June 2017 Meeting: How to Structure Your HR Department

How to Structure Your HR Department

Financial managers at small nonprofits often struggle to find the right resources to perform the varied human resources (HR) functions at their organizations. Fred Ritzau, of Northpoint Human Resource Consulting, addressed the various options for meeting your human resource needs, from outsourcing to an HR team on staff. Fred has experience with all sizes of nonprofit and for-profit organizations and is currently consulting at a variety of small nonprofit organizations. Mitzi Fennel, CFO at HRIA, explained how a Professional Employer Organization (PEO) works and why you may want to consider this option at your organization.

First, Fred addressed the question: do you need a human resource function at your agency? Some of the questions that go along with that issue are as follows. What is the purpose of HR in your company?

How do you manage it? Is the way you currently manage HR working for you? And finally, do you have HR goals and strategies? A lot of HR is a function of risk management: transactional, compliance, and strategic. In small non-profits, HR usually falls under the duties of the CFO. In larger organizations, the function is separated into its own department. You can think about your staff as just an expense, but it would be better to think about staff as your most important asset.

The rule of thumb is that you need one HR manager for every 100 workers. The complexity of your organization also plays a role in the level of HR that you need. Payroll processing is a financial function, but payroll input is usually an HR function. When you first decide to have an HR Dept., it is probably best to designate a person who is already working for your agency as the HR person. You want to move the organization to be more goal oriented and metric based. There are 2 main approaches to HR management: transactional vs. strategic. In hiring staff, the transactional approach is to just get the hiring done quickly. The strategic approach is to focus on getting really good at hiring quality workers. For performance management, the transactional approach is to do annual evaluations and is more forms driven. The strategic approach is to have evaluations be goal oriented, realistic, and measurable, and feedback should be ongoing. In the area of compensation, the transactional approach is to have standard wages and give cost of living increases. The strategic approach is it provide incentives, be skill based, and have variable pay rates based on desirable work performance and outcomes.

The transactional approach to employee engagement dictates that the employee follow the rules and do what they are told. The strategic approach is to encourage employee involvement through suggestions, problem solving, and participatory decision-making. For training and development, the transactional approach is to provide task training and to protect what you know. The strategic approach is to encourage continuous learning, knowledge sharing, workplace education, mentoring, and being future oriented. Finally, in the area of HR strategy and planning, the transactional way is focus only on payroll, benefits, and control. In a strategic HR system, any plans are tied to short term and long term personnel and agency goals.

The major decision factors which help you determine what level of HR you need for your agency are the following. 1) What do you want to achieve with HR? 2) How complex is your organizations? 3) Do you have plans to grow? And 4) How many employees do you currently employ? The next issue that you will need to settle is: How do you get it done? You can just add it to the list of duties for the CFO or the COO, which is not the ideal solution. You can outsource or insource a consultant. The consultant can either work a certain number of hours per week on-site or you can hire the consultant on retainer. You can hire a broker who will also provide various add-on services or more comprehensive HR

management. And finally, you can either hire a Part Time HR Director or a Full Time Director. You can also supplement an HR Director with outside expertise.

Mitzi Fennel, CFO at HRIA, explained how a Professional Employer Organization (PEO) works and why you may want to consider this option at your organization. A PEO can provide small to medium sized agencies with basic outsourced HR resources in the areas of payroll, taxes, benefits, and worker compensation, etc. Optional services can include: finding talent, training, performance management, time tracking, expense reimbursement, etc. The PEO organization becomes the employer of record. Some of the advantages of using a PEO are: relief from the burden of employment administration, provision of human capital strategy and guidance, improved employee risk management, management of employee benefits, and assistance in improving the agency’s productivity and profitability. It basically provides a single source for HR services and benefits and legal expertise. The PEO arrangement works well with an organization that has multi-site employees. You would not need an in-house HR function and it may be an opportunity to enhance employee benefits. Mitzi did caution that the service is not cheap – it may cost from $95 to $150 per month per employee. Her experience in dealing with her PEO has been that the HR support is good, the PEO has been very responsive to feed-back, and it has been good to have 3rd party involvement in the monitoring HR. Processing payroll has been a little cumbersome. It is not for everyone, but it is one more option for managing the HR function of your agency.