Human resources (HR) management is a business concept built on the assumption that employees are valuable assets. The concept further assumes that if those assets, or resources, are carefully selected and effectively managed, they will increase in value and drive business innovation and profits. Therefore, effectively managed employees provide a competitive advantage.
How an HR department achieves those goals varies from one organization to another, but it typically involves an array of efforts shepherded by experts in specific disciplines that fall under the broader HR umbrella. Taken one step further, a strategic HR department is fluent in the organization’s culture and goals and seeks creative ways to directly support both.
What Is Human Resources (HR)?
Human resources is the strategic management of an organization’s workforce. At its most basic, that means managing all stages of each employee’s life cycle: being recruited, hired, onboarded, trained and eventually, transitioned out of the organization.
In most companies, HR is also tasked with promoting each staff member’s professional development, safety and morale while employed. To do that, an HR department has many tools at its disposal, including the company’s benefits plan, payroll, career development, anti-harassment policies and workforce diversity initiatives.
In doing its work, HR serves multiple constituents:
- Employees, who seek workplace fairness, protections and resources.
- Leaders, who seek policies and structure to guide their management decisions.
- Shareholders, who depend on HR to spend wisely and earn a return on its investment.
- Lawmakers, local, state and federal, who look to HR to understand and enforce all statutes that regulate employment.
- Human resources is a highly complex function. It serves four main constituents and requires expertise in multiple disciplines.
- Human resources professionals manage all stages of an employee’s life cycle and promote staff development and well-being.
- As a strategic business partner, human resources plays a key role in driving growth, customer satisfaction and shareholder value.
Human Resources Explained
Labor represents the largest single expense for most businesses; in some companies, it’s as much as 70% of total business costs, according to experts. So it’s only logical that the HR function has evolved to manage that expense and ensure a strong return on investment. The need may seem even more acute when you consider that today’s workforce is the most diverse ever, and that all levels of government have enacted laws regulating the employment relationship.
Generally, when a company reaches about 50 employees, people-related issues consume enough time and require a high enough level of expertise to justify hiring a full-time HR professional and equipping that person with the tools to succeed.
Today’s HR officers must be competent in several disciplines:
Business metrics: Not only must HR leaders be able to understand financial information to a level that would appear in a corporate annual report, they must also be able to effectively budget and calculate the return on investment (ROI) of the work they do.
Operations: To hire and train effectively, HR professionals must understand what employees do and how their work contributes to the company’s goals and profits.
The law: HR professionals needn’t be attorneys, but they do need to be able to define and recognize potential liabilities such as discrimination or sexual harassment. They also need to be aware enough to steer the company clear of legal landmines that range from wage and hour violations to protecting the confidentiality of employee medical information.
Technology: The days are long gone when job applicants responded to newspaper ads and companies processed paychecks by hand. Consequently, HR leaders must be tech-savvy. Their expertise may range from the basics of social media — often integral to recruiting — to the human resources management systems (HRMS) that consolidate many HR functions and provide invaluable insights to help with the previous three disciplines.
In addition, HR professionals must have expert people skills. At one level, they must navigate the internal politics of their organizations. But they must also earn the trust of employees seeking help with difficult, often emotionally fraught problems.
What Does Human Resources Do?
HR’s day-to-day role is shaped in large part by whether executive leaders see HR as primarily an administrative function or as a strategic business partner.
If company leadership considers the human resources team as primarily administrative, HR will be focused on process and largely reactive. Responsibilities may include filling jobs in response to requisitions, processing payroll and benefit plan enrollments, onboarding or offboarding employees and maintaining employment records.
Certainly, these are necessary tasks that must be performed accurately and often confidentially. But they rarely move an organization forward or differentiate it from competitors. However, when HR is seen as a strategic business partner, its role looks very different. Consider hiring: In addition to filling job openings, a strategic HR function will look to the future. That may require strategic workforce planning efforts, working with other leaders to chart the organization’s projected growth and laying the groundwork to hire accordingly. It may also include creating and managing succession planning programs to develop future managers or leaders, retraining current employees to support growth initiatives or forging ties with universities that have respected programs in relevant disciplines so that the organization is the first choice of top graduates.
In addition, consider how benefits are managed. Beyond simply ensuring timely enrollment in the company’s health insurance plan, a strategic HR department will develop a menu of perks designed to boost productivity and improve retention. Depending on the employee population, that may include anything from child-care subsidies or tuition reimbursement or wellness programs to on-site dry cleaning.
