How to set up your first HR department in 3 simple steps

As a small employer just starting out, you may quickly realize that you’re wearing many hats and handling tasks that are typically managed by a dedicated HR department. At some point, you’ll need to bring on an HR professional to help with the myriad of tasks related to HR so you can focus on growing your business. Here’s how to set up your first HR department in three simple steps. 

If your business is growing at a pace that surpasses your capacity to manage HR tasks effectively, it’s a clear sign that it’s time to establish your first dedicated HR department. This comprehensive guide will walk you through the steps of setting up an HR team, prioritizing tasks, and setting them up for success. And according to industry insights, once your organization reaches around 10 employees, it’s advisable to bring on a full-time HR professional to support your growing business.

According to ADP’s Ad Hoc Human Resource Management Study, a staggering 70% of small employers rely on ad hoc HR managers (aHRMs) who juggle HR responsibilities alongside their regular job duties. Here’s what that means. The aHRMs are employees (or the owner) forced to juggle their “day jobs” with business-critical tasks like payroll, time tracking, employee reviews and benefits – usually with no certified HR training.  Surprisingly, 54% of these aHRMs are none other than the business owners themselves.

While initially cost-effective, serving as an aHRM or taking on HR tasks solo can quickly become overwhelming. Balancing recruitment, screening, onboarding, and performance management alongside other job responsibilities is simply not sustainable in the long run.

The study also revealed that only one in five small employers acting as aHRMs felt truly confident in their ability to handle HR responsibilities without errors.

How to set up an HR department

When your business starts growing at a pace that outstrips your capacity, it’s a clear sign that it’s time to establish your first dedicated HR department. To help you kickstart this process, our comprehensive four-step guide will walk you through setting up an HR team, prioritizing tasks, and equipping your new department for success.

According to Indeed, once you have 10 employees, you need to bring on a full time HR professional to help. 

What does an HR team do?

Human Resources (HR) plays a critical role in organizations by managing the people-related aspects of the business. The responsibilities of HR can vary depending on the size and structure of the company, but generally include the following:

Recruitment and Staffing: Attracting, sourcing, and hiring the right talent for the organization. This involves creating job descriptions, posting vacancies, conducting interviews, and selecting candidates.

Employee Onboarding: Facilitating the integration of new employees into the organization by providing orientation, training, and ensuring they have the necessary resources to perform their job.

Employee Relations: Addressing workplace issues, conflicts, and grievances. HR professionals often act as mediators and work to maintain a positive and productive work environment.

Performance Management: Developing and implementing processes for evaluating and managing employee performance, including setting goals, conducting regular performance reviews, and addressing areas for improvement.

Training and Development: Identifying training needs, organizing professional development programs, and fostering a culture of continuous learning to enhance employee skills and competencies.

Compensation and Benefits: Designing and managing compensation structures, salary reviews, and benefits packages. HR ensures that the organization remains competitive in terms of attracting and retaining talent.

Policy Development and Compliance: Creating and maintaining workplace policies and procedures to ensure legal compliance and alignment with organizational goals. HR professionals stay informed about employment laws and regulations.

Employee Engagement: Developing strategies to enhance employee morale, job satisfaction, and overall engagement. This includes organizing team-building activities, recognition programs, and employee wellness initiatives.

Diversity and Inclusion: Promoting diversity and inclusion within the workplace by implementing initiatives and policies that ensure fair and equal treatment for all employees.

HRIS (Human Resources Information System) Management: Managing HR systems and databases to track employee information, payroll, benefits, and other relevant data.

Succession Planning: Identifying and preparing employees for future leadership roles to ensure a smooth transition of talent as the organization evolves.

Legal Compliance: Ensuring that the organization complies with labor laws, regulations, and employment standards. HR professionals often handle issues related to workplace safety, discrimination, and harassment.

Employee Exit and Offboarding: Managing the departure of employees through resignation, retirement, or termination. This includes conducting exit interviews and handling administrative tasks related to the departure.

Employee Communication: Facilitating effective communication between management and employees, as well as among team members.

HR plays a pivotal role in shaping the organizational culture, managing talent, and fostering a positive work environment. The HR department acts as a strategic partner to the business, working to align people strategies with the overall goals and objectives of the organization.

Set the foundation for a strong workplace culture

This is the fun part! Creating a company culture is a deliberate and ongoing process that involves shaping the values, behaviors, and attitudes within an organization. Here are some steps to help you create a positive and impactful company culture:

Define Your Values: Clearly articulate the values that are important to your organization. These values should guide decision-making and reflect the principles that are essential to the company’s identity.

Lead by Example: Leadership plays a crucial role in shaping company culture. Leaders should embody the values and behaviors they want to see in their employees.

