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Building an HR department is an exciting and challenging undertaking that will help your company grow and perform better.

Here I’ll take you through the reasons why an HR department is important and how to build one or expand yours.

Why Is Having An HR Department Important?

HR departments are responsible for a lot, including:

  • Recruitment
  • Onboarding new employees
  • Learning and development
  • Creating and updating company policies
  • Processing payroll (sometimes)
  • Maintaining employee records
  • Compensation and benefits
  • Performance management
  • Employee and labor relations
  • Ethics and legal compliance
  • Advising on employee retention strategies
  • Offboarding.

Ultimately, a strategically aligned HR department will make you more efficient and help ensure the right talent is in place to meet organizational goals (and that they have what they need to succeed).

If talent is the lifeblood of your organization, then human resources is like your haematologist(s)!

So, if you're just starting out or need to enhance your existing HR department, here’s how you can approach it.

Your Step-by-Step Guide For Building An HR Department

  1. Get clear on your needs
  2. Assess the current state of HR in your org
  3. Hire priority roles
  4. Systematize employee records
  5. Formalize your basic HR policies
  6. Develop basic recruitment and onboarding processes
  7. Determine and document employee compensation
  8. Assess your tech infrastructure
  9. Evaluate compliance protocols
  10. Develop employee handbook
  11. Establish your L&D plan

1. Get clear on your needs

Whatever stage you’re at, it’s good practice to first get a clear understanding of what your immediate needs are and how an HR department can help you achieve your objectives moving forward.

It’s generally thought that you need at least 1 HR person per 100 employees, but this ultimately depends on the needs of your organization.

If you’re just starting out, I’d recommend at least one experienced HR generalist who can build processes, write policies, and help you remain compliant.

Next will probably come a specialist recruiter with experience in your industry.

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2. Assess the current state of HR in your org

If your company already has an HR department and you want to expand it, start by gauging the policies, initiatives, procedures, and strategies you currently have in place.

Evaluate the following HR responsibilities and their performance on a scale of 1-10.

  • Implementing policies
  • Human resource planning
  • Recruitment
  • Administrative responsibilities e.g. payroll
  • Performance management
  • Compensation management
  • Employee learning and development
  • Career planning
  • Employee function evaluation
  • Stakeholder and industrial relations
  • HR compliance
  • Employee engagement and communication
  • Employee health and safety
  • Employee wellness and well-being.

Next, perform a skills gap analysis to get a clear understanding of roles, positions, and skill gaps.

The insights you'll gain from this process will help to determine how many employees your new HR department should recruit and what requirements they should meet.

3. Hire priority roles

Now you have the lay of the land regarding your business priorities and skills already present, it’s time to address any skills gaps.

For example, if you’re predominantly recruiting engineering talent, a technical recruiter will likely add the most value for this hire.

In addition to the usual (compliance, recruitment, etc.), here are some key human resources skills to look out for during the hiring process that you might not have thought of:

  • Business acumen
  • Data analytics and reporting
  • Networking
  • Coaching.

4. Systematize employee records and develop a record-keeping process

Now the right skills are in place, it’s time to start building out processes and getting the house in order, so to speak.

Every worker will need a personnel file. In the past, that document had a paper form, but most companies have digital records today stored in an HRIS/HRMS, or similar.

The examples below are some of the documents you should have, and that will make it easier for your HR department to perform its tasks:

  • Recruitment papers
  • Worker eligibility form
  • Payroll documents
  • Employee performance records
  • Employee termination records 
  • Employee training and development completion records
  • Documents about disciplinary actions.

Every HR department should keep these documents and have easy access to them. You can discuss this with team leaders and line managers and collect enough data to develop the elementary base.

Working with your IT unit to develop employee records online storage is also necessary. That ensures accessibility and data privacy.

5. Formalize your basic HR policies

You may be starting with zero information or have limited data on policies your HR department should follow. 

The following should be the starting base, but you can add more as your company grows and recruitment needs increase.

  • Employee attendance
  • Work hours
  • Recruiting
  • Employee performance management
  • Employee overtime
  • Employee termination
  • Leave Protocols
  • Employee succession
  • Non-discrimination policy
  • Employee conduct
  • Data privacy and confidentiality
  • Probation time
  • Health and workplace safety policy
  • Illicit substances policy

Over time, you might realize that you can tie two or more policies into one. As a general rule, they should always be concise, easy to understand, and available to all employees.

Use our list of HR policy examples to help you develop and update yours.

