The pandemic has changed everything: How we live, play, study, travel, and most of all, work. Starting a business or expanding your existing one, used to consist of focusing on having enough resources and benefits to get the job done. Now, managing a business can also include public health questions around vaccine and booster mandates, testing protocols, and hybrid and work-from-home set-ups.
This means that you’ll likely build out human resource (HR) processes sooner than similar businesses would have in the past. This guide will explain the ropes of starting an HR department for small business owners to medium-sized business owners, with tips on hiring, budgeting, recruiting, company culture and onboarding.
Tip: While necessary, HR practices and departments create overhead costs for your business. Even if you’re primarily brick-and-mortar, create a business website to establish a digital presence that can unlock new leads and offset these costs.
What is human resources (HR)?
A single employee is a human resource. Human resources, therefore, describes all people who work for a certain company. Related terms include “human capital,” “personnel,” or “talent.” A company may have many assets—from physical buildings to equipment and brand recognition—but none is greater than the humans who make it what it is.
The term human resources (HR) also refers to the person or department that manages the people working in a given company or organization. HR handles the logistics of an employee’s relationship with a company, from the initial stages—recruitment, interviewing, selection and onboarding—to ongoing processes like training, performance management, health management, employee empowerment and compensation. It ensures that employees adhere to company regulations, as well as local, state and federal laws. For instance, if a new law changes the minimum wage in California, the HR person or department would navigate how it affects a company’s employees.
In brief, key aspects of human-resources management (HRM) include:
Communicating company values and vision
Working with management to identify areas of additional human-resource needs, and launching a recruitment and selection process
Assessing the impact of management decisions
Ensuring employee retention by developing company policies and culture that keeps staff happy, healthy and eager to contribute to team goals
How to start an HR department in 9 steps
01. Define your company culture
More broadly, HR creates a “company culture” (or corporate culture) that unites employees and management within that overarching vision of what the company is and what it should be. This concept reflects your company’s identity or personality. It comprises your workplace environment, mission statement, values and beliefs, ethics, vision, language and practices. Essentially, corporate culture is how the day-to-day of a company affects the lives of the types of people in an office and the surrounding community.
Company culture can refer to both formal and informal practices within a workplace, and takes place both online and offline, especially given the fact that many companies will continue to support remote employees in a hybrid model.
02. Establish a mission statement
A mission statement serves as a formal statement of a company’s values, purpose and the why behind every decision. It’s fundamental to a company’s success. Think Tesla “To accelerate the world’s transition to sustainable energy” or Patagonia “We’re in business to save our home planet”. You can write a mission statement for your own business, startup or passion project in just 5 simple steps.
03. Draft an HR department proposal and set goals
Setting up an HR department, like anything else, requires planning. As a business owner, you may start with one person, but think about how many staff members your department might need as your business grows. How much are you willing to budget for your HR practices, and what areas will fall under its purview? Summarize your available resources and HR goals in a statement and use it to guide your next steps.
04. Create HR policies
HR policies set the expectations employees and management must follow when working for a company. These policies may detail processes such as:
How to hire employees for your company
What counts as discrimination and harassment
How much paid and unpaid time off and leave employees can take in a calendar year
What ethical codes employees must follow
What disciplinary actions will occur in case of violations
When you have created these processes, document them in an employee handbook for reference.
05. Determine compensation and benefits
HR is responsible for defining the appropriate compensation, pay structure and benefits in a company. While some of these factors are required by law and vary from state to state, others are voluntary and depend on a company’s culture and priorities. The most common kinds of benefits are insurance (medical, dental, vision and life), retirement (401k, pension, IRA), paid time off (sick leave, vacation and holidays) and perks (like bonuses and gift cards).
06. Manage safety and health regulations
All U.S. workplaces must comply with both state and federal safety regulations under the Occupational Safety and Health Act (OSHA). HR departments must deal with these regulations to both protect employees’ wellbeing and protect the company from the damaging legal liabilities that result from noncompliance.
07. Outline hiring and recruitment processes
As your business grows, you will need to figure out how to hire employees for your company. For example, write effective job postings, identify the right candidates, make the right offers and define onboarding best practices for new hires. Your HR department will professionally manage the process, producing offer letters, employee information forms for payroll, employee eligibility verification (such as I-9s) and company-specific documents like non-disclosure agreements or non-compete clauses.