Involve Employees: Include employees in the process of defining and shaping the company culture. Encourage their input, feedback, and involvement in decision-making.

Communicate Openly: Foster transparent communication. Keep employees informed about company goals, challenges, and successes. Create channels for open dialogue and feedback.

Establish Core Behaviors: Identify and communicate specific behaviors that align with your values. Encourage employees to demonstrate these behaviors in their daily work.

Recognition and Appreciation: Recognize and appreciate employees for their contributions. Celebrate achievements, both big and small, to reinforce positive behaviors and a sense of accomplishment.

Provide Opportunities for Growth: Support professional development and growth opportunities for employees. This can include training programs, mentorship, and opportunities for career advancement.

Create a Positive Work Environment: Foster a workplace that promotes collaboration, inclusivity, and respect. Consider the physical environment, as well as policies that contribute to employee well-being.

Encourage Work-Life Balance: Promote a healthy work-life balance. Respect employees’ time outside of work and encourage practices that prioritize well-being.

Celebrate Diversity and Inclusion: Embrace diversity and inclusion as integral parts of your company culture. Create an environment where everyone feels valued and included.

Team-building Activities: Organize team-building events and activities to strengthen interpersonal relationships and create a sense of camaraderie among employees.

Flexibility and Adaptability: Cultivate a culture that is adaptable to change. Encourage flexibility and innovation, and be open to trying new approaches.

Feedback Loops: Establish regular feedback mechanisms to gather insights from employees. Act on constructive feedback to show that their opinions are valued.

Social Responsibility: Engage in corporate social responsibility initiatives. Demonstrate a commitment to making a positive impact on the community and the environment.

Continuous Evaluation and Adjustment: Regularly assess your company culture and make adjustments as needed. As the organization evolves, so should its culture.

Remember that company culture is a dynamic and evolving aspect of an organization. It requires ongoing attention, reinforcement, and adaptation to align with the changing needs and goals of the company and its employees.

How to organize important employee documents

Next comes a crucial but less thrilling task – setting up and organizing the employee files that your HR team will oversee. Overall, there are three specific types of employee files that need to be established and maintained: Employee I-9 forms, personnel files, and medical files.

What to include for I-9 forms

The Employee I-9 form serves as a crucial document for verifying the identity and employment eligibility of individuals hired by your organization in the United States. It is a legal requirement to have a completed I-9 form on file for every employee, regardless of citizenship status.

Employers must maintain all employee I-9 forms for a specific period and be prepared to provide them for inspection by authorized government officials when necessary. To streamline the process, it is advisable to keep all I-9 forms in a centralized file, making it easily accessible for your HR team to manage and refer to as needed.

What to include in personnel files

It’s important for your HR department to establish and upkeep individual personnel files for each employee. This ensures that all their information is easily accessible in one centralized location, especially if they decide to leave your organization.

Here are just a few things you might include in your employees’ files:

Resume and employment applications: A copy of the original job application and resume submitted by the employee.
Offer letter and employment contracts: Formal documents outlining the terms and conditions of employment, including job responsibilities, compensation, and benefits.
 W-4 Form: Employee’s tax withholding form used to determine the amount of federal income tax to be withheld from their paycheck.
I-9 Form: Employment Eligibility Verification form to verify the identity and employment authorization of new hires.
Payroll records: Payroll-related documents, including pay stubs, direct deposit forms, and records of any salary changes.
Employee handbook acknowledgement: A signed acknowledgment indicating that the employee has received and understood the company’s policies as outlined in the employee handbook.
Performance reviews and appraisals: Records of the employee’s performance evaluations and feedback.
Emergency contact information: Contact details for individuals to be notified in case of an emergency.
Training and development records: Documentation of training programs, workshops, and other professional development activities attended by the employee.
Disciplinary records: Any documentation related to disciplinary actions, warnings, or performance improvement plans.
Benefits enrollment forms: Documentation related to the employee’s enrollment in health insurance, retirement plans, and other benefits.
Leave requests and approvals: Records of approved leaves of absence, including vacation requests, sick leave, and any other time-off requests.
Resignation or termination documentation: Records related to the employee’s resignation or termination, including exit interviews, if conducted.
Certificates and licenses: Copies of any professional certificates or licenses relevant to the employee’s position.
Workplace accident or injury reports: Documentation related to any workplace accidents or injuries the employee may have been involved in.

What to include in employee medical files

Another crucial aspect to consider is establishing individual medical files for each employee, which your HR department should maintain.

These files include any information related to health or medical issues. Here are a few examples:

Applications for insurance
Doctors’ notes excusing an employee from work
Medical examination information
Information related to disability

Confidentiality is critically important when it comes to maintaining your employees’ files, with a special emphasis on safeguarding medical information. Many of these records fall under the category of protected health information (PHI).