Functions of Human Resources
Given that the human resources team manages all stages of the employee life cycle, it makes sense that this group includes several discrete specialties. These functions serve different needs and demand different kinds of expertise; they may also be regulated by different laws. In most small to midsize organizations, these specialists fall under the HR umbrella and report to the same leader. In large organizations, some of these functions, such as training and development or benefits, may be freestanding departments with their own leaders.
Fundamentally, the recruitment function is about filling open jobs. But even at its simplest, recruitment involves multiple steps:
- Writing, posting and managing all job postings and advertisements
- Reviewing resumes
- Conducting interviews, checking reference and initiating background checks
- Supervising drug screenings if required
- Verifying the employee’s eligibility to work in the U.S.
- Creating and managing job offers
- Managing onboarding
Talent acquisition may also include college outreach programs, job fairs, employee referral programs and other options to enlarge the candidate pool. If labor needs fluctuate, it may include contracting with a temporary help firm and managing that relationship, including keeping abreast of changing laws around contractors.
In larger organizations, HR leaders may train others, such as supervisors, to conduct job interviews, and design accommodations to accommodate candidates with disabilities.
Benefits administration: Before a benefits plan can be administered, it must be created. Human resources professionals often work with brokers to determine plan components, parameters, coverage, pricing and so on. Once the plan is in place, HR typically:
- Develops a communication plan to explain the benefits program to employees
- Oversees the annual open enrollment for insurance
- Adds employees to the insurance plan as they are hired or have qualifying events
- Responds to employee questions
- Reviews plan utilization and costs
HR may also design and administer insurance plan offshoots, such as health savings accounts. Of course, insurance is typically only a portion of the benefits offered. HR may also manage:
- Retirement plans, such as 401(k) or pension plans
- Tuition reimbursement
- Child care subsidies
- Paid time off
Policy creation and administration: Some policies are in place to help ensure that organizations are legally compliant, such as rules banning discrimination or sexual harassment. Other policies help managers by giving them a framework for making decisions, such as guidelines about working remotely, while more companies now have rules intended to bolster corporate security, such as policies governing the use of computers and Internet access. And still others are intended to foster fairness so that all employees are held to the same standards, such as attendance policies.
Whatever the intent, HR:
- Drafts the policy, ensuring it is clear and lawful
- Communicates the policy, whether in isolation, as part of an employee handbook or both
- Administers the policy by, for example, tracking attendance or investigating discrimination claims
- Schedules and tracks participation in compliance training
Compensation: Employees depend on their paychecks, and HR is responsible for ensuring the accuracy and fairness of those checks. The process starts with determining the pay rate for specific jobs as part of comprehensive employee compensation plan. This effort may involve wage surveys to ensure the organization is competitive with other employers. HR must also factor in cost-of-living differences, seniority and, if applicable, honor organized labor contracts.
In addition, HR:
- Oversees time tracking and the critical payroll processing function
- Responds to employee questions
- Processes annual W-2 forms and 1099s
- Processes and pays payroll liabilities like federal, state and local taxes
In some organizations, HR is responsible for registering tax accounts in the states in which the company does business and overseeing payment of unemployment insurance premiums and other expenses.
Training and development: There’s always room for improvement — even star athletes continue to receive coaching. Most organizations offer training to help employees stay sharp and keep current on industry developments or new technology. Training is also used for developing current and future leaders. HR may play many roles here, including:
- Designing and/or delivering training classes
- Writing training materials and evaluating and purchasing published training materials or online courses
- Evaluating the effectiveness of training
- Tracking employing training, including whether employee are keeping up with required courses
- Coaching supervisors, managers and/or executives in, for example, dealing with the media or working with problem employees
HR may also develop and manage initiatives that are not training per se but do foster employee development. Mentor programs, employee networking groups and career ladders are all examples.
