Image of Strategic HR's wheel of HR Services, including HR Strategy, Recruitment, Training & Development, Benefits & Compensation, Communications, Employee Relations, Recordkeeping & Legal Compliance, and Health, Safety & Security

How To Set Up The HR Function In Your Company

Updated November 2021

HR Question:

Our company doesn’t have an HR department yet. How do you set up the HR function? How do you know when you need HR? 

HR Answer:

Before you set up the human resources (HR) function for your organization, there are several questions you need to ask yourself:

  • Who does or will handle the HR function for your business? Does that still make sense?  Depending on the size of your organization, this is often the owner/CEO, accountant/CFO, office manager, HR professional, or an outsourced partner. 
  • How many employees does your organization have?  Are you growing? As you add headcount there are additional employment laws that must be followed, reports/forms to complete, and programs to administer that are driven by your employee count. For more information, see our Federal Employment Laws Resource by Employee Count. Regardless if you have a formalized HR department, your organization is responsible for maintaining legal compliance.
  • What are your current employee and employment-related challenges? Are you struggling to recruit employees? Are there issues amongst your employees and/or management affecting productivity or services?  Are you struggling to retain good employees? How are these issues currently being addressed?

It is important to understand why you need HR and how it will support your company strategy as you prepare to set up your HR function. Once you have answered the questions above, you will be able to approach your next steps with a better understanding of your areas of strength and opportunity. 

7 Key areas to address as you set up your HR function

There are 7 key areas of human resources to consider in developing your HR function. You should think about who (if anyone) is handling these and determine if they are being accomplished successfully.  Each of these areas should align with your company’s mission, vision, and values:

Image of Strategic HR's wheel of HR Services, including HR Strategy, Recruitment, Training & Development, Benefits & Compensation, Communications, Employee Relations, Recordkeeping & Legal Compliance, and Health, Safety & Security
  1. Recruitment – Also known as Talent Acquisition, recruitment encompasses the process of attracting and hiring talent to fill your staffing needs. This includes the development of job descriptions, an employment application, job postings, interview guides, evaluation forms, and offer letters.
  2. Training and DevelopmentPrepares employees for success in their current jobs and/or helps them to develop skills for their future roles and responsibilities. This can include new hire orientation, employee and management development, position-specific training, succession planning, and much more.
  3. Benefits and Compensation – When designed carefully and in line with market trends, these play a critical role in attracting and retaining employees. This involves developing/overseeing pay structures, incentive pay, payroll, PTO, insurance, retirement, and other perks.
  4. Communications – Provide critical information to keep employees informed, engaged, and aware of company policies and expectations. This can include developing/maintaining your employee handbook, hosting staff meetings, publishing company newsletters, etc.
  5. Employee Relations – Involves creating and maintaining a positive and productive organizational culture as well as a safe work environment. This can include developing/implementing performance management systems, coaching, discipline, anti-discrimination policies and training, employee surveys, and retention strategies.
  6. Recordkeeping & Legal Compliance – Includes maintaining employee records and employment-related processes in addition to ensuring compliance with all local, state, and federal employment laws. 
  7. Health, Safety, and Security – Provide processes and procedures to minimize or eliminate your workplace safety and security risks as well as programs to foster the overall health and well-being of your employees. This can include managing workers’ compensation, COVID-19 protocols, safety programs, and employee wellness programs.

Need help setting up your HR function?

Depending on the size of your organization and your business goals, you may need all or only some of these areas of HR covered at varying levels of time and expertise. 

At a minimum, you should have someone to:

  • Obtain state and federal mandated posters
  • Create personnel files for each employee
  • Create separate files for I-9s and medical information
  • Identify key policies and procedures for your business
  • Develop an employee handbook to keep everyone on the same road map for expectations
  • Assemble the basic forms needed for all employees – I-9, emergency contact, W-4, state tax form
  • Establish a workers’ compensation and unemployment account (varies by state)
  • Determine a process or solution for paying employees (in-house or payroll provider) including withholding taxes and garnishments, reporting new hires, meeting minimum wage requirements, tracking/reporting time worked, assuring exemption status
  • Assess/bid/administer benefits you will offer employees (paid time off, insurance, retirement, etc.)
  • Provide regular feedback to your employees regarding the business performance and their individual performance in their job

How do you know if you need HR?

Again, these are the very minimum HR responsibilities that have to be covered.  As your business grows, you need to consider whether it makes sense to have the current person(s) continue to perform these duties or if it is the right time to bring in someone with specialized HR knowledge.  To help you determine this, reread the three questions you asked yourself at the beginning of this article. See if your answers point to the following pain points:

  1. HR responsibilities are taking up too much time from someone’s “real job” in your business.
  2. The areas of HR that are currently being handled are not being done well and your employees or your legal compliance is suffering. 
  3. Your business is growing quickly.

If you are experiencing any of these pain points or just want to get HR off your plate, consider if it makes sense to outsource this function, hire an HR employee, or maybe it’s a combination of both.  Outsourced HR professionals bring a vast amount of knowledge and experience from having worked in a variety of industries and often have a great number of resources from which to support businesses.  They can provide anything from a “call when you have a question” approach to being your full- or part-time HR representative.  

When you reach a certain number of employees, hiring an HR professional may make economic sense.  The typical rule of thumb is one HR person for every 70-100 employees, but this varies. The Society for Human Resource Management (SHRM) recommends you get HR help when you reach 15-25 employees. Regardless of when you choose to set up the HR function and add HR staff, if your employees are valuable to you, we recommend that you have HR report to the CEO/President to ensure HR has the support needed to protect and support your employees as well as your organization.

It can be daunting to create your HR function without worrying that you may be forgetting something important. Strategic HR has helped countless small companies start or grow their HR function. Let us share our years of experience getting HR “off the ground.” Request a free HR consultation.