HR Structure: How To Design Your HR Department

employees discussing ideal HR structure

An HR structure for a company is an essential element to unlocking your team’s full productive potential. In this article, we offer a comprehensive outline on how to structure your HR department, the top considerations you should make, and some models (along with the research) that help them perform.

Start things off right. Discover Personio’s HR software today.

What Is A Human Resources (HR) Department?

Human resources, or HR for short, is the department of your company that deals with all personnel-related topics and issues. Simply put, it is the point of contact for employees, managers, and, if applicable, governing bodies to ensure that your company is abiding by the law and helping your overall organization succeed through its people.

What Is A People Team?

Some consider a people team and an HR department as one and the same. That said, a People Team is typically designed with the idea of strategic initiatives. So, while they handle the HR tasks, they typically have an even wider lens when it comes to organizational development. They are also likely to have a seat at the management/leadership table.

Whether understand as your People Team, or People Operations, the idea here is that it has a much wider scope. It is not longer simply focus on administrative tasks, as they are often automated and handled by effective HR software so that your HR department can focus on people and helping them succeed.

What Are The Common Tasks Of An HR Department?

An HR department is typically tasked with assignments across the employee lifecycle. This could include onboarding, offboarding, and the following:

  • Personnel Planning: In personnel planning, you ensure that your company has the right number of employees with the necessary qualifications at all times to achieve the set goals.
  • Recruitment: Otherwise known as talent acquisition, recruiting, and e-recruiting, this describes all the measures a team needs to complete to reach new employees to benefit the company. This also includes employer branding.
  • Workforce Planning: Ensuring that your employees are deployed as efficiently as possible, to avoid bottlenecks and overcapacity where it shouldn’t otherwise exist (read our full guide here).
  • Personnel Administration: Describing all the administrative tasks and formalities that fall within an HR department’s scope. This could be creating contacts or managing digital personnel files.
  • Development: HR and People Teams need to help employees get better at what they do, and that means establishing strong performance management processes and an open culture of feedback.
  • Payroll: HR also takes care of payroll and salary accounting. This can either happen completely in-house or is partially outsourced and handled jointly with a software provider or tax consultant.
  • Retention: This includes all the measures that an HR department takes to retain employees and lower the company’s overall attrition rate. Here is our complete guide to boosting your retention rate.
  • Reporting/Analytics: Every modern HR department needs to make personnel-related decisions informed by hard data. This means having access to people analytics to determine employee headcount, growth rates, costs, and more.
  • Strategy: Administration has always fallen on the plate of HR, but where they can truly succeed is when they focus on strategy. That means having the time to be involved, as well as to implement initiatives.

Personio can help with all your core HR tasks, so you can focus more on strategic HR. 

Why HR Department Structure Matters

As companies grow, they require structure. That’s because start-ups and smaller companies tend to create a family atmosphere and corporate culture, but above a certain size (let’s say between 50-100), everything changes.

That’s because new colleagues are only known from being quickly introduced, and everything becomes more anonymous and less connected. During this phase, many companies report a noticeable drop in employee satisfaction.

But, it doesn’t need to be this way, and it starts in HR. After a certain amount of growth, the HR department must professionalize itself (or reveal itself entirely), while actively taking care of corporate culture and employee retention.

It also must develop salary and working time models and master any increasing bureaucracy. But, if you simply hire more without planning a structure around them, you’ll only ever keep up (and avoid getting ahead).

How Large Should Your HR Structure Be?

The well-known rule of thumb, “One HR position per every 100 employees,” is not wrong, but it tends to apply to larger companies with a well-equipped HR department.

In companies with up to 250 employees, the need is significantly higher, as the “Workforce Analytics” study shows: an average of 3.4 HR employees per 100 full-time positions in the company!

Peter Rosen from HR Strategies and Solutions recommends creating the first full-time position in the HR department from around 50 employees and a second from around 150 employees. This recommendation is quite realistic.

Outsourcing your HR is also possible through a Professional Employer Organization (PEO). Read our guide here.

Instead of relying on a general figure, you should determine your own HR staffing needs. Learn how to do this while defining a structure for your HR department in the following parts of this article.

How Do You Define A Suitable HR Department Structure?

When structuring your future HR department, you need to proceed as you would with any other project: you set goals that you want to achieve and then think about the necessary steps to do so. Here is our guide to developing your HR structure…

Identify Critical Issues

List all the tasks you need to take care of in the future. Assign priorities to the tasks. Identify the critical issues that present a particular challenge and could prove to be a “bottleneck” to continued business growth.

Some common examples include:

  • Recruiting certain highly qualified specialists.
  • Flexible working time models to be attractive for family fathers and mothers.
  • Promoting employee satisfaction so that employees do not leave for (better-paying) competitors.
  • Training and further education of employees in order to remain competitive.

By identifying these areas of focus, you are already laying the groundwork for a future HR structure. You may need an employee to explicitly take care of these areas. We’ll cover this a bit later on.

Make sure to [ut employer branding and onboarding programs on your list just as you do payroll, contracting, and health care. For each item, list the individual tasks that need to be done and estimate the resources needed to do them.

HR Software To Grow With Your Needs

HR digitalisieren

Your team is growing and HR processes are becoming more diverse – and more complex. Personio’s HR software simplifies your HR processes and makes them faster, clearer, and more efficient.

