Does HR Fall Under the Operations Department or Finance Department?

No hard rule dictates where human resources belongs in an organization. Where you place HR depends on how you perceive the function and what you want it to do for your business. HR could report to your finance manager, operations officer or you, the company's owner and chief executive. You even could outsource HR to save money if you have fewer than 100 employees.

Companies that perceive HR as an expense, rather than an indirect revenue-generator, often put finance in charge of HR. Small businesses often adopt this reporting arrangement so finance can direct HR's accounting-related duties, such as managing payroll or calculating flexible benefits costs. Small companies that have grown big enough to need help with hiring, retirement programs, employee discipline and workplace grievances know they must get an HR manager or designate on board. Company heads usually understand finance's role in growing a profitable business, but they don't always understand HR's role, so they make finance HR's overseer by default.

Small companies are sometimes big enough to have an operations division to manage day-to-day business activities. Administrative, IT, security and other support services usually fall under operations. Companies might assign HR to operations because of its support status and general perception as an administrative function. Maintaining employee records, tracking work hours, scheduling benefit enrollment sessions and inputting payroll data are examples of common HR administrative duties. Other HR responsibilities, such as training and event planning, might support a company goal to raise productivity by updating employees' skills and improving morale.

Business heads or CEOs who see HR as a partner in growing a company often make HR managers direct reports. In this role, HR helps plan strategies for raising productivity and hiring the talent needed to make the company profitable. HR also might work on raising staff retention, lowering employment costs and measuring the effectiveness of employee communications, work/life benefits and staff recognition programs. Progressive HR professionals favor reporting to the company chief alongside finance and operations officers. HR staff members position themselves for this strategic partnership role by learning finance/accounting procedures to broaden their knowledge of the business.

Hiring a full-time HR officer is expensive for some small businesses and not always necessary with fewer than 100 employees. Finance or accounting might handle payroll or benefits, while managers do their own hiring, training, recordkeeping, disciplining and grievance handling. Consider how much time managers have for HR tasks. Outsourcing some or most HR functions might be less time-consuming and more cost-effective. HR consultants, contractors and accounting firms handle recruitment and hiring, payroll, benefits administration and training, among other HR duties. One downside of outsourcing is the risk of having sensitive employee information in an off-site location. The second downside is trading personal, in-house customer service for lower cost and expediency. Review vendors' credentials and get referrals when possible. Also see that vendors can safeguard employees' personal data.