How to Develop an Effective and Scalable HR Infrastructure

Kathy (host): 

Well, hello there and welcome back to Help! My Business is Growing, a podcast where we explore how to grow and build a business that is healthy and sustainable. I’m your host, Kathy Svetina.

Kathy (host):

Human Resources are essential, and they’re a crucial foundational piece for any business. And there is more to HR or human resources than payroll and benefits. If you’re overlooking all the other aspects, especially the compliance part, it will be extremely risky for your business, both operationally and financially, because as I always say, anything that you do operationally will eventually end up in your numbers. And you know, while managing just a handful of team members can get complicated as you’re growing, and you’re starting to hit that 50-plus employee mark when you’re going to have to start looking more into compliance piece, it will get even more complicated. Setting up an HR infrastructure early on is vital, because it’s going to allow you to develop strategies, policies, and procedures that will have a lasting impact on your business, and will help you attract and retain top talent. It will help you support your company’s operational and financial plans, and will align resources to help you hit your business objectives. The earlier you do this, the better off you will be. The question here is how do you develop an effective and scalable HR infrastructure for your growing business.

Kathy (host):

And before we go into that, just a quick reminder. If you want to take home some informative tips from our guest today, there are going to be a lot of them. All of the episodes on this podcast, including this one, come with timestamps for topics that we discuss, and each one has their own blog post as well. You can find the links in the detailed topics in this episode’s show notes.

Kathy (host):

Let’s go back to my guest. My guest today is a Fractional HR leader, Milly Christmann. She is the owner of Marathon Growth Management, a human resources consulting business, and she supports small to medium-sized businesses. Milly is a high energy operationally-oriented talent management leader with extensive experience in human resources, sales management, service, and operations. She is recognized for collaborating with leaders to achieve their business goals by unleashing the power of an engaged workforce. Milly uses process improvement technology and strong and passionate people skills to attract, develop and retain top talent driving change that matters. Join us.

Kathy (host):

Welcome to the show, Milly.

Milly (guest): 

Thank you happy to be here.

Kathy (host): 

I’m so happy you’re here, because we’re already going to be talking about a really, really important topic, and that is the HR world and small businesses. The more I talk to small business owners and the more I am convinced that they really do need that because the HR world is so complex, even in the small business space. And when you growing, there’s so many other aspects of the business that you as an owner need to worry about. And unfortunately, what I’ve seen that HR usually falls behind, which is super risky, operationally and financially, because the businesses that I’ve worked with, they usually do have someone like a payroll service provider who takes care of the payroll and the benefits portion. But that’s just one aspect of HR. And what I would like to focus on in this conversation is the HR infrastructure of the small business pays, what are the clear signs that you are better to start implementing now? And how they should look like? I want to dive into this? And what are some of the clear signs that we’re both in the fractional world? They usually trigger for the business owners to give us a call to pick up a phone and give us a call and say, “Hey, I really need to do and start implementing this now.” What do you see they’re usually the problems that people come to you that say, “Hey, Milly, I need you on this.”

Milly (guest): 

So that’s a great way to look at it. And I think there are two triggers, there are several triggers. But the two big ones are bad and good. Good- it’s growth. When your business is growing, lots of things are happening. And ultimately, inherently, business owners are very attuned to the fact that they need a product or a service plan. What is it they’re going to offer? They know they need a financial plan because they’ve got bills to pay and cash flow concerns, but they also need a people to plan because the people plan will very likely support and drive both of those other plans in terms of the financial link, which is expense. What’s the largest expense typically on any P&L you’ve ever seen? It’s usually labor, usually, the payroll align. And from an operational perspective, people are going to be driving the output. They’re going to be driving either production of some kind of a product, or the availability of some kind of service offering. So that people plan really becomes the third leg, in concert with financial planning and operational planning that you really need. So growth is a huge trigger.

