Most startups do not open with a Human Resources (HR) department. It is understandable, considering that startups do not have a well-developed business model nor sufficient capital to proceed to the subsequent phases of development.

Funds are limited, so investing in an HR department is not financially practical. However, it does not mean startup founders should ignore HR until the business grows. HR processes are essential to startups and could solve the top reasons why small businesses fail.

Entrepreneurs looking for a new hire must remember various key techniques and strategies to secure the best team members. Setting up an HR team in a startup is a good way for new business owners to optimize their hiring process, among other things.

So before commencing the new employee onboarding process, new business owners should familiarize themselves with basic HR policies for startups.

The information below details the best HR strategies and policies for new businesses. It will also outline the importance and role of HR professionals in companies.   

Role Of HR In Startups

There are 4 basic functions of human resource management.

1. Planning

It often involves anticipating hiring needs, determining recruitment sources, creating job descriptions and employment contracts, recruitment and selection, etc.

2. Organizing‍

It involves assigning functions to employees, coordinating teams, delegating authority, and developing employees so they can work towards a specific company goal. 

3. Directing‍

It stimulates employees to work well and remain motivated toward company goals. It could mean offering benefits, career plan strategies, and employee welfare plans.

4. Maintaining‍

It demands creating a safe and healthy work environment by regulating activities in accordance with results, statistics, grievance reports, etc.

Importance of HR Department In Startups

Some startup entrepreneurs contemplate the need for HR processes. They have to weigh cons like financial challenges and the changing business landscape. An HR function in startups has multiple advantages which highlight significance, such as:

●  Streamlining the hiring process

‍Hiring new employees, even for startups, can be a challenge. Without an outlined procedure, it can take too much time and capital. An HR function will handle all aspects of hiring employees, reducing the time and money spent.  

●  Developing employees' skills and competency

‍Recognizing the need to improve employees' skills and then employing methods to do so is an HR function that will enhance the company's performance.

●  Improving employee retention rates

‍Effective HR functions can make workers feel heard, appreciated, motivated, and connected to the company. Employers will be able to retain their employees.

●  Encouraging a deeper understanding of labor laws

‍HR functions help employers understand labor laws better. It is especially beneficial when hiring remote employees from foreign countries, where these regulations differ.

●  Defining company culture

‍HR is in charge of outlining company values and beliefs and the appropriate way to behave in the workplace and then enforcing them.

●  Streamlining payroll processes

‍HR ensures employees are paid on time, using a mutually convenient payment method.

●  Improve the chances of a challenge-free company expansion

‍Employers should anticipate growth; an HR function can help smooth the process.

●  Reducing the chances of conflict and misunderstanding‍

from unclear documentation of company policies. Once HR develops and documents policies, employees have a clear definition of the work culture and can adjust themselves to it.

How To Set Up HR Function In Early-Stage Startups

The best way to set up an HR function in the initial stages of a startup is with a detailed checklist. It covers the essential HR tasks and company policies.

HR Checklist For A Startup

●  Recruitment Plan

A good recruitment plan should outline how to write job descriptions, flexibility and perks, and the use of hiring and payroll software, especially for those offering remote work. 

●  Procedures and Policies

Employers in startup companies must develop an employee handbook outlining the code of conduct, sexual harassment, sick leave, health and safety, and disciplinary and termination.

●  Training and Performance Management

Employers must develop a plan that reviews employees' performance regularly. Then, managers can use the information to develop training programs that will help improve employees' performance and skills. It is a great way to engage the workforce and increase employee retention.

Worth Noting: Many experts consider HR a function business owners can outsource. Some encourage startups to outsource HR to save money while enjoying the benefits. It is a practical choice considering that a small company's HR workload will be minimal. With time, it can develop into a department as the company grows.   

HR Challenges For Startups

1. Policy Implementation

The process of converting intention into action is challenging. It takes time and acceptance to implement a new code of conduct and policies, even in startups.

To overcome this, some employers ask for employees' recommendations and then use the information to make policy templates, edit them, and implement them. They are also taking up HR trends from similar-sized startups. Documentation of said policies plays a key role and prevents issues as the company grows.

2. Employees' Perception

It is not uncommon for new HR departments to be met with adversity. Employees in startups can form a close working allegiance where any new addition is treated like an outsider. HR departments in such situations are seen as untrustworthy management 'spies or puppets.'

Some startup owners hold individual meetings with employees to learn their concerns and perceptions of HR. Employers then use this information to enhance the employee experience regarding HR for a better work environment.

3. Measuring The Effectiveness of HR

Management may also face the challenge of evaluating the effectiveness of HR and policies to determine if the function is a necessary investment. Some employers are turning to the 4Cs of HRM to tackle the problem.

The 4Cs of The Harvard HRM model is one of the most influential approaches to human resource management. The 4Cs of HR policies were developed in 1984 from the book 'Managing Human Assets' by Michael Beer, Richard E. Walton, and Bert A. Spector.

Harvard researchers proposed this model to evaluate the effectiveness of HRM processes. There are many interpretations of the 4Cs applied to human resource management. But the basic model includes:

●  Competence

Competence seeks to answer 'how competent are the employees in their duties?' Performance evaluations will help employers determine the level of competency among team members. Then, knowledge, skill, and abilities (KSA) training and development will make employees perform better.

●  Commitment

Are the employees committed to their roles and the company? HR can measure employees' integrity, motivations, and identification with the organization through individual interviews and surveys. Record information on absenteeism and complaints can further highlight this information.

●  Cost-effectiveness

How cost-effective are HRM policies regarding benefits, wages, turnover, strikes, and similar aspects? It is crucial, especially where HR-associated costs are relatively higher than others. It will call for an analysis of the profitability and the actual cost of various department-based activities.

●  Congruence/ Common

Is there a consensus between employees, company goals, and primary philosophies? The frequency of strikes, grievance reports, manager-subordinate conflicts, or employee conflicts highlights incongruence.

A Final Observation

It is not financially practical for startups to create HR departments in the early stages, but outsourcing is a convenient way for small businesses to get HR functions.

In addition, startup founders can use HR software like Workpay to access functional human resource processes and advisory for their businesses. Workpay's HR feature helps businesses manage remote and in-house employees' information.