Performance management: Knowing how well employees are doing their jobs is helpful for everything from determining raises and promotions to spotting leadership potential and measuring productivity. HR plays a key role in measuring and managing performance by:
- Designing performance review forms, performance improvement plans, corrective action forms and other documents used to assess performance
- Holding managers accountable for completing reviews on time and using related tools effectively
- Investigating and mediating disputes over reviews or other assessments
- Coaching managers on providing feedback, taking disciplinary action and other performance management activities
- Maintaining document files and other records of performance
- Culture: When employees talk about “the way we do things around here,” they’re talking about company culture. That culture may be formal or informal, egalitarian or hierarchical, methodical or impulsive. Although there is rarely an HR function formally charged with fostering culture, HR certainly does play a role in building and maintaining it. That often starts with who gets hired, often referred to as finding the right “fit.”
In addition, the way HR shapes its functions influences culture. A generous parental leave program, for instance, will help foster a family-friendly culture, while remote work now represents a long-term cultural shift.
How Does Human Resources Work?
No one wants to be told they’re not a team player; it’s like being accused of having no sense of humor. Arguably, no department is more a team player than human resources. To succeed, HR must earn the trust and respect of senior leaders, front-line managers, vendors and of course employees. That requires building coalitions, respecting confidentiality and being fair. That isn’t always easy because HR must represent the interests of all constituencies. Therefore, it must speak the “language” of all groups.
Consider the generous parental leave policy. To senior leadership, such a policy may seem like an unnecessary expense, unless HR has the data to show it will reduce turnover and therefore pay for itself. Middle managers may complain about the inconvenience of staff members being on leave unless HR can help them compensate by improving workflow or cross-training employees and ultimately building a stronger team. In this way, HR’s work is a studied blend of business acumen and diplomacy.
Goals of Human Resources
The goals of an effective human resources department parallel those of the organization. Imagine, for example, that a retail chain’s corporate goal is to expand into a new geographic region. HR’s goals would likely include staffing up in that region, including understanding and complying with all local labor laws. Its goals might also include relocating key players from the corporate office to help in the launch. If the expansion is international, HR may have a cultural or language training goal.
Such goals sit atop a foundation of more general goals and objectives. These typically include:
Containing costs: The finance team in an organization may look at the cost per hire, the per-employee costs of benefits and other expenses. Most organizations expect HR to keep those costs as low as possible without sacrificing quality.
Keeping turnover low: Employee turnover is expensive, and lowering employee turnover rates is a data-driven way to save the company money. When an employee leaves, it typically takes one-and-a-half times the employee’s annual salary to replace that worker. This adds up in a hurry if there’s high turnover.
High turnover may also lower productivity and damage morale. High turnover often indicates widespread dissatisfaction with pay, development opportunities or working conditions — all of which HR is in a position to improve.
Fostering a great place to work: Most organizations want to attract top talent and have people eager to work there. Social media makes it easier than ever to spread the word about what it may be like working somewhere — good and bad — so HR often has goals tied to maintaining a good reputation, building the employer brand and minimizing negative reviews. That ties into maintaining a positive employee Net Promoter Score (NPS).
Keeping out of court: Lawsuits can be hugely expensive and torpedo a company’s reputation. Therefore, senior executives often look to HR to foster a culture in which formal complaints are rare. When there are problems, it’s usually HR that takes the first move to defuse harassment claims, discrimination charges and other issues before they wind up court. If the company has organized labor contracts, another goal is to prevent union grievances.
Building an HR Team
Assembling a stellar HR team is similar to putting together a top professional sports team. In both cases, you want star players in vital positions. In human resources, that could mean having an expert recruiter or a compensation specialist. A mix of veteran players and up-and-comers can be beneficial. If the culture values diversity, HR should set the example by seeking diversity in its own ranks.
Some organizations include a stint in HR as part of an executive career track. The idea is that future leaders should understand the people issues and have a good sense of HR’s value and limitations. Similarly, if the organization has multiple business units or locations, bringing HR people into the home office from the field or from various business units can help keep those groups more strongly tied to the core culture. It can also help prevent home-office HR from losing sight of the HR needs far afield from the C-suite.
Types of Human Resources Roles
A human resources department often includes people who fill multiple roles. Those roles may be determined by both expertise, such as recruiting or training, and level of seniority or responsibility. Common roles include:
The director of human resources oversees HR at a high level and reports directly to the CEO. Directors usually have extensive HR experience and generally develop and manage the HR budget.
Human resources managers supervise the department or subgroups and ensure that staff members are working effectively. They often also deal with particularly sensitive employee issues.
