Many small businesses handle most of their hiring, recruitment, and employee management processes without the help of a dedicated HR department. 

However, the management of human resources is an integral business function that deserves its dedicated department. Without one, your small business risks fines for non-compliance, poor employee development and retention rates, and low employee morale. 

These are just a handful of reasons why having a clear human resources strategy is necessary to help your business run smoothly and many of the risks associated with managing a team of employees. 

Key Takeaways

  • HR departments manage the hiring and recruitment of new employees, are involved with performance management reviews and are responsible for making sure that employees are satisfied to retain them.
  • HR departments will likely vary in size depending on the size of the company, your HR department should include the following job roles: hiring manager, recruiter, and coordinator.
  • HR is not just a cost center, but an integral business function for businesses of all sizes. Investing in HR software early, especially in the early stages of your business, helps you focus on day-to-day tasks, and handles automated tasks such as payroll and time and attendance process.

Why Create a Human Resources Department?

Human resource management
Source: Investopedia.com

Having a clear set of goals and priorities in place helps your business function properly. But too often, HR processes become an afterthought that creates multiple long-term costs. 

HR departments manage the hiring and recruitment of new employees, are involved with performance management reviews and are responsible for making sure that employees are satisfied to retain them. 

Training and development are also a major responsibility,  as well as the overall safety and wellness of employees and the administration and management of benefits and employee perks. 

These are all incredibly important processes that need to be managed carefully. ere are just several reasons why even the smallest businesses need a functioning HR department.

Ensuring Compliance

Many employment regulations vary from country to country and state to state. Ensuring compliance yourself, without extensive knowledge of rules and regulations, means risking mistakes and violating these regulations.

A good human resources department should have a clear understanding of the rules and regulations that are crucial for hiring staff. Since these rules often change over time, it’s important to employ professionals who understand the landscape.

Attracting and Retaining Talent

Creating an environment where people are happy to work is extremely important. While you may already know how difficult it can be to attract new people, you also need to make sure that new hires stay at your company and continue to thrive.

This means adapting strong onboarding procedures for new employees, managing their talents, and directing them to tasks that are value-added not just for your company but also for the employees themselves. You also need to be able to track how well employees are performing, and areas for improvement.

Fostering A Healthy Work Environment

Your employees deserve to work in a place where they feel secure, and where they can raise issues or grievances that will be dealt with appropriately. A healthy workplace environment — which includes the implementation of employee recognition initiatives, a good work/life balance, and high levels of engagement — also means that employees are far more likely to stay with your company.

How Do You Set Up a Human Resources Department?

Why Create a Human Resources Department?
Source: Matchr.com

It’s important to keep in mind that you need to build your HR department around the needs of your business, employees, and industry. The following steps are vital in creating your own small business HR department:

Formulate an HR Staffing Structure

HR departments will likely vary in size depending on the size of the company, but you need to make sure that you have all of the necessary roles filled. These include the following job roles:

  • HR manager
  • Director
  • Hiring manager
  • Recruiter
  • Coordinator

While one person can wear many of the hats above, it’s crucial to find the right HR professionals for each role that can support your growth and acquisition goals. You may find that some of your existing employees can fill these roles, but make sure that you also have a plan in place for plugging any skill gaps.

Create HR Processes

Keeping clear HR processes in place for attracting, sourcing, recruiting, onboarding, and training talent is important. You also need human resources processes in place for handling the off-boarding of employees ― even if you could retain everyone, the reality is that people sometimes move on to new roles. You need to establish processes to make sure that knowledge gained is transferred to new people. You don’t want an entire employee’s history to leave with them.

Established HR processes help you make better and faster decisions, ensure that employee actions are best aligned with the strategy and goals of the company, and ensure that your business is staffed adequately.