Milly (guest):

The other component is the negative one. And I say negative because my clients frequently complain about lack of time. “Where does my time go? I’m overwhelmed. I don’t know what I’m doing. All I know is that it’s Friday and five minutes ago, it was Monday.” So time typically is something that is a sign that there’s inefficiencies somewhere along the way. And chances are a deeper dive will reveal that you’re spending time in areas that a CEO shouldn’t be. You’re not spending time in high-value areas. You’re spending time somewhere tactical, or you’re spending time cleaning up something that is a mess that shouldn’t have been a mess. Growth and where did my time go – really are my two anecdotal kinds of triggers to look into. Do I need some HR help? Then the question is, “Okay, what level of help do I need? What kind of help do I need?”

Kathy (host): 

And you talked about the people plan? I want to dive deeper into that. What is a people plan? And what does that really look like, especially in the businesses that are under that? As you say, the magic number of 50 employees? And we want to talk about this magic number of 50 employees after that, too. Let’s talk about the people plan out, what is it? And what does that really look like?

Milly (guest): 

The people plan is really the parallel trajectory plan that goes and lives and breathes alongside your financial, your revenue goal plans, and your operating plans. I think it’s reasonable to assume that most small business owners have some level of growth trajectory planned out. Whether it’s by quarter, whether it’s by year, whether it’s what they want to do in their first three years, there’s some sense of “Here’s where I want to be in the future.” And it’s typically measured in dollars. Well, you need to ask yourself, “What’s the people’s implications? What’s the people element in order for me to get to that plan? Do I have to? Can I do that all by myself? Yes, or No?” If the answer’s no, “Do I need one person? Do I need two people? And how does that break down? What is your people per dollar revenue ratio?” You need to have a people plan in order to support whatever financial plan that you’ve created. What it looks like is going to be largely dependent upon the upward trajectory of your growth, and how quickly you’re going to grow. What are your other constraints? Cash flow can be a constraint and time and other things.

Kathy (host): 

In the people plan, let’s say that you’re going to be growing significantly in the next two years, for example. You’re going to be going from $5 million in revenue all the way to 10 million, because you just can, and you know that there’s a potential to pro-growth in the market. How do you prepare for that in terms of people? I know when I look at when I put financial plans together, we take a look at the capacity. We take a look at what is the time that we need to start adding people whether from a customer service perspective. Do we need to add them in the operational division?

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Kathy (host):

One thing that that I’m also very, very sensitive about in the business is that the more the business grows, people think about the front office – meaning people who are interacting with the customers who are interacting with the clients. But you also have to think about the back office too, as well. There going to need an operation manager. You’re going to need more finance people. You’re going to need more bookkeepers, or whatever it is. How does that plan look like from that perspective? Do you go down the list and say, “These are all the people that I need? This is the cost that I’m going to have associated with them.” So that’s how I usually look at it from a financial perspective. But from an HR perspective, is there any other way that you’re looking at these additional growths in employees? How do you look at that?

Milly (guest): 

When you think about growth and how and when to add people, there isn’t a one size fits all pattern. Some people approach it from what’s going to drive revenue and let me add revenue-driving positions first, and then let’s see what the trickle-down effect is.

Milly (guest):

For example, you might add a salesperson or another service provider somehow to drive that revenue. From there, I think what you need to do is take a look at what’s all the ancillary work that that sales force creates? Does it create something on a manufacturing end? Does it trigger for the needing to create material, publications, productions, or writing? What exactly is it triggering?

Milly (guest): 

And then from there, I think you have to grow. It’s really a customized look at it. In terms of being compliant, the compliance piece really kicks in when you do hit that ever, so magic number of 50. And that really has to do with 50, what’s called full-time equivalents. It doesn’t necessarily mean that you have 50 human beings on your payroll, but they actually have to be 50 full-time equivalents. Do you know what a full-time equivalent is? If yes, terrific. If not, it is somebody who works an average of 30 hours a week. You could have more than 50 people on your payroll, theoretically, before you necessarily hit some of those compliance gates.

