At Wowledge, we celebrate and support smaller HR teams that aspire to greater business contribution and impact, and our membership largely represents the hundreds of thousands of dedicated practitioners in small-to-medium-sized businesses (SMBs) worldwide. Small HR team effectiveness comes from a combination of business alignment, planning, prioritization, and skillful resourcing. While the barriers facing a small HR team are, in some ways, similar to those of larger, better-equipped and better-budgeted teams, they also face numerous unique challenges on an ongoing basis.

What they need is a practical model and guide to effectively prioritize, plan, resource and staff, build internal capabilities, and scale people practices.

Defining the small or “lean” HR team

We adopted the term “lean HR” years ago to describe HR functions and teams with a handful of employees, tight budgets, and the challenge of having enough breadth and depth to deliver comprehensive HR strategies and support. Indeed.com reports an average HR-to-employee ratio of 2.57 per 100 employees for all organizations, and roughly 1:100 for medium to large firms. At the same time, People Management reported that 70% of companies with 1000 or fewer employees have <10 HR employees. According to SHRM, the typical ratio is between 1.5 and 4.5 HR staffers per 100 employees, with the average sitting at 1.7 per 100. 

Those numbers have changed since the pandemic hiring boomlet in 2020-2022, with post-pandemic layoffs disproportionately affecting HR teams, especially in talent acquisition and DE&I roles. Major HR layoffs in technology-related industries have recently resurfaced, driven by large-scale workforce reductions at some of the biggest and most prominent U.S. employers. 

Some of those decisions were part of broader overhead cost reductions, others due to outsourcing, and others due to increased automation of largely administrative and support processes. The small HR team model is becoming more common in SMBs and in large employers’ teams supporting business units, facilities, and operations.

Understanding the issues encountered by smaller employers

Because small businesses naturally employ small HR teams, understanding the challenges they face provides necessary context for the barriers their HR teams must overcome as they seek business alignment and operational impact. Several pressing issues are making operational planning and decision-making more difficult for the small employers that make up the majority of U.S. employers. In fact, small businesses (those with less than 500 employees) represent 99.9% of all businesses in the United States. That is over 36.2 million companies that employ 45.9% of private sector workers and generate 43.5% of the nation’s gross domestic product (GDP).

The common issues they report facing include:

Rising operating costs

A rapid escalation of expenses comes from a combination of factors, headlined by inflation, tariffs, and transportation and shipping costs. Macroeconomic conditions are also driving higher borrowing costs and tighter credit standards, squeezing profit margins and cash flows. The US Chamber of Commerce reports that 54% of small business owners mark inflation as their single biggest challenge.

Cash flow challenges

Whether driven by or influenced by the factors above, small businesses report slowing sales, late or unpaid invoices, and reduced sales and marketing spending due to economic uncertainty. These constrain revenue flow and cash reserves used for investments and protection against cost increases or seasonal buying trends. CBS News has reported that despite rosy outlooks, small businesses are reporting flat sales growth, while the Chamber of Commerce has found that consumers are increasingly keeping items longer (82%), repairing instead of replacing them (69%), and embracing secondhand or DIY options over new purchases.

Difficulty planning and projecting

Organizations (small and large) report that a combination of economic, employment, and legal and regulatory uncertainties makes it hard to confidently and reliably forecast customer and sales growth. This, in turn, is associated with reduced investments in productivity-enhancing technologies, equipment, and facilities, and slowing (or stopping) plans for additional hiring that are central to their market adaptation and expansion.

Navigating regulatory requirements and compliance

Small businesses report that meeting regulatory compliance requirements takes an extraordinary amount of time, resources, and effort, which they feel is affecting their growth. Consider what the survey revealed about the areas of compliance and the percentage of them who report spending a “great deal” or “fair amount” of time on every year:

• Taxes (73%)
• Recordkeeping (73%)
• Payroll (62%)
• Licensing, permits, and/or (re)certification (59%)
• Cybersecurity, data protection, and privacy (53%)
  
  

The realities facing the small HR team

A small HR team often struggles to deliver the up-to-date, sophisticated, business-aligned, and objectives-impacting support that leading HR functions are measured against. The problem is often structural, but other factors also impair its ability to deliver the value proposition described by leading academic and industry experts. Those factors can include:

• Fewer resources in terms of budgets, people, tools, and methodologies.
• Less access to deep expertise and a broader range of experience.
• Need for versatile team members who can learn and adapt on the fly as they address new assignments or challenges, risking exposure to requirements without matching skills.
• Limited options for offloading administrative activities by small HR teams in SMBs.
• Balancing non-strategic with strategic activities that pull attention and resources away from business-aligned consultation and support.
• Difficulty tailoring and administering approaches, policies, and practices to the unique needs of different roles, businesses, and locations while maintaining consistency and fairness thresholds.
• Developing credibility as a partner with business acumen while overcoming leadership biases and expectations of HR as an administrator, and limited time and resources that limit opportunities to demonstrate and apply that knowledge to solving business issues.

It is important to qualify that small HR team issues will differ somewhat based upon the size and scale of the organization. Managing HR in SMBs often comes with significantly fewer resources than a small HR team within a larger organization. 

A small HR team that supports a business unit or division of a large employer and is often supported by a centralized COE and an HR Shared Services operation, or an operating company (OpCo) in a Private Equity (PE) firm, may have access to specialized resources and support. However, the small HR team must compete with other divisional HR teams or OpCos for support, customization, or tailored analyses, practices, and programs to meet local needs.

Implementing the small HR operating framework

The small HR team needs to allocate its efforts and resources logically and strategically. The HR leader must make difficult choices, often navigating a narrow path between the preferences of business leaders, managers, and employees and the limitations of assigned and available resources. Budgets and business needs often dictate not only HR staff size but also salary levels, limiting the breadth and depth of skills and experience the organization can hire or contract. These, in turn, affect the range and types of services and support the small HR team can provide.

Follow a continuous, evolving four-step process to determine what can be delivered and how. As growth supports additional investments or opportunities to adopt new technologies arise, this strategic view and action plan can be updated.

1. Segment and prioritize functional demands

Start by developing a formal strategic HR plan to identify priority initiatives and assign and/or deploy team members. In this way, the small HR team can establish a solid basis for a function and decisions that are business-aligned, resource-balanced, and connected to the business operating model and organization design.

Next, clarify the small HR team's roles and responsibilities relative to other functions, people, and outside contractors or vendors. Start by categorizing all HR activities into two “buckets:

What we must do (Compliance and protection)

• Legal and regulatory compliance and reporting—taxes, health and safety, hiring, wages and hours, benefits. 
• Maintain accurate and secure records for every employee 
• Fairly, accurately, and consistently compensate employees
• Establish, monitor, and support policies and procedures
• Monitor and ensure employee safety and privacy while working
  
  

What we choose to do (Business value and strategy)

• Strategic and workforce planning
• Cost and risk management
• Coaching and consulting on operational, organizational design, and work process issues
• Talent management and deployment
• Leadership development and succession management
• Capability (aggregated skills) evolution planning and design
• Culture management (collaboration, adaptability, change, development, ethics and respect)

Next, assess what level of expense, resources, and associated time/effort is needed to perform those properly, and determine 1) what can be performed, and 2) who will conduct the activities. This results in a powerful statement of choice, grounded in business needs and operational realities: what we will do, and what we will not do. 

Note that many of the “must do” activities are non-strategic and can be effectively outsourced to qualified contractors or specialized service firms.

Then identify the activities and responsibilities that will be performed (in full or part) but by another party. For example:

What we will not do, but others will (in-source or outsource)

• Payroll - Offload to Finance or outsource
• Benefits - administration, compliance, reporting outsourced
• Sales and service training - to sales and service operations teams
• HRIS and related systems - IT owns and operates with shared governance
• Legal compliance and challenge management – outsource basic legal reporting, or employee relations Level 1 and Level 2 case management

When prioritizing improvement or new capability development initiatives, selectivity is especially important. Special projects can consume staff hours and focus while they are working to meet agreed-upon tasks and responsibilities. As a result, view plans or management requests to address certain improvements or operational issues through the same lens: what we can and will do vs. what we cannot and will not do.

Similar to the process above, make strategic decisions by prioritizing business outcomes affected by the many proposed project options. A useful tool is an HR Roadmap to identify priority practices that are aligned with business challenges. The key is to take on no more than 2 or possibly 3 major initiatives during a planning year, and pursue them aggressively and comprehensively.

