Troubling trend: Firms completely ditching HR

Some employers are getting rid of their HR departments and trying to find new ways to handle hiring, firing and more. Does it actually make sense?
Believe it or not, a handful of companies have decided they don’t need a human resources professional on staff, according to a recent article in The Wall Street Journal.
Why? The article cites two main reasons:

  1. HR is a burden. HR pros have unfortunately heard it before: Human Resources “stifles innovation and bogs down business with inefficient policies and processes,” according to the article.
  2. Computers can do it instead. Why have an HR department when HR software makes things like payroll and benefits so much easier to handle?

Three companies of varying sizes are cited in the piece as making a go of it without Human Resources. They are:

  • LRN Corp., a 250-employee company that recently did away with job titles and department names. In the process, it also got rid of its HR department, wanting to “propel the people issues into the middle of the business.”
  • Ruppert Landscape, Inc., a 900-worker landscape business, has never had a formal HR department. Instead, front-line managers deal with both operations out in the field (i.e. how low to cut someone’s grass) as well as recruiting and teaching employees on how to save for retirement.
  • Klick Health, a marketing agency that has two “concierges” instead of HR pros that handle everything from scheduling mentoring sessions to buying birthday gifts for employees’ spouses.

Benefits and negatives

These aren’t the first companies to not have HR departments; after all, many start-ups begin without one. In fact, the Society for Human Resources Management says companies likely don’t need an HR professional if its workforce remains at less than 15 people.
But there’s a better questions at play here: Does failing to have an HR department make sense? There are benefits and detriments.
For one, HR is expensive: The average annual wage for an HR professional is $51,000. 
On the other hand, not having HR can be even more expensive. Outback Steakhouse didn’t have an HR department before 2008 — and then it got sued for sex bias.
That case cost the restaurant chain $19 million to settle — and now the company has an executive-level HR person.
That case highlights another danger of doing without HR, according to the article’s authors: Companies taking on added risks.

Managers often lack specialized knowledge that is crucial for keeping a company competitive and on the right side of the law, he said. If they don’t understand the latest rules under the Family and Medical Leave Act, for example, they can open their company up to lawsuits; if they don’t know where to find qualified engineers, they can end up behind in the battle for talent.

Another opinion

Robin E. Shea, writing for Constangy, Brooks & Smith‘s Employment and Labor Insider blog, admits that some companies do fine without HR departments.
But …

that’s because they use HR consultants and call labor and employment lawyers whenever they have a serious employee relations problem, need training, or need to terminate somebody. If you’re a smallish company, you can outsource your HR, but you should never get rid of it entirely. If you’re bigger, having your own in-house HR department will usually make the most sense.
… The number and complexity of the laws governing the employment relationship is overwhelming, and is only getting worse. Most companies cannot hope to keep up with it all — much less comply with it — unless they have dedicated individuals or departments who figure it out so that everyone else in the company can concentrate on making and selling Wheelmate Laptop Steering Wheel Desks, or doing whatever your company is in business to do.