. This approach can be perfectly suitable. “However, as the company reaches a critical mass, typically around 100 employees or more, it becomes advantageous to have a capable HR professional, on site, to manage various HR functions,” advises Rao.
Once the company reaches a critical mass, compromising on having the right HR professionals in place due to cost considerations can be detrimental. Investing in the right HR guidance and expertise becomes crucial for sustained growth and effective people management.
As the company continues to grow, it is advisable to take on additional HR personnel, ensuring that the time of senior HR professionals is utilised effectively. It is crucial to avoid getting too consumed with administrative tasks and paperwork. Remember, HR is not solely about processing documents but involves strategic people management. Therefore, making wise decisions early on, such as engaging a consultant to handle specific HR processes at a variable fee, can be a practical approach.
