How many HR people should I have?

This is a question I get asked a lot. Of course the answer is, it depends. Smaller organizations tend to have administrative employees who wear several hats. So if an office manager spends 80% of her time performing accounting tasks (including payroll) and 20% of her time dealing with employee issues, that company has 1/5th of an HR person.

Standard benchmarking practice is to exclude dedicated payroll and training/development people from the HR-per-100 employee ratio calculation.  The rule-of-thumb metric I've often heard is one HR person per 100 employees.  So, in the example above, the office manager can probably effectively provide HR services to up to 20 employees, assuming she knows anything about HR compliance and HR best practices. If that organization has 40 employees, their HR is probably suffering because the accounting is always going to get done.

But the 1-to-100 ratio can be misleading. According to benchmarking surveys conducted by the Society for Human Resource Management, companies with 250 and fewer employees have a ratio closer to 2-per-100 on average. Organizations with 250+ employees often have fewer than 1-per-100 due to efficiencies linked to being larger. 

When I'm asked that question by organizations with 100 or fewer, I usually ask some follow-up questions before I recommend a number:
1. What is your competitive advantage (how does your company beat its competitors)? 
2. What is your employee turnover rate?
3. How effective is your owner/president at assessing talent, developing talent and getting the right people in the right seats?

Cafe du Monde is a famous restaurant in New Orleans right in the heart of the French Quarter. It does a booming business because of its ideal location. I've always found the service there to be below average at best. Cafe du Monde does not need a lot of HR people because its people aren't critical to its success. A restaurant in a less desirable location that depends on its great service reputation to be successful will likely benefit from a higher HR ratio than Cafe du Monde needs. 

Likewise, an organization that is in a very stable industry, doesn't have many competitors trying to pilfer its employees, and generally treats its people well won't need as much HR as a company in a high turnover, highly volatile industry where employees have lots of options.

Some owners are really good with people. People like working for them, they listen well and have a knack for positioning people to be successful. Others understand the technical aspects of their business but are terrible with employees. This second type of owner needs more HR help - to protect themselves from themselves.

The Institute for Corporate Productivity did a study a few years ago and found that the highest performing small companies have a higher ratio of HR people per 100 employees than their lower performing industry peers. This may seem counter-intuitive to the owner who sees HR as simply administrative overhead. But if that owner looks at the company he/she most admires in their industry, they'll likely see a company who invests more in their HR platform.