Set KPIs for Your HR Department

Establishing key performance indicators (KPIs) is a good way to measure the effectiveness of your HR processes. There is a range of different things that you’ll likely want to track in your organization, including:

  • The amount of time it takes to hire people
  • Employee retention employee satisfaction
  • Employee absenteeism
  • Employee performance and productivity

Choose an HR Software Solution

Choosing the right HR software solution is crucial to managing your HR department. Not only do HR tools save you time on monotonous yet often complex tasks, but they also help you remain compliant with regulations.

Below are some example software solutions that can help you handle many of the responsibilities necessary for running your Human Resources operations:

Zenefits: Manages everything from benefits to time and attendance and handles taxes and deductions.
Built for Teams: Manages your organizational charts and helps you establish structures for your company.
GetHired: This solution provides a variety of HR functions including applicant tracking, onboarding, time and attendance, and benefits management.

How Do You Delegate HR Responsibilities?

One of the hardest things for business owners to be able to recognize is when to delegate. Most entrepreneurs are self-made people and are used to handling high-level tasks themselves. However, at a certain point, it becomes necessary to move certain tasks into the hands of trained professionals

When Is the Right Time to Begin Delegating?

Once you’ve reached approximately 10 employees, it becomes harder and harder to be able to keep track of all the nuances of employment law. You need to make sure that the payroll is accurate.

You may be able to leave some of this up to managers, however, once you have more than one manager, you might discover that each handles employees differently. It makes more sense to have some solid policies in place that can only be handled by a trained department that handles any of the employment processes. This not only keeps you compliant, but it can also improve morale.

How to Avoid Common HR Mistakes

Of course, simply starting an HR department may not be enough. There are several possible pitfalls.

Hiring the Wrong Person

When you hire an HR professional, it’s just as important as any other position you fill. The person should fit the company culture. A bad HR person ― or just one who isn’t a good fit for your business ― can cause a lot of damage. It is crucial to evaluate the educational and professional background including the relevant accomplishments of the applicants to make sure that they are the right person for the job. 

Bad Job Descriptions

Make sure you provide job descriptions that fit the job that’s being filled. Provide information about what’s expected to prevent people from quitting soon after being picked up.

Poorly Organized Onboarding

Getting started in a company is a stressful time for new employees. Make sure they’re given adequate resources and time to be able to be acclimated not just to the work but also the company culture. Make sure you leave adequate and well-defined time where a person has time to learn and become educated for the role.

Lack of Performance Documentation

You need a process in place for performance reviews. Clear expectations and clear guidelines for employees not only help ensure that work is being done properly, but that people are growing in their roles, and that they continually improve along with your business.

No Employee Handbook or Poorly Managed One

Make sure you have employee policies and procedures well documented. You need to address a myriad of legal issues including anti-harassment policies, anti-discrimination policies, rules about vacations, and more. You need to make sure that your background checks adhere to all of the area’s legal requirements.

Ignoring Employment Laws

This doesn’t need much explanation. If you violate the law, not only can you be sued, but your entire business could be at risk. Make sure your business is legally compliant.

Classifying Employees Incorrectly

Make sure to understand the rules in the area regarding overtime, exempt and non-exempt employees, and what full-time and part-time guidelines you follow for different types of staff. Make sure that if you’re using contract employees, their rights are also being respected. Not doing this correctly can cost you plenty in the long run.

What To Do Next: Setting Up Your Small Business HR Department

This guide covers the first few steps you’ll need to take when establishing your HR department. As you grow, you’ll need to adjust these processes to ensure compliance, and also to make sure that your employees are satisfied.

HR is not just a cost center, but an integral business function for businesses of all sizes. Investing in HR software early, especially in the early stages of your business, helps you focus on day-to-day tasks, and handles automated tasks such as payroll and time and attendance processes.

Luckily, many affordable HR systems on the market can help you run your HR department. If you’re ready to start your software search, we’ve made the process even easier: Our experts have reviewed 110 of the best HR solutions to help you find the right solution for your needs.

Check out this collection of useful resources on HR.