The HIPAA Privacy Rule establishes federal safeguards for personal health data held by entities like employers, outlining strict guidelines on when this information should be disclosed.

Once you have organized all necessary employee files, your HR team can focus on implementing competitive employee benefits and perks. In order to attract and retain top talent in your industry, offering appealing benefits is crucial.

Now, let’s delve into some of the top employee benefits options in the upcoming sections.

Group health insurance

Group health insurance is a widely favored choice for employer-provided health benefits. Under a traditional group health plan, the employer purchases insurance and extends it to eligible employees and their dependents.

Employees appreciate group plans due to their familiarity with group health insurance, and the cost is usually divided between the employer and the employee. However, the drawbacks include the potential expense of group health policies, as the risk is concentrated within the organization and its employees, leading to annual increases in premium rates.

Health reimbursement arrangement (HRA)

A health reimbursement arrangement (HRA) is a tax-free health benefit strategy that enables employers to offer a healthcare reimbursement allowance for employees to use on eligible medical expenses, such as individual health insurance premiums. These arrangements are more affordable and scalable for small businesses.

There are two new flavors of HRAs that are rising in popularity among employers like you:

Qualified small employer HRA (QSEHRA)
Individual coverage HRA (ICHRA)

Top 12 employee benefit ideas to include in your HR strategy

The top 10 employee benefits can vary based on industry, company size, and location. However, some commonly valued benefits include:

Health Insurance: Medical, dental, and vision coverage are often considered essential benefits. Comprehensive health plans contribute to employee well-being.

Retirement Plans: 401(k) or pension plans help employees save for their future. Some companies also offer employer contributions or matching.

Paid Time Off (PTO): Vacation days, sick leave, and holidays contribute to work-life balance and employee satisfaction.

Flexible Work Arrangements: Telecommuting, flexible hours, and remote work options can enhance work-life balance and improve job satisfaction.

Professional Development: Opportunities for skill development, training programs, and educational assistance can help employees grow in their careers.

Life Insurance: Basic life insurance or supplemental coverage provides financial protection for employees and their families.

Employee Assistance Programs (EAP): EAPs offer counseling and support services to help employees manage personal and work-related challenges.

Wellness Programs: Health and wellness initiatives, such as gym memberships, wellness challenges, and mental health resources, promote a healthy workforce.

Parental Leave: Paid time off for new parents, including maternity and paternity leave, supports work-life balance for employees with growing families.

Stock Options and Equity: Stock options or equity grants align employees’ interests with the company’s success, fostering a sense of ownership and commitment.

Technology reimbursement: For employees working remotely, consider providing a stipend to support their success. This enables you to cover expenses like internet access, cell phone bills, and home office setup costs, ensuring they have the necessary tools to excel in their roles.

Professional development and learning reimbursement: Encourage your employees to continuously develop their skills by offering stipends for professional development opportunities. These stipends typically cover expenses such as conferences, workshops, tuition, or mentorship programs. Additionally, consider providing a transportation stipend to help employees save on work-related travel costs like gas.

It’s essential for employers to consider the specific needs and preferences of their workforce when designing a benefits package. Additionally, cultural and social trends may influence the popularity of certain benefits over time.

Providing employee benefits can boost job satisfaction, enhance the overall employee experience, and result in decreased turnover rates, ultimately cultivating a more positive and productive workplace environment.

How to create an employee handbook

The final task on your HR department’s checklist is crafting an engaging and informative employee handbook. While handbooks may not be the most riveting read, it’s crucial for new employees to absorb this essential information thoroughly. Your HR team’s mission is to create a handbook that is not only easy to digest but also memorable, ensuring that new hires grasp the vital knowledge needed for success in the workplace.

If you find yourself uncertain about what to incorporate into your handbook, here are a few suggestions to guide you in the right direction.

Your company’s mission, vision, core values, and history
Onboarding processes and cadence
Procedures and resources for new hires
Overview of tools used in your organization
Payroll information
Dress code
Vacation and leave policies
Benefits overview, including health, vision, dental, 401(k)

You’ve got this

Establishing an HR department from the ground up may take time, but the rewards for your business are well worth the effort. Once you’ve implemented the four steps outlined above, your HR team will be equipped to efficiently manage your organization’s operations, freeing you from the burden of handling every HR task yourself.

By investing in the development of a robust HR department, you’ll ensure that your organization has the necessary HR expertise to attract, retain, and comply with regulations.

If you’re considering offering employee benefits, Let Take Command assist you! Our HRA administration software solutions are designed to streamline benefits management for organizations like yours, making the process quick and easy.

Check out our employee benefits guide for more helpful tips!