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Milly (guest): 

But what’s critical is that non-compliance is going to drive cost. You’re worried about things that drive revenue, and that being a trigger to add people, but without the balanced focus on compliance, you’re going to wind up driving cost if you make mistakes. A couple of the compliance things that go into effect when you hit 50 are things like health care. Now, all of a sudden, you are required to provide health care. The first thing people think of is, “Oh, that’s a big expense.” And yes, it is. And that will be reflected in your financial plan, clearly. But you have to make sure that you do the appropriate filings. Now, all of a sudden, you’ve got to be doing 1094-C filings, 1095-C filings. These are things that prove that you are indeed offering the health care that you’re supposed to be offering. Now, that’s just one thing. And that’s called ACA reporting. Beyond that, you start being responsible for making sure you offer leaves- FMLA leave, for example, but there are a myriad of other types of leaves.

Milly (guest): 

And the challenge Kathy with these things is that they’re very complex to manage, and they can be mismanaged. And that’s where people get into problems. Because when you start mismanaging some of these things, it becomes a wage and hour problem. Mismanaging people’s leaves, and mismanaging things in that area become reflected in payroll. And when you start having payroll errors, all it takes is one complaint to trigger an audit. Those audits can go back for two years. And even if you’re found compliant, you are incurring a great deal of expense in terms of productivity when you have a Department of Labor audit. They’re not pleasant, and they can drag out a very long time, and they can have penalties- back pay owed is a guaranteed, but there are fines, and then there can be penalties above and beyond the fines.

Milly (guest): 

It’s a pretty serious matter when you start hitting that 50 number. And even when you get close to it, the challenge is your time starts getting diverted. Back to that growth that you’re experiencing, which is phenomenal. Then you figure out, “Okay, who can help drive more and more revenue,” we add sales. “What are the implications? What are the implications on customer service? What are the implications? What’s the process? The workstream? What are the work streams that flow from there, and that’s where I would very carefully build out an approach to adding headcount.” Dollars are important, but I would really look at workstream implications and look at the complexities because that’s where errors can happen, and then there goes your time. Your time as a CEO is diverted from CEO-level activity into low-level cleanup activity, which is critical but doesn’t necessarily have to be done by you.

Kathy (host): 

It’s important, but it’s not really a value add to the company in terms of growing the business, growing the revenue, but it’s extremely important. And when you do start hitting that 50 mark goal, should you actually start thinking about having an HR on your staff, or is it still enough to have like a fractional person like yourself? Or maybe even an outsource provider to take care of those things for you? Or is it really the time to start thinking about maybe I need to start bringing this type of expertise in-house.

Milly (guest): 

The key is, that it’s time to start thinking, and what you’ve done a good job is outlining what are all the options. What I recommend is people start thinking about what is the complexity of what I’m doing, not just revenue. The revenue is a quantitative indicator. Look at the qualitative things. How much complexity do I need to run my business? And from there? Where is my time going? It’s very important that CEOs track, “Hey, what am I doing with my time.”

Milly (guest):

I have a client that actually, as we speak, I have them on a two-week journaling project where they are journaling what they are doing for two solid weeks. And we’re going to take that data, and we are going to find out what percentage is going to what kind of value-added tasks and we’ve defined what CEO value-added? What is low value? What is mid-size value? And once we get a sense of where is that CEO’s time going? And what percentage of it, that can be another anecdotal data point, to determine “Do I need somebody maybe 10 hours a week? Do I just need somebody that I can call? Do I need somebody on an advisory basis that I can call and reach out to? 24/7? Just to say, ‘Hey, I’m thinking about this? What do you think about that? Or do I need somebody? Is there enough transactional need to have someone full-time?”