6. Develop basic recruitment and onboarding processes

You need to put in some kind of formal recruitment process. Most selection processes have the same elementary seven steps: 

  1. Receiving job applications/sourcing candidates
  2. Screening and pre-selecting candidates
  3. Conducting interviews
  4. Shortlisting top candidates
  5. Running background and reference checks
  6. Choosing the most compatible job applicant
  7. Extending a job offer.

You should also know who will be involved in each of these steps and what documents and recruiting tools they’ll be using.

Consider the questions they should ask and the documentation they should collect in each phase.

The next step is to outline the onboarding process and the stages your HR departments should cover.

For instance, they should know how preboarding looks in your company, what happens during orientation on the first day, the extent of required paperwork for new hires, and what’s mandatory for everyone during the first week.

Beyond that, I recommend each new hire has a 30-60-90 day plan to guide their onboarding.

7. Determine and document employee compensation and benefits

Review your employee salary and benefits structure and take the final steps toward formalization. Consider the following:

  • Employee hourly wage and salary
  • Employee retirement saving
  • Health insurance
  • Employee well-being fund
  • Paid time off
  • Employee raises and bonuses.

You can also take into consideration different financial incentives, such as stock options, travel reimbursement, profit-sharing, employee attire, and relocation packages. 

Employee rewards don't necessarily have to be monetary either. You can include more well-rounded packages that include professional development, corporate discounts, flexible schedules, employee acknowledgment, and recognition programs

Over time, you can review data and collect employee feedback to fine-tune your total compensation offering. In the beginning, it's the most important to have the elementary offering. 

8. Assess your tech infrastructure

Your HR department will benefit from specialized HR software to relieve the administrative burden and help automate processes.

This could be an applicant tracking system to help streamline recruitment or a learning management system to aid in training and development.

Your HR software should help enable payroll management, workforce management, data keeping, performance management, candidate screening/tracking, team communication, and employee learning and development. 

Keep in mind that this tech must be legally compliant and in line with your company and HR needs and pain points.

9. Evaluate compliance protocols

HR departments are among the key players in aligning your company's operations with employment laws and requirements. 

Make their job easier by assessing the compliance guidelines and your current practices. 

Compare your existing policies with the latest legal regulations and adjust or implement procedures that ensure you recruit and manage the workforce according to the law.

10. Develop an employee handbook

Create an employee handbook, include the elementary workforce policies, and share it with your new HR department and employees. 

This document should also encompass information such as your company's culture, vision, missions, background context, employee rights, and responsibilities.

You can use employee handbook software to help you create and update yours.

11. Establish your L&D plan

HR teams help support employees to obtain new skills and knowledge and progress in their careers. 

As a result, you should start establishing your learning and development (L&D) program while building an HR department.

Consider your L&D goals, the company's skill gaps, and what competencies are necessary to reach your strategic business objectives.

Talk with your employees about their ambitions and interests, as that will help you outline their career paths.

Develop a well-rounded training framework, including the L&D content and materials.

Here’s a great read to help you develop your learning and development strategy.

To Outsource Or Not To Outsource?

Some organizations opt to outsource either all or part of their human resource function. 

Outsourcing HR is often evaluated in the early stages of building out the HR team. Do we engage a professional employer organization (PEO) or payroll company for certain functions?

The answer depends on the experience and remit of your in-house HR team as well as your strategy, goals, and timeline of the business.

For example, if you’re planning on hiring internationally, then an employer of record (EOR) will likely be a good idea.

At times, budget constraints may arise. In this case, you can engage support for various functions that are simply part of a service or product.

Engaging a benefits broker that acts as an extension of your benefits function is a great example of this.

Building An HR Department Will Pay Dividends

Building an HR team is an exciting and challenging undertaking that will help your company grow and perform better.

Even if you’re a small business or early-stage startup, having an HR department will pay dividends by keeping you on the right side of compliance, ensuring your talent needs are met, and helping you develop an enviable employer brand.

If you're thinking about outsourcing, then check out our picks of the best PEOs and best EORs to help get you started.

Couple of useful articles to help you on your journey:

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Jaimie Green
By Jaimie Green

Jaimie is a seasoned, C-Suite experienced, Global Human Resources Executive. She possesses extensive experience in building successful people operations programs that include designing, managing, and facilitating. She has proven success in creating cultures of collaboration and implementing change to achieve workforce excellence. he has a track record of coaching in the areas of transformational leadership, communication, team building, and managing change. Her industry expertise includes technology, manufacturing, engineering, and hospitality. Jaimie is a results-focused leader who delivers solutions that help companies harness the full power of one of their most valuable assets – their people.