People & Leadership

How to set up an HR team: A step-by-step essential guide

Everything you need to know about setting up an HR team, in 15 essential steps.

We all know that HR is more than just ‘fire and hire’. It’s responsible for one of the company’s biggest assets: its people.

If you’re a business owner who is in the process of getting your company off the ground, or perhaps the head of finance or operations tasked with creating an HR function from scratch, this step-by-step guide will take you through everything you need to know.

This guide is also useful for anyone who may be a company’s first HR hire and is thinking about the task ahead and what needs to be done to create an established HR practice in a company.

There are four phases to setting up an HR function. We highlight them in this article.

Here’s what we cover:

Phase 1: Understand your business and define objectives

1. Crystallise the company’s mission and values.

Decide, with your senior leadership team, what you want the culture and ethos of your company to be and then include everyone.

Grant Weinberg is the VP Talent Acquisition at Eikon Therapeutics. He’s established HR departments in 13 different regions.

He says: “There’s the initial step of setting up the vision, mission, and values of the company at leadership level, but then you need to bring in the broader organisation to co-create the employee experience.”

This will be your guiding light in everything that you do.

2. Define your HR objectives

Set business goals and align your HR goals to them. Decide what you want to achieve and be transparent.

Setting your goals early will determine what size HR function you need and will define everything else that HR does.

3. Decide when the right time is to make your first HR hire

Typically, the general rule of thumb is to have one HR employee per every 70 to 100 employees, but to also have someone in place once you reach the 15 to 25 employee mark.

Consider what your HR needs are both now and in the future and what HR capabilities you’ll need to put in place to meet them.

The kind of HR function you create will all depend on what you are trying to achieve and by when.

Phase 2: Everything you need to do to build your HR function

4. Decide if you buy in or outsource HR

Look at what you need and decide the best and most cost-effective way of achieving it at certain growth points, whether that’s resourcing in-house or externally.

“If you are a tiny company, what are your immediate HR needs?” asks Grant.

“And if you are a growing company, what’s the cadence of HR support that you will need at the different points of the company size, growth, culture, compliance needs?

“One thing you have to decide is: do I need an HR person full time, or can I buy a part-time HR service?”

5. Decide if you need an HR generalist or a strategist

Your first hire is incredibly important as this will dictate what kind of HR function you have. Do you want a top-level strategist or someone who can execute and turn their hand to several responsibilities?

Not investing the time in finding the right person could cause you more problems down the line.

For Andy Salter, MD of multinational publishing company DVV Media International, which began life in 2011 with just 36 people and now has more than 100 employees across four countries, the priority was to have a generalist HR manager who understood the publishing industry.

“Our HR manager has been a part of our senior management team from day one,” he explains. “While everyone was in a rush to grow the business, she always ensured that we steered the business in the right direction.”

6. Understand your legal requirements

Understand your legal requirements. Failing to comply can result in hefty fines, loss of productivity, a tarnished reputation and even imprisonment.

Andy says: “[Our HR hire’s] first few months was all about getting our policies in the right shape, getting compliance right, and making sure our legal contracts were all set up effectively.”

Phase 3: Ready, set, go – how to deliver against your HR plan

7. Create an HR plan

Create a detailed action plan so that all the key stakeholders are on the same page.

Clearly set out your tasks, time frames and owners. Assess your skillset, map out your career architecture and pay structure, create training strategies, plan talent management and establish your succession plan.

Think of your HR plan as a practical, tactical tool that can help you determine exactly where you’re going and drive your business forward.

8. Establish legally required systems

Compliance needn’t be too cumbersome or expensive with the right HR tech.

Alternatively, you can choose to outsource systems such as compensation, payroll, sick pay, holiday and paid time off while you get on your feet and before you buy the technology in-house to do them yourself.

If you choose to invest in HR tech, think about selecting the right system that will help you make better decisions for your company as you grow.

9. Map out your career architecture and pay structure

In a rush to onboard people, often new businesses hire too quickly and, before they know it, they are too top heavy,

salaries are inconsistent across the organisation, which can lead to resentment and de-motivated workers, or there’s an imbalance of skills in the organisation and the company is not as productive as it should be.

Mapping out your career architecture and pay structure is important and needs to be done early on in your company’s lifecycle.

Map out what kind of skills you need and what the career architecture of your business should look like to ensure you hire the right people, pay them fairly and don’t run into problems later.

10. Build a hiring plan and get the right people in at the right time

Know when you need people in and understand that it will take them a while to be recruited, onboarded and up to speed.

Hiring someone can be fast but onboarding them is a different matter.

You may need to wait for someone to complete their notice period, so you’ll need to find a way to cover the work in this period.

There will always be delays that occur that are out of your control.

But you can make the onboarding process as quick and efficient as possible, so new employees can get up to speed, work productively and feel happy about their choice of employer.

11. Create your HR policies and a handbook

Take the time to create a well-defined framework of policies. These will support cultures of trust, fairness, and inclusion by outlining the responsibilities of both employer and employee.

They also safeguard your company against any unethical practice or potential litigation. Live and breathe your policies – showcase the type of behaviour and conduct you want from your employees.

Andy warns: “If you are looking to sell your business in the fullness of time, you don’t just need to look at your financial records, but also your HR policies, disciplinary matters and health and safety policies.

“You need to show you have a good HR system and retain all your evidence otherwise you will run into problems, which will put buyers off.”

12. Create an employee handbook

Make sure your employee handbook explains what your business is and what it stands for.

It should be easily accessible and part of the onboarding process for all new recruits.

Phase 4: Get set up to grow and future-proof

13. Establish performance management strategies and processes

Have a performance management strategy in place, and make sure your managers are having continuous performance conversations.

A regular system of reviewing employee performance will help fix the gaps that could be affecting your growth.

14. Set up your HR metrics

What does success look like? What key performance indicators (KPIs) do you need when it comes to your people? Are you looking to reach a certain headcount, have certain skills, diversity targets, etc?

Decide what metrics will help your business and make sure you’re using HR technology that can scale with you as you grow.

Whatever your goals, the right HR data will help you reach them.

Consider how you’re setting yourself up for the future and ensure you’re collecting and analysing data in a secure single source of truth.

15. Monitor, measure and optimise success

Regularly revisit short term and long-term company objectives. Ensure your HR function is always supporting and contributing to your company goals.

It can be easy to get caught up in business as usual, but in real life, nothing is usual about business.

There are market challenges, competition, changing consumer habits and digitalisation, and businesses must be agile enough to develop, innovate and progress.

Off you go

Your people are the lifeline of your business, and HR is a vital function to direct and steer them.

However, you choose to implement your HR, with the right intention, you’ll create the business you always wished for with your biggest asset set up for success – your people.