What You Need to Know About HR For Startups

Eric Mochnacz
August 23, 2021

Needless to say, COVID-19 presented the human resources world with unique challenges that have never been With the career uncertainty related to the COVID-19 pandemic and the “Great Resignation” upon us, it’s no surprise that there are people who are ready to bring a new idea or product to the market as a startup founder.  As the founder begins to strategically identify key milestones and success markers, intentionally growing the team becomes critical for the success of the business.  The key question is if and when the business decides they need regular access to a Human Resources professional to provide ongoing HR support to drive the business forward, manage the people operation, and ensure compliance with rules, regulations, and laws that apply to a greater degree as a business grows beyond its founder. 

What is HR Management?

Human Resources is an essential function in every organization. Employees know that their HR department is Simply put, HR Management is the business function of an organization that is responsible for managing everything to do with its people.  Depending on the school of thought of the HR professional or the philosophy of the business, they define HR responsibilities differently.  Some people believe their purpose in a business is to process payroll, administer benefits, and manage employment paperwork.  A more strategic, and modern, approach to human resources involves the HR team playing a key strategic role in the growth and evolution of your company.  Your HR resource is involved in leadership meetings, drives strategic HR support initiatives, and is highly involved in all employee lifecycle processes.  The employee lifecycle ranges from recruiting to separation, and everything in between, like performance management, career laddering, and compensation planning.  Additionally, as a startup business owner, you may expect HR to drive employee engagement and company culture initiatives.  Red Clover best serves startups by serving as a strategic partner and focusing on innovative solutions to drive the business forward while implementing impactful, sustainable process improvements across the employee lifecycle.

The Role of Human Resources in Startups

As each startup is different, so are their unique HR support needs.  However, regardless of your specific people-related burning platforms, a startup wants to work with an HR consulting firm that has direct experience working with startup founders and their workforce.  HR support for a startup requires an HR team who is going to roll up their sleeves and get into the nitty gritty of creating a human resources department from scratch.  

Although HR may not be an immediate priority for the typical startup founder, by building your HR team early, you have the unique opportunity to build your business and build a foundation for your people operation simultaneously.  A strategic HR partner can develop employee lifecycle processes that work when you’re at 5 headcount and are sustainable and repeatable when you reach 100 employees.  And, they are doing it directly with you, so together, you can preserve the business’s vision and goals as they work on developing your people-facing processes.  As a startup grows, the owner gets further and further from the day to day operation, so this is an ideal time for you to be involved in the early stages of HR development, providing your vision, so HR can take it and run with it.  Again, so your first hire has the same vision-driven experience as your fiftieth employee.  Even though they joined the company at different stages of growth, they can say they had a consistent, positive experience and didn’t feel like they had applied for two organizations that felt vastly different from each other.  

When Should a Startup Hire Its First HR Person?

Although you may not need a full-time HR resource until you hit 50 people, since that number triggers a variety of employment laws, it doesn’t mean you should scale to 50 without part-time HR support.  For example, you may hire a fractional HR resource to help you develop company policies that will predate an employee handbook, which you will eventually need.  And even when you hit 50 employees, it may make more financial sense to partner (or continue to partner) with an HR consultant, rather than make an internal hire, as they come at cost savings.  You save money on payroll taxes and benefit costs.  Additionally, depending on your area, the ROI on a full-time HR Manager’s salary may not be the best investment for a company that is still growing.  

We have worked with a number of companies who have leveraged their office managers to run the standard HR functions – payroll, benefits, and onboarding paperwork.  But eventually, the owner needs a strategic people partner.  Or the office manager reaches their capacity as the workforce reaches critical mass.  Or the office manager and the owner don’t have the experience or knowledge to run a recruitment process, have a disciplinary conversation with an employee, or create a performance management process.  That’s when the startup knows it’s time to hire an HR consultant.  

The Importance of Human Resources For Startups

Human Resources can prove a valuable business function for startups in their infancy in the following ways –

Policy Development

As you build your business, you need to develop policies that will guide how you and your teams work. You conceive these policies, and HR articulates them while also making sure they comply with any current statutory policies that exist on the state and federal levels.  Startups often want to create policies that demonstrate their vision, commitment to culture, and core values.  So, HR can help you create policies and procedures that are culturally aligned.  For example, you may want to develop a “Pets At Work” policy.  Having experienced HR will help you develop a legally compliant policy that still contributes to the employee experience and demonstrates your unique vision for the business and its people.

Recruiting and Onboarding

For any company, making your first hire is exciting and it’s the perfect time to get the recruitment process right the first time.  Skilled HR can develop a comprehensive recruitment process, develop accurate job descriptions, and guide interviews.  HR can also direct and drive strategic conversations on projecting headcount and planning your future workforce, both short-term and well into the future.  To ensure a consistent candidate experience, HR can then manage new hire transitions into the workforce by developing an in-depth new employee onboarding process to set your new employee up for success.

Performance Management and Compensation Planning

Although we recommend keeping performance management and compensation planning as separate conversations, they are complementary, and having these processes clearly outlined from the business’s inception is conducive to scalability.  Performance management is the ongoing process by which you evaluate your people’s performance and how you set goals for their future progress.  It’s also how you gauge their ability to progress through the organization, whether through additional responsibilities, position change, or promotion.  Compensation planning is the financial process where you evaluate the job market to pay your employees appropriately and determine the accepted methodology for increasing their compensation based on progress towards business goals.  Having these structures mapped out before you begin building the workforce can provide a framework for how you evaluate and recognize performance. 

Our Subscription HR Support Program

Red Clover is able to offer a variety of HR Support services to guide the human resources function of companies of any size.  Our subscription program allows startups to engage with certified HR professionals at a cost and make an hourly budget that makes sense for a small business.  If you’re a startup looking to partner with a qualified team who can help you build your people processes, and your business, from the ground up – Red Clover is ready to partner with you!  Reach out to learn more about our fractional HR subscription program.

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