Milly (guest):

I really think that understanding the day-to-day occurrences and tasks, right down to just knowing how much time are you spending socializing. How much time you spending on every single thing is going to help inform when you have to hire that HR person. I would argue that a lot of owners are not leveraging their payroll companies like they could, first. The first thing I advise people is, “Hey, let’s get all the free stuff first. And how do we get all the freebies out there leveraged?” And that’s when I frequently play a fractional role is coming in and thinking more in terms of strategy. “Hey, now that you’re growing, and you feel comfortable with this. Let’s talk through who should go on payroll next. Should they be full-time? Should they be part-time? Should they be seasonal? Where are we going to find it? What are those implications? And then how hard is that get to manage?” There’s a difference managing a blue-collar workforce from a white-collar workforce. Something as simple as what is the profile of your workforce. Something as simple as that can help delay in your growth cycle, can help delay that full-time HR hire for six months, for a year.

Milly (guest):

First, think about what are all your options, and then think about the complexities of your business. And then the speed, the anticipated speed of growth. And ultimately, you make your best assumptions.

Kathy (host): 

Yeah, that was really great guidance. You mentioned about business owners not really using their payroll company to the full capacity. Can we talk a little bit more there? How does that look like? And what are some of the things that you see people missing that their payroll company could be doing, but they’re not doing?

Milly (guest): 

Sometimes, the payroll companies make mistakes. The first thing I say is, “Do you know who your rep is?” If you use one of the big companies? Chances are you either have a rep that’s assigned to you. Do you know them? Do you talk to them? 15 minutes a week in establishing your relationship can deal you wonders. I’m just telling you, or do you have a team of support. An 800 number that you call and you get a team?

Milly (guest):

The first thing I would do is say, “Hey, for the package that I’ve purchased, what all comes with it? What do I get? Understand what you should be getting to start with?” When a person has an issue with their paycheck that let’s say they think their vacation was computed incorrectly? That’s a pretty common one. Are you the one who’s on the phone, spending three hours trying to figure it out? Or you know that that’s a service that they offer, and they should be dealing directly with the employee on that. That saves you three hours. What’s an hour of your time valued? If an hour of your time relative to the ability to generate revenue is valued at $1,000, you’ve just thrown away $3,000 of time. So that’s the way I think about things. And I encourage my clients to think about those things.

Milly (guest):

And secondly, for the package that you purchased on payroll, do they have any other bolt-on services that might interest you and might benefit you. Sometimes they do have advisory services. And I say this because they really don’t compete with mine. A lot of those advisory services are very junior people that are there to do one thing, and one thing only, which is fixed transactional issues. Fabulous, those aren’t things I want to fix. And those aren’t things when you start investing in a fractional CHRO. You don’t want to spend your money with them on those transactional things.

Milly (guest):

I’m going to be crass and call it cheap stuff, although it’s very important, to leverage that stuff with a payroll provider. They’re perfect for that. They do it every day. They’ll do it better and quicker than you will anyway. And then leverage somebody like me, or the people that are in my space to really help you think through what are the right roles to have when and how to optimize? And here’s the key Kathy, am I getting my money out of all my people? Are they working on all eight cylinders? Are they engaged? Are they giving me all that they have? Am I giving them the right support for them to get on those eight cylinders? That’s operational effectiveness in a people plan right there. It’s how many people? And then are those people, the right people doing the right thing at the right time?

Kathy (host): 

And when it comes to getting that advisory from your fractional person when it comes to engagement of your workforce, engagement of your employees, I wonder, is the fractional CHRO, are they also stepping into, I guess, in a leadership coach type of capacity? Because we all know, like when the company is growing, there’s a lot of change happening. There’s a lot of stuff going on. As an advisor in HR, are they able to go and talk to the business owner and walk them through this change management? Or is this someone else that needs to step in into that type of capacity? How does that work?

Milly (guest): 

I think you’ve got to make sure you have an HR advisor that has that in their tool belt. I think that that’s critical, because at the basis of growth is change management, and it starts with the CEO. Is the CEO ready for growth? I mean, yes, they have their eyes big from those grandiose numbers, that’s super sexy. But do they really understand what the rest of the growth looks like? And are they ready for it? And having somebody who has had experience either with startups and hyper-growth, or change management? Several of us have certifications in change management actually. It’s a pretty defined process and space. But finding somebody that can just guide you is number one, because once you have a good sense of what are all the little tentacles that growth generates out there and what could happen.