2. Scale practices through distributed ownership

As a small HR team seeks to deliver “more with less,” especially by clearing staff calendars and schedules to enable strategic work, scale HR and talent practices more efficiently and adopt affordable staffing options to increase the function’s reach.

Leverage HR expertise platforms

Start by requiring and supporting small HR team members to review and develop new skills and capabilities related to leading practices inside and outside their existing expertise. When seeking new approaches or solutions for business, operational, and talent issues, provide access to academic and industry research through memberships and subscriptions to professional resources, guides, playbooks, and tools. Knowledge platforms, such as Wowledge, can educate staff and help them build strategies, plans, and solutions more consistently and comprehensively.

Build self-guided processes

Focus initiatives on streamlined processes and systems that minimize HR involvement in administrative activities while easing demands on managers. Instead of “self-service” (a phrase that irritates managers and retail customers alike), develop processes with appropriate ownership and oversight.

For example, have line managers handle merit increases as budgeted finance (vs. HR) transactions. HR should set standards, rules, and limits with Finance, then automate the annual process so managers comply within their approved budget growth without HR oversight.

Similarly, performance appraisals can be managed using intelligent systems that collect and summarize multi-rater feedback and performance data, and suggest ratings relative to pre-programmed standards that compare and contrast workers in the same or similar roles.

Selection and hiring processes can be automated and standardized using trained and evaluated subject matter experts who act as proxies for managers, handling structured, consistent approaches to candidate assessment, selection, offers, and hiring protocols without HR involvement.

Deploy repeatable systems 

Like an employee handbook, documentation for managers and employees on how to conduct certain HR-related activities can bring consistency, equity, and effective process performance. Develop and post digital resources, including standardized checklists, templates, and centralized records with access controls. Automate administrative requests and approvals with appropriate human review to ensure compliance and avoid abuses without adding administrative burden or delays.

Invest in manager training and coaching

Equip front-line supervisors, managers, and leaders to handle basic day-to-day candidate interviews, employee coaching, feedback, and conflict resolution through training, practice, and expert observation and feedback. Implement job aids and just-in-time (JIT) tools that can be easily accessed before certain activities (one-on-ones, team meetings, customer or leader conversations) and discussions. Create time for members of the small HR team to meet regularly with managers and provide coaching and consultation on developing their people-leadership skills.

Engage non-HR function partners 

The small HR team can broaden its reach by letting go of some responsibilities and working with other functions to share and leverage their combined expertise to create (and, as appropriate, co-manage) critical, strategically important programs and capabilities. For example:

• Training programs that are function-specific (e.g., sales, customer service, finance, IT). HR can create a template with learning objectives, time and schedule, blended learning options, etc., and support converting SME-developed content into training programs and activities that trained SMEs can lead, since they know the subject matter best. 
• HR analytics and dashboards that are developed by and in conjunction with experts in data capture, storage, and retrieval (IT), statistical analysis (marketing, engineering), and presentation (finance, sales).
• Compensation and benefits plan designs, funding models, vendor analyses and comparisons, business case/modeling and proposals, and budgets can be conducted by Finance team experts, with the small HR team working as a strategist and co-evaluator/designer.
  
  

3. Build integrated functional capabilities

A small HR team has limited people and must be thoughtful and strategic in hiring, developing, and deploying those precious resources. “Capabilities” are defined as the aggregated skills and experiences across the team. As such, the HR leader should hire and develop staff around the core value proposition and the skills needed to deliver prioritized activities, plus the strategic capabilities needed to drive selected business and HR outcomes.

The most common roles, such as HRBP, HR Generalist, Learning & Development, Compensation, and Recruiter, have evolving skill requirements that can inform selection standards and skill-development roadmaps. 

More broadly, integrated HR capabilities drive business, operational, and talent outcomes that cross traditional HR silos. From this list, select the priorities best suited to develop and nurture for a given business.

Operational effectiveness

The ability to interpret business, financial, and operational trends and identify how leaders and employees can be best prepared, managed, and deployed to resolve shortcomings is essential. Business and operations acumen, organization development (OD) and performance consulting approaches and techniques, process design, and Lean improvement methodologies.

Talent planning and deployment

Staffing adaptability and flexibility are critical capabilities given global talent shortages and rapidly evolving skills obsolescence. Blend strategic workforce planning with recruiting, mobility, talent planning, contingent labor, and the candidate and contractor experience.

