How should you think about HR for your startup? It’s about creating plans, policies, and processes that meet short-term needs and budgets while taking into account long-term risks and goals for your "human resources". Startups rarely have dedicated HR staff, and often one person who may or may not have experience in HR handles hiring, payroll, benefits, grievances, promotions and other employee-related tasks.
It's also just not very common for startups to prioritize HR as a concept! Captain401 is also a startup itself, so we've thrown in some links to articles that we've found helpful even while developing our own HR policies.
For some context:
- Silicon Valley is Growing Up: What This Means for Startup HR
- The $404 Million Mistake: Why Startups Need HR (GoCo)
- When to Hire HR
Some or all of the following categories generally fall under the umbrella of human resources:
- Organizational design: Who will report to whom? How will teams and sub-teams be structured?
- Recruitment and onboarding: How are we going to find great new employees? How do we make sure they're set up for success?
- Compensation and benefits: What's fair and realistic in terms of compensation? How should we decide what to offer?
- Employee relations: Are employees happy? Who represents their interests?
- Compliance, health, and safety: These sound intimidating, and that's because they're important! How to make sure you're all safe, legally and physically.
- Training, development, and performance management: As employees stay with the company, are they growing and developing at the right pace, for both their personal goals and the goals of the company?
This post will look at a few essential HR items that a startup needs to consider in the short-term and how these elements can help set your business up for long-term success.
Organizational design for startups
No, you don’t need to have an all-encompassing organizational structure in place when you open your business; however, a simple company structure document will assist you with current and future decisions related to workforce planning, outsourcing, and succession plans. Investing some time now in creating a design for your organization will provide a strong, clear organizational foundation upon which your business can grow.
- How Your Startup's Org Chart Changes Your Product
- Counterpoint: Why Your Startup Org Chart is Pointless: Makes some great, valid points and even explains the processes you should follow if you do decide against a formal organizational chart.
Recruitment and onboarding
You may not be hiring a lot of employees at first, but it’s important to have an idea about how you’ll post open positions, make hiring decisions, and onboard new employees. Even for the first employee you hire, there are critical elements you need to have in place:
- Offer letter
- I-9 legal employment verification
- Employee data for payroll purposes
- Relevant employment agreements including non-compete, intellectual property, confidentiality, non-solicitation agreements.
- Equity paperwork (we recommend eShares to help with this)
Startup compensation and benefits
After you’ve recruited employees, you need to entice them to stay with your organization. One way to do that is by offering competitive compensation packages, including health care and retirement benefits. For compensation and benefits, you’ll want the following to be in place:
- General outline of your salary structure
- System for managing and processing compensation and payroll
- Paid time off policy for vacation, sick, and holidays
- Health and retirement benefits, or a plan to make them available
- Captain401's Own Employee Benefits Policy
- How Much Does an Employee Cost?
- Pros and Cons of 401(k)s for Startups
With all the excitement of launching your business, you may not be able to imagine a day when an employee comes to you with a grievance; unfortunately, it will happen. Make sure that from the first day you have:
- A policy outlining the standards of business conduct
- A method in place for gathering feedback or complaints
- A plan for how you’ll address issues if they arise
Traditional HR: Compliance, health, and safety
Fair employment practices and a safe, healthy workplace are all critical elements of employee productivity. As an employer, you are subject to federal and local labor regulations related to compliance, health, and safety. Startups are not exempt from record-keeping related to healthcare reform, tax codes, and labor laws.
As part of those laws, employers have a responsibility to prevent workplace injuries and illnesses and comply with the Occupational Safety and Health Act (OSHA). The U.S. Department of Labor (DOL) provides information about workplace safety requirements on their website.
Some examples of basic workplace safety considerations include:
- Emergency action plan
- Sufficient exit routes
- Safe walking and working surfaces
- Medical and first aid supplies (as appropriate for the specific workplace)
Employment policies not only help protect a startup in the event of potential litigation, they also establish a precedent and understanding among your employees about what behavior won’t be accepted. With a small number of employees, it may seem unnecessary to create formal policies, but there are at least two standard policies that a startup should have in place:
Check out the DOL’s FirstStep Employment Law Advisor to help determine which major Federal employment laws administered by the DOL apply to your business, as well as recordkeeping and reporting requirements, and which posters you must post. Labor and employment regulations change often. Be sure avoid mistakes, delays, and legal action by working with an HR or legal expert who can provide you with the information you need to ensure you are complying with necessary regulations from day one.
Training, development, and performance management
When you’re getting your business off the ground, you’re not as concerned about training and developing your employees…and you may not think about managing their performance until there is a performance issue. But if you ignore these two important components of an HR plan, it’s likely you will regret it.
By your first anniversary of being in business, you should have a performance management method in place so that you can provide employees with a review of their performance, as well as offer them an increase in pay related if their performance warrants it. To facilitate employee growth, and consistent improvement for your business, it’s also important to make a commitment to establishing a plan for employee training and development. It doesn't need to be expensive or all that elaborate; but if you wait too long, you risk losing employees who are focused on increasing their skills and developing their careers.
Using an HRIS
To effectively manage these HR-related aspects of your business, it’s prudent to have a human resource information system (HRIS) that will allow you to recruit employees, track their time, pay them, and manage benefits. HR software can help small businesses automate administrative tasks, record-keeping, and compliance tracking. Most cloud-based HR technology solutions offer options for mobile access, tools for talent management, as well as employee self-service access that makes an HRIS a useful tool for all members of the organization.
This article provides a review of the five “best HRIS for small business” as well as helpful information about what’s involved in selecting the best HRIS for your business. Start by checking out these HRIS solutions that are designed specifically for small businesses:
A word of caution about selecting an HRIS: before you begin the search process, make sure you identify your needs (separate from your nice-to-haves), your existing systems, and what HR data you must track. It’s easy to get overwhelmed and over-sold when it comes to HR tech.
Don't let a limited budget or the fact that you have a small team fool you into thinking that you don't need to worry about determining an HR approach for your startup. Find an attorney or HR consulting firm that can assist you in setting this area of your business up for success, or at the very least, do some online research about best practices. With some luck and a lot of hard work, your company will start to grow and expand. That's when you'll be grateful that you took the time to put an HR plan, policies, and infrastructure in place.
Related article: Startup Founders’ Early Stage HR Roles and Responsibilities