Milly (guest):

And once you think through all those scenarios, then you make a plan with, “Okay, with that fractional advisor, how are we going to address X and Y and Z.” And ultimately, it’s up to you on the degree to which you have that fractional person reach in and develop relationships with. It’s very unlikely that it’s all your employees, but maybe some key employees so that you can guide them. So again, time is money. CEO time is money, where are they diverting their time, that way if you can broaden your reach a little bit and help the top, let’s call it three people, four people on the staff make an impact in how they manage and how they engage their workforce and how they’re optimizing. All of those people who are providing that service or building that product. That’s a huge growth engine, right there.

Milly (guest):

And it could be something as simple, Kathy, as revisiting what are your communication routines? How are you holding meetings, doing a check-in to say, do these people really understand how what they do every single day? Even if it’s cleaning equipment? How does that tie in with the company mission? Which brings me to another point, do you have a company mission? Do you have that a vision statement and a mission and values those are important because there’s something for people to bite into? There’s something for people to connect to and relate to, and that is the first step in engagement how am I connecting with what these folks are doing?

Kathy (host): 

That’s a great point. And I actually have a whole episode on that. And if you go back into the backlog of the episode about the vision and the mission, how you actually do that, and I’m going to link that into the show notes as well, because it’s so, so important. That’s really driving all your conversations, all your plans, the future plans, the financial plans, having that vision, and having that mission.

Milly (guest): 

Absolutely. And that’s again, where you see the linkage. You should see the linkage between a financial plan an operating plan and a people plan. And if you put those things together, some people call that strategic planning. Truthfully.

Kathy (host): 

Great, Millie, one other question that I do have for you. We’ve talked a lot about businesses that are either close to that 50-employee mark, or they’re past that. But how about businesses that there are let’s say, right now they have 10 employees, 20 employees, 25 employees, they’re not really there yet. And how does that compliance look like for them? Should they still be worried about that? Should I be really looking into it? How does that process look like for them in their space?

Milly (guest): 

I think that the driving word is not necessarily compliance. We always have to comply with Department of Labor Wage and Hour laws. Whether you’re one employee or 1001 employees. Wage and Hour is very important. And one thing that I would urge people to understand is the Department of Labor (dol.org), that website is your friend. There is everything you need to know. It’s not an exciting read. I will warn you, but it is everything you need to know about how to pay people and by state, it differs. Those of you, I’m based in Colorado, you’re based in Illinois, and I know that your listeners are everywhere, as are my clients. I’m very careful to make sure I’m checking state applicable laws, but that the DOL website and the EEOC website are the two critical ones in terms of compliance. We want to make sure that we don’t have any discriminatory practices or discriminatory policies, and these things can happen without knowing it.

Milly (guest):

I think it’s really critical for folks in any kind of employment situation to understand what are the rules of engagement and let’s make sure we’re playing fair and treating people fairly because the relationship between treating people fairly and being in legal compliance is very, very close. And in fact, some employers who get caught in some of these audits can get out of these audits very cleanly and easily, if they have truly a shown good faith in fixing things correctly, admitting fault, or they have a history of doing things correctly but then they just went sideways on this one thing for whatever reason. Doing things right really counts as you grow. But you have to know what are those things that I have to do right. And it’s how to treat people, and it’s how to pay people.

Milly (guest):

And so again, I’m going to tell your listeners out there that the EEOC website is very important in understanding all the legal ways that you should and should not treat people. They are the agency that enforces all of the discrimination laws. And then there’s Wage and Hours, you’ve got to pay people correctly and on time, and this becomes very important.

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Milly (guest):

And I’ll give you a couple of little examples is when you terminate somebody, when are you supposed to give them their last paycheck? Well, it depends. It depends on where they live. This is geographically tied to the state. If you’re doing performance management, and you decide to suspend someone pending an investigation of some sort or another, do you pay or not? It depends, depends on the scenario. It depends on the state. But if you can’t, with certainty, answer those questions, you need to lean on somebody who can, and that’s whether you have 10 employees, 20 employees, or over 50 employees. It can get very sticky when it comes to again, how you’re treating people. And this could be just coaching people, just performance management, annual reviews, interviewing people, selecting people to hire, not selecting people to hire. Do you have a defensible set of reasons why you hired one person over the other? The answer is you probably should, and then the payment of people. Treating people, paying people are very, very critical regardless of how many people you have on your payroll.