Performance management

Performance management alone does not resolve productivity and execution issues. It requires broader insights and expertise in coaching and guidance for team effectiveness, manager/leadership effectiveness, talent development and deployment, and process improvement.

Capability development

Building organizational, functional, or individual skill mixes at scale. L&D strategies, approaches, and delivery methods, career development, talent mobility, skills management, and repurposing talent.

Leadership and engagement

Leaders and managers have a disproportionate impact and influence on business, financial, operational, and talent outcomes. As a result, manage the combined capability through expertise in leadership development, management development, succession management, employee listening, performance management, and employee engagement.

Transformation management

Rapidly evolving organizational priorities and barriers to success create an environment where adaptability and mitigating the effects of change take precedence for many organizations. A small HR team makes significant contributions by leveraging skills in change management, organization development (OD), organization effectiveness (OE), and digital transformation.

Analytics and insights

Fewer “boots on the ground” means it's harder to keep a timely pulse on employee conditions. Building a comprehensive capability requires expertise in HR data literacy, HR metrics and analytics, employee listening, employee engagement and experience (EX), and human-centered design.

Total rewards

Managing the escalating costs of labor, wages, benefits, and related tax liabilities is core to the HR proposition. While a small HR team may outsource these, it must secure skills and expertise related to salary and wages, bonuses, non-cash rewards, welfare benefits, well-being and lifestyle benefits, recognition, and leave programs.

4. Automate workflows and outsource routine administration

Syndicate HR expertise and support cost-effectively through technology and automation, especially for low-strategic-value processes and repeated inquiries. With AI-enabled capabilities already available or being added to most cloud-based HR systems, the amount of time and effort required by small HR team members to conduct, administer, and oversee repetitive processes can be reduced substantially. 

Expand self-service capabilities and tools to automate and simplify access for common inquiries such as policy questions, work scheduling and time-off requests, reviewing pay stubs, or finding providers or filing reimbursements for benefits plans. Similarly, an up-to-date employee handbook can become a dynamic online resource that answers policy questions, links to employee information and support, and directs workers to culture-building and belonging activities. 

Outsourcing is a cost-effective way to expand a small HR team's capabilities, ranging from hiring a contractor to support annual enrollment to fully outsourcing HR (e.g., payroll, benefits, recruiting, HRIS, compliance, and compensation) through firms dedicated to providing such support, such as PEOs, ASOs, or HROs. Alternatively, many organizations supplement their small HR team by contracting with specialized providers for payroll, benefits plans and administration, and legal and compliance management and reporting. 

Contracting outsourced support for non-strategic activities is cost-effective and can serve as an HR Shared Services team to take and process initial employee relations complaints, handle complex employee inquiries, and perform other administrative tasks such as compliance analyses, testing, and report generation. 

Other options can provide temporary or short-term support from “fractional” HR leaders, independent consultants, or consulting firms for work that requires deep expertise (e.g., compensation plan design, change management), high-level strategic guidance (e.g., job architecture, organizational restructuring), or simply a “pair of hands” to manage overflow (training delivery, contract recruiting, process redesign) and repetitive processes (annual merit pay, open enrollment).

Relevant Practices & Tools

Core HR Strategy Practices to Define a Foundational Direction for the HR Function. >

An HR Strategy sets business-based human resource (HR) tactics that will constitute a comprehensive multi-year approach to managing the HR function's structure, governance, programs, policies, and practices... more »

Calibrating Goals and Performance to Enhance Group Equity and Fairness of Performance Evaluations. >

Key elements to emerging performance management are the group comparison and alignment of employee goals and performance evaluations... more »

Deploying Advanced Statistical Methods to Better Assess and Predict Trends in HR Processes, Policies, and Programs. >

Deploying advanced methods involves moving from descriptive or basic mathematical metrics to more sophisticated techniques that provide more meaningful analyses and reveal relationships or predictions between processes, programs, behaviors, and their outcomes... more »

Leveraging Outsourcing for Cost-effective Services and Solutions. >

A key element of planning HR strategies involves the decision to build internal capabilities vs. outsource those to a partner organization... more »

The Business Strategy to Talent Needs Conversion Tool: Translate Goals into Talent Requirements for Career Development and Planning. >

Captures key business objectives and assists with the process of understanding the employee knowledge, skill, and ability requirements needed to meet those objectives... more »