Human resources generalists may be seen in two ways. In smaller companies, a generalist oversees all aspects of HR including payroll. In larger organizations, generalists oversee day-to-day work on policies and procedures and often handle compliance.
Human resources specialists are typically hiring specialists. As such, they screen, interview and place employees. They may also manage background checks and conduct orientation.
Human resources coordinators organize HR events, such as new-employee orientation or training classes. Coordinators may also research HR best practices to help organizations stay competitive.
Human resources assistants typically support more senior HR staff with administrative tasks, such as tracking absences or grievances and communicating with applicants during the hiring process.
Alternatives to Human Resources
People are integral to any organization’s operation. In smaller organizations, however, HR functions may not be handled by a separate HR department. In these cases, the HR function may be performed by others, including:
The organization’s owner, president or chief operating officer.
- Pros: It saves an HR professional’s salary. Doing the HR work keeps the leader well connected to employees’ concerns and needs.
- Cons: HR duties can be very time-consuming and may distract the leader from other priorities. Without expertise, the leader may make costly errors or overlook necessary tasks.
Outside contractors. A company may delegate some HR functions to third-parties that specialize in areas such as recruiting, benefits or payroll. For example, hiring may be outsourced to a staffing agency.
- Pros: Companies get the expertise without the headcount. Outside agencies may have greater expertise and resources and therefore be more efficient.
- Cons: This is typically a more expensive option in the long term. In addition, outside agencies are less familiar with the company’s culture or goals.
Employee leasing. Another option is to not have employees at all, at least technically. Instead, employees are hired and managed by a third-party firm or leasing company. That company is then responsible for the HR functions.
- Pros: Employee outsourcing may allow companies to access greater expertise and have more employees than they could likely afford on their own. It also relieves the organization of much HR responsibility.
- Cons: Usually more expensive. May result in the company having less control; sometimes gives rise to employee confusion. And, evolving laws regarding contractors are a factor.
Outsource HR. Another option is to employ staff directly but outsource the HR role. There are numerous providers, generally known as human resource outsourcers (HROs).
- Pros: You get full-service HR expertise.
- Cons: This option reduces the level of familiarity with the employer and may be more expensive.
While HR’s functions typically refer to its day-to-day tasks, HR’s responsibilities are more big-picture and contribute to the company’s long-term value and growth. These responsibilities include:
Partnering in planning and development: When it has a seat at the planning table, HR can align its goals and actions to those of the organization and focus on the future as well as the present.
Helping employees with their careers: Today’s employees actively invest in their own careers; when HR helps in that effort, it improves engagement and commitment.
Recruiting talent: It’s people who move the company forward. It’s tough to be a market leader without having top talent.
Leading change: Change is inevitable, and HR can help employees adapt by explaining the need for change, charting its impact and giving employees the training and tools they need to adjust.
Advocating for employees: Other departments — such as marketing or R&D — will fight for resources. If HR doesn’t do the same for employees, they may be shortchanged, and that’s eventually bad for the business.
Protecting employees: A hostile environment, sexual harassment, cyberbullying and other threats can undermine productivity and employee well-being and eventually lead to costly lawsuits.
How Does HR Support Employees?
An Olympic hopeful can practice in a state-of-the-art facility using the best equipment money can buy, but without the right coaching, the athlete will likely never earn a medal. So it is with employees. HR can ensure employees get the tools they need, but they won’t mean much if employees don’t also get support to reach their full potential. Toward that end, HR can promote:
Career growth: To an employer, an employee has a job, but to the employee, he or she has a career. Employees are more likely to be engaged and feel valued when their careers grow, or they can at least see a path to growth. HR can help with that through career ladders, cross-training, development programs, mentorships and effective performance review processes.
Continuing education: For some employees, a pillar of career growth is continuing education. For some, that may mean completing or earning a college degree. HR can support that effort through flexible scheduling, tuition reimbursement and other programs. For others, it may mean taking advanced technical courses. Still others may wish to hone their skills by subscribing to professional journals, joining professional associations or attending conferences. HR can facilitate all those things.
Manager training and support: People rarely quit jobs — they quit bosses. Unskilled leaders can ruin morale, diminish productivity and create a miserable work experience. HR supports employees through manager training and by creating tools to help managers do their jobs; performance appraisal and performance improvement forms are examples. HR can also coach managers through difficult conversations or situations that are legally complex.