08. Use a payroll system
HR departments handle the logistics of regularly paying a company’s employees—an important task for both the employer and employee, as nearly two-thirds of Americans report living paycheck to paycheck and errors can cost owners in many ways, including IRS penalties. You can use a payroll management system to help you prevent costly errors and compensate your hard-working crew.
09. Produce deliverable metrics and review growth
Once you’ve set up an HR department for your company, it’s time to optimize and expand. Start by quantifying the most important aspects of your HR department’s work: metrics like time to hire, interview-to-offer ratio, offer acceptance rate, and cost per hire. Just as you seek to evaluate employees based on numerical, objective criteria, you’ll want to gauge your HR team’s performance based not merely on subjective assessments but on the numbers. Determine what worked and what didn’t, make the necessary changes and set goals for future growth—both for the HR department and for your business.
HR best practices
Good human resource best practices are the core of any strong business. They set a foundation of company culture and streamline processes at every level. Adhere to these best HR practices, regardless of your business size or industry
Selective hiring process
Nothing is more valuable than choosing the right personnel for the right position. A selective hiring process will ensure you find candidates with the appropriate training, necessary skills, and right workplace personality types to help your business thrive.
Fair, performance-based compensation
Once you’ve locked in a star hire and want to make sure they are both incentivized to perform and happy to grow with the company. Performance-based compensation (PBC) is a way to achieve both at the same time. The year-end bonus is one well-known form of performance-based compensation. If you want to know how to motivate employees, PBC helps your team go the extra mile because they will reap the rewards of a company’s success.
Another way HR departments can help retain employees is through employee empowerment initiatives. Some companies may choose to create an employee resource group or (ERG) for certain federally-protected groups to improve their business by making sure employees' voices are heard. A common ERG at companies is one that is set empowering women in business.
Looking for an HR candidate
Like any field, HR has its own pecking order, from fresh-faced, wide-eyed interns to VPs who have worked their way up the chain for decades. The most common HR positions include:
HR Assistant: First of the entry-level HR positions. The role usually involves administrative work to support the company’s HR team and employees.
HR Specialist: Focus on one department within the wider HR ecosystem. That could mean HR development, management, organizational development or benefits. For example, a benefits specialist would gain expertise in a given company’s benefits plans and be responsible for communicating it to current employees or new hires. Success as an HR specialist could mean promotion to Advanced Specialist, which often involves developing job descriptions for specific, technical roles, as well as training incoming specialists in a particular discipline.
HR Generalist: This generalist can boast intimate familiarity with several areas of the HR department. Folks in this role tend to handle many of the tasks typically associated with HR—compensation, inter-employee relations, company culture and the general functioning of the workplace environment.
Recruiter: Recruiters have a single task: to bring in talent to a company. A team of recruiters is typically overseen by a Senior Recruiter, a mid- to senior-level position that works to spot ideal candidates for available slots. These Senior Recruiters may be company employees or third-party contractors.
HR Manager: An HR Manager usually oversees a group of entry-level or mid-level HR employees. He or she frequently handles more complex HR tasks including creating and/or managing company-wide policies, values and culture.
HR Consultant: Usually an external consultant brought in from outside, this is commonly a subject-matter expert or one charged with ensuring a company abides by its own internal regulations, as well as local, state and federal laws.
HR Director: This is, the name suggests, a senior role, typically filled by someone who has worked in HR for much or most of her or his career. Often, the position is occupied by an HR Manager who has been promoted. The HR Director usually supervises all departmental activities, and reports straight to the CEO.
Recruiting Manager: The Recruiting Manager oversees a company’s recruiting teams—that is, they oversee all Recruiters and Senior Recruiters. The Manager is required to sign off on staffing plans, ensuring that all talent needs are met and all role gaps are suitably filled.
Vice President for HR, or Chief HR Officer: This position is frequently limited to larger companies and usually reports directly to the CEO. This VP or C-suite officer oversees the entire HR operation, and sets departmental goals from a 30,000-feet view.