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Kathy (host): 

Awesome, Milly. I mean, these are really great pointers. And it’s so much complexity in here. It’s it can be overwhelming. But at the end of every episode, I always ask for every single guest is if someone were to start implementing what we talked about in this episode, let’s say they have no employee handbook, they have a payroll company, and they don’t really have any HR infrastructure, what can someone do to get them closer to where we want them to be when they’re starting to have this HR structure? What can they do in the next week or so to get them closer to that goal?

Milly (guest): 

Well, I think you hit the nail on the head with the employee’s hand, but that’s the first thing I asked people who are prospective clients. I always say, “Hey, do you have one?” And if the answer is no, or it’s old, or let me think about it, then it needs to be revisited. And the other piece is there should be a habit of revisiting employee handbooks, at least every other year. Laws change. Small things change, and large things change. But it’s very important. And it’s important for more than just compliance reasons. An employee handbook really is your opportunity as an employer to set out the rules of engagement. Your employee handbook is going to tell a little story about what it’s like to work here, what to expect from your prospective employee, and it gives the employee a signed acknowledgment, which is very important. The second actionable item is do you have a signed acknowledgment? So do you have a handbook, number one? Do you have a signed acknowledgment, number two, because that gives the employee an opportunity to say, “Yes, I’m good with this? I want to play by your rules. Let’s go.” Why is that important? Well, that’s important. If down the line, as you’re doing coaching, as you’re doing progressive discipline, you have a place to refer back to say, “Hey, you know, we use our employee guide, employee handbook, like a playbook. And this is how we operate here. You’ve deviated in this area. Let me tell you the impact that’s having. Here’s what I’d like to see. Do you agree? Can you do this?” It becomes a wonderful backbone for your whole performance management coaching process that is legal. It’s ethical, and it’s defensible. And all of that speaks to compliance and supporting it. And beyond that, it’s just the right thing to do.

Kathy (host): 

Milly, thank you so much for being on the show. Please tell us where can people find you.

Milly (guest): 

LinkedIn. LinkedIn is the best place to find me. I’ve got a profile, Milly Christmann or my website is marathongrowthmanagement.com. I would be happy to have conversations to further this with anybody out there interested. But I love small businesses. And it’s the sweet spot for me. It’s what I do.

Kathy (host): 

Thanks so much for being on the show. Really. Appreciate it.

Milly (guest): 

Thank you so much.

Kathy (host): 

Thanks so much for joining us. And I hope that today’s episode of this podcast is going to help you get started on developing that foundational HR infrastructure because it is so important that you have this in place. And as early as possible, the better off you will be. I promise you, please, please, please, please start doing this today if you haven’t yet.

Kathy (host):

Next week, we’re going to be discussing your team. And this time, the often dreaded meetings. We will chat with Danny Hadas about how to run an effective and productive team meeting. Yes, we are going to dedicate the entire episode, 45 minutes or so of this podcast to team meetings alone – how to run them, how to make them engaging, and how to make sure that people actually have takeaways from them. How do we make sure that people are not snoozing in these meetings? It’s going to be good. And I promise you it’s really, really, really actionable.

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Kathy (host):

And also, if you love this episode, all the timestamps, show notes, blog posts, and links can be found on the website, newcastlefinance.us. It’s all there, it’s all for you to use. Just go ahead and visit it.

Kathy (host):

And before I go, as always, I do have a favor to ask. If you listen to this on Apple Podcasts. If you could please go to the show and tap the number of stars that you think the show deserves because it helps the algorithm and helps other people find it. And if more people can find it, more people can benefit from it. Thanks so much. Until next time!