Health and wellness: Health insurance may be the linchpin of most corporate wellness efforts, but there is much more that HR can advocate for to promote employee wellness. That includes everything from on-site gyms or smoking cessation programs to employee assistance programs.
History of Human Resources
The concept of a human resources department can have its origins traced back to the 18th century. That’s when, during the Industrial Revolution, management pioneers Charles Babbage and Robert Owen first articulated that people were crucial to organizational success.
But it wasn’t until the 20th century that Babbage’s and Owen’s ideas progressed far enough for a dedicated profession to develop. Even then, the focus was mostly on how people could be motivated by more than just money. Developments during the first half of the century, including the Great Depression and New Deal programs enacted by President Franklin D. Roosevelt, changed the relationship of employers and employees. That change in turn led to the development of university curricula and professional organizations focused on labor relations.
As union membership waned in the latter half of the century, companies began grappling with how to develop and keep talent. Those responsibilities were handled by what was called the personnel department. Many current HR practices date to those efforts in the 1950s. Then, in the latter half of the century, technology again changed the workplace. Organizations recognized that employees are assets, and the modern human resources, or human capital management, function was born as the century came to a close.
Supporting Your HR Department With HR Software
One of the best ways to help HR reach its strategic potential is to free its practitioners of as many administrative tasks as possible — and one of the best ways to do that is to take advantage of HR software. Today, an HRMS or a human resources information system (HRIS) is a fully integrated platform. Not only can HR pros automate mundane tasks, they can collect and analyze data to help the business predict trends.
Key benefits of using HR software include:
Higher HR productivity: Without automation, an HR staff might spend almost half its time just administering a benefits plan. That’s time not spent on strategic initiatives. Start thinking about all the things that could be automated — vacation accrual, absenteeism, address updates, time-off requests and so on — and you get a sense of the productivity boost. HR software also allows some of these tasks to be shifted to employees themselves. That gives employees more control.
Reduced errors: It’s easier, and more reliable, to build safeguards into software to prevent errors than it is to safeguard against human error.
Improved compliance: Employers of all sizes must comply with an array of laws — and those laws often change. Imagine, for example, trying to keep track of wage and hour laws in multiple states. Software can help a company keep compliant.
Better data: How much is the average cost per hire? What’s the turnover rate in the marketing department? How many employees are covered by the health insurance plan? What’s the current liability of unpaid vacation days? You could figure out the answer to those questions manually, but it’s much faster, and more accurate, to use software. A good human capital management system will be invaluable in HR reporting and analysis.
In some corners, HR has the reputation of being merely the policy police or the picnic planners. And to be fair, it can be that. But in today’s leading organizations, HR departments are strategic players that are changing workplace cultures and reshaping a more dynamic workplace. They are attracting top talent and helping these workers reach their full potential. They are fostering a company’s competitive advantage and boosting company value.
What is human resources? Perhaps the difference between good and great.
Human Resources FAQ
Q: What do you mean by “human resources?”
A: Human resources involves the strategic management of an organization’s employees. Responsibilities typically include managing all stages of an employee’s life cycle and promoting employee development and well-being. A core part of any business, HR is fluent in the organization’s culture and goals and seeks creative ways to directly support both. It also plays a key role in driving business growth and value because labor is the largest single expense for most organizations.
Q: What is human resources in simple words?
A: Human resources is the department responsible for all personnel matters. That includes finding and hiring employees, providing them with benefits and training opportunities, paying them, addressing their concerns and managing their performance.
Q: What is the role of human resources?
A: HR’s day-to-day role is shaped in large part by whether it’s viewed as primarily an administrative function or as a strategic business partner. If the former, HR will be focused on processes, such as filling jobs in response to requisitions or maintaining files of employee documents. If strategic, the function becomes more forward-looking, with efforts such as workforce forecasting, working with other leaders to chart the organization’s projected growth and laying the groundwork to hire accordingly. It may also include creating and managing programs to develop future managers or leaders and creating a menu of perks designed to boost productivity and improve retention.
Q: What are examples of human resources?
A: Depending on company size, HR is responsible for a variety of functions. In most small and midsize organizations, these functions fall under the HR umbrella and report to the same leader. In large organizations, some of these functions may have their own departments with their own leaders. Examples of specialized functions include recruitment/talent acquisition, benefits administration, policy creation and administration, compensation, training and development, performance management and culture.