The Importance of HR For Businesses

Businesses rely on many factors to remain in operation. From the products or services they offer, to how they treat their customers, companies must make sure they meet the needs of consumers and employees. An essential part of a business is its HR department. In this guide, we’re going to discuss the importance of HR for every business. 

What is HR?

Human resources form the hub of a business, and it’s central to operational success. While small companies might not require an HR department, many find that as their workforce grows, it’s challenging to keep track of personnel issues.  

There are many ways in which human resources functions. Most people know that an HR team is in charge of recruiting new employees, payroll and acting as a go-between between members of the team and senior management, but it has many other responsibilities. 

What Are the Primary Functions of HR?

As we mentioned previously, HR is a broad term that encompasses so many roles and responsibilities. Let’s take a look at them. 


One of the biggest headaches for a business is finding the right employees. A US survey by Indeed shows that 56% of hiring managers struggle to find talented individuals that meet their job description criteria. 

Even if a company does find the right person for the role, it can take months of advertising and conducting interviews. HR departments are in charge of advertising vacancies, choosing candidates based on screening and conducting interviews. 

Onboarding & Training

Onboarding is the process of inducting a new employee into a company. While some employers underestimate the importance of onboarding, HR departments understand its central to create a positive experience for new team members. 

If a company’s induction process isn’t informative, engaging and fun, then new employees might start their role in a disengaged state of mind. Onboarding is also the perfect opportunity to explain what a company expects of its workforce. 

Workplace training is also an essential aspect of HR departments. Every employee should have access to training to perform the responsibilities of their role effectively. It’s also crucial for talented individuals to receive support in developing their skills and career. 

Human resources departments understand that training and personal development are essential for employee engagement. 

Fun Fact: A 2018 study by Gallup showed that only 15% of employees feel engaged at work. 

Performance Management 

It’s sporadic to find an employee that possesses skills for every responsibility a company sets out for them. Performance management can identify gaps in a team’s skills and helps individual team members to address these issues with the support of HR. 

When employees receive support and positive reinforcement from their managers, they will perform better. A company that doesn’t address skills gaps could lose out on potential business and create a disengaged workforce. 

Fun Fact: Only 5% of managers are happy with their employees’ performance reviews (CEB). 

Communications & Compliance 

If a business wants to remain in operations, it’s internal and external communications are essential. HR departments are usually in charge of determining how a company communicates. 

Strong communication improves the operations of a company, including how employees support each other and its customer service. 

One of the most critical roles of an HR department is compliance. Human resources are responsible for making sure a company follows employment laws and treats its employees fairly. 

Creating and Upholding Company Culture 

Today, business culture is more important than ever. The millennials and Gen Z age groups are central to how a company operates because they expect much more than older generations.

Both consumers and employees expect a company to create a healthy work culture and take social responsibility. How a business treats its employees can impact its success. 

People expect flexible working, training, and having access to the best technology. It’s also essential for companies to set out strict rules and regulations on gender equality and sexual orientation. 

If a company fails to implement a positive work culture, then employees will become disengaged and lack motivation. Human resources are central to defining a culture that supports employees without damaging the company’s operational success. 

Budget Control 

Owning a business can become very expensive, especially if the budget isn’t monitored. It’s easy to forget about money when a company wants to grow and make use of new technology, but overspending can lead to a situation that’s impossible to repair. 

HR teams are responsible for making sure a company’s budget is used for the right purposes and develops ways to cut costs without negatively impacting the happiness of employees. 

Some methods HR departments use to reduce business costs include: 

  • Negotiating deals for employee benefits and pension plans. 
  • Make sure the company pays a competitive salary to its employees but doesn’t overspend on wages. 
  • Monitoring the budget regularly and analysing what the money is spent on. 

Top Tip: Xero has a guide on creating a budget for small businesses. You can access it here. 

Resolving Conflicts

Whether it’s arguments between employees or disputes about the management of a company, human resources are responsible for resolving any issues that can impact the work culture they put into place. 

Conflicts in the workplace are unavoidable, but human resources professionals receive training to work with employees and managers to find a solution to problems including: 

  • Workplace bullying
  • Poor attendance
  • Cultural backgrounds
  • Gender and sexuality discrimination
  • Difficult personalities 
  • Ineffective management 

HR professionals must act with caution when they approach conflicts because staying neutral is essential to avoid lawsuits. Most of the time, involving an HR department means a business can find solutions to arguments or bullying. Still, without specialist support and input, the situation could get worse and leave the company with a bad reputation. 

Fun Fact: According to CIPD, 38% of employees go through a work-related conflict each year. 

What Are The Benefits of HR For Businesses? 

Many small business owners wonder if they need an HR department, especially when thinking about their budget. But, human resources offers many benefits for companies of all sizes. Let’s take a look at the advantages of HR for businesses. 

Improve Company Culture 

When a company outsources its human resources work, it doesn’t have the same impact as an in-house team. While a separate agency can offer general suggestions, they can’t necessarily create a culture that works for individual employees. 

Having access to a dedicated human resources team means a company can speak to individuals to gauge an idea of what improvements they should make. Employees will be more comfortable sharing their thoughts with an internal team because they know the HR department on a professional level. 

An internal HR department can also evaluate the company’s ways of working and continuously improve them. 

Quicker Resolutions 

When things go wrong with how a company handles internal issues such as conflicts and productivity, it’s always best to involve an HR professional to resolve these issues, because arguments between employees can negatively impact the company. 

Internal HR departments understand what kind of issues the company they work for faces and can connect on a more personal level with employees and management. The main benefit of their connection is the fact that they can sit down with individuals and find ways in which to resolve any conflicts. 

Maintain Confidentiality 

If a company doesn’t have an HR team or outsources its personnel work, it can cause significant issues with confidentiality. Many business owners prefer to implement an internal HR team because they can ensure complete confidentiality. 

Business owners also value having a dedicated HR team because they can receive useful information about attrition and how to reduce the effects of a disengaged workforce. Once managers know why their staff retention levels are low, they can address the issues and improve the way they connect and treat their workforce. 

Things to Consider 

Now you know why HR is vital for every business, you can decide whether or not to introduce an internal team or outsource to an external agency. When it comes to human resources, there are many things to take into consideration, including: 

  • How much you can afford to spend on HR
  • What kind of company culture you want to create
  • The areas in which your company is lacking

While some businesses believe investing in a multi-talented human resources department, others use HR management software to reduce the costs but maximise their productivity. 

There are many benefits to human resources management software, and we’ll be covering them in an upcoming post. 

The Bottom Line 

Human resources is an essential component of a business, and many managers look to their HR department for support and guidance. For a company to succeed, managers need to think about how they treat employees and whether the working environment is a positive one. 

There are so many roles and responsibilities of HR teams; it’s important to understand that even internal teams can benefit from HR management software. 

Overall, human resources are the hub of a company, and with the right policies, procedures and culture, HR departments can be the key ingredient to your businesses growth and success.