Define Processes

Now comes the hard part. If you skip it or do it half-heartedly, the efficiency of your HR will decrease as the size of your company grows. In small companies, HR works on demand and with informal processes – “that’s just how we do it.” Now you need to define fixed processes to handle the extra work.

Document all HR processes, distribute responsibilities and task areas. Describe how you want to work with external service providers, for example, within the framework of service level agreements. Work with management to develop a plan for staffing needs and thus for your recruiting.

Determine which recruiting channels you want to use. Work with departments to create job descriptions, job profiles, training programs. Work out standard contracts and other regulations – keyword compliance.

Download our template for requirement profiles here.

Keep them aligned with your priorities at this stage. Start with the critical areas and work out the others later.

Implement An HR Software

Ideally, you should start the selection process for an HR software immediately. Not only is this important to keep everything organized right from the very beginning, but it also makes switching software easier down the road.

Which software you use will help determine how your processes will look. You can automate many tasks right from the start. Data interfaces make it much easier to collaborate with the payroll office and other external service providers.

Don’t put off implementing new software. If you introduce manual processes first and only switch to software later, you will have to change your workflows twice. This is unnecessary and costs time and money.

With software-supported processes, you can easily save half or an entire position in personnel administration. Or you can assign an employee to other tasks instead.

What Are Different Organizational Structures For HR?

There are different ways to go about structuring your HR department. Among them are both classic HR structure models and modern ones, too.

Which one you choose depends entirely on your goals and your corporate culture. We present five of them to you here:

1. The Hierarchical Model

A personnel department can be organized hierarchically. The personnel department consists here of a personnel manager, who reports to the managing director and is given department goals, which they must reach together with their team.

The HR department can then consist, for example, of two managers for Recruiting/Personnel Procurement and HR Management/Personnel Administration, who in turn lead their own teams and report to the HR manager.

In this model, communication is completely vertical, i.e., from top to bottom. Information is kicked off by upper management and is then passed through HR management to the executives and ultimately reaches the team.

In this model, the clear distribution of authority is particularly advantageous. Everyone knows where they are in the model, where they want to work, and what their development plan is for that purpose.

2. Formal and Informal Model

An HR department can be structured formally or informally. The hierarchical organization is a good example of the formal model because it is built on clear hierarchies, goals, and tasks.

In contrast, the informal model is meant to be freer, because team members can be more flexible and interact with each other depending on the dynamics. There is a more cross-functional capacity here across the team.

In many companies, both models coexist. This means that a standard structure forms the basis of the department, which then operates informally depending on various projects (and the skills required), for a more agile approach.

3. Goal-Oriented Model

With the goal-oriented model, enterprise goals are broken down to individual departments – and even to each individual coworker. Each team decides for itself which measures will be implemented to achieve their goals.

The corporate goals are determined between the CEO and management and require the commitment and dedication of each individual. Ultimately, this model only works if each employee is clear about their goals and how they will be measured against them. In most cases, this model is accompanied by a financial bonus depending on the achievement of goals.

This model is also only partially used in many companies, e.g. in sales. For HR departments, the goal-oriented model results in the following advantages: Commitment and focus from each individual employee, higher team performance, and compliant planning of goals.

4. The Shamrock Model

This model borrows from the image of the “shamrock” in that it consists of three basic pillars that together form a whole.

  • At the core are the most qualified and relevant employees.
  • Less important activities are handled by external service providers and thus outsourced.
  • Employees with temporary contracts, e.g. project-based work, complete the cloverleaf.

For the HR department, this means that there is a small core of permanent employees who in turn manage externals on special projects.

External service providers could thus assist with issues such as relocation, and employees with temporary contracts, e.g. additional recruiters, can help to recruit more new employees in a shorter period of time.

5. Networking & Outsourcing

This model is completely dominated by HR departments getting outside help.

As a result, there is only a small core of permanent HR employees, who outsource many of the tasks and activities at hand to external service providers to achieve their goals.

How Can You Help Your HR Department Structure Grow?

From the third HR employee onwards, it’s entirely up to you how you structure your organization’s HR department. You could hire a recruiter if you already employ an assistant, or vice versa.

If you can’t find new employees fast enough, you might prefer to hire a second recruiter instead. It all comes down to your priorities, where the critical areas are to meet your company’s goals for growth.

Try and ask yourself:

  • What issue is currently getting short shrift and will require more attention in the future?
  • What kind of staff, expertise, and soft skills are needed to address it?
  • What role does the new HR employee need to take on and how does that role fit into the current HR structure?

Instead of increasing the size of your HR department, you could automate or outsource more processes. This gives existing employees more freedom again and allows them to take on new topics – new roles.

Make all decisions based on your previously defined goals and roadmap, which you regularly review and adjust. This way, you can be sure to find the best possible HR structure for you and thus pave the way for the further growth of your company.

Can An Org Chart Help Structure Your HR Department?

Organizational charts for the HR department (and the entire company) help to keep an overview of tasks and areas of responsibility of individual colleagues.

Our guide on what goes into a great org chart.

This is especially important in a (quickly) growing team because it shows the structure of the HR department, to whom employees report, and whom colleagues can turn to for questions about feedback meetings or administrative matters, for example.

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