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Best Practices for SMBs Setting Up an HR Department

Howard Goldstein
Howard Goldstein

Setting up your HR department properly can help create a good business culture.

For many budding entrepreneurs, the ability to build a human resources department, especially during the formative years of a business, is one of the most exciting perks of being a business owner. It not only signals growth for the business but also gives the business owner an opportunity to share his or her vision for the business with a team of like-minded individuals, which greatly improves the business's chances of survival.

Still, like many other milestones throughout the life of a successful business, starting an HR department can be quite the challenge. Because young HR departments eventually dictate the direction of the company culture, it's critical that business owners infuse their values early on when setting up their HR departments.

Plus, many employees hate HR. From red tape and bureaucracy to workplace biases by HR teams, HR departments are often cited as one of the reasons behind poor employee engagement and dissatisfaction, despite being custodians of a happy workplace.

Consequently, it's important for business owners to set up their HR departments for success from the get-go, making sure to cover everything related to the legal, financial and administrative components of a successful HR department.

Here are a few pointers to help any young business start off its HR functions on the right foot. 

1. Start with a comprehensive but lively employee handbook.

A company handbook, sometimes referred to as an employee handbook, is the most important resource for a business that is looking to bring in new hires. In addition to providing a working HR framework for your business, it helps set expectations for potential hires and provides guidance on your company's culture and core values.

With that said, an employee handbook should be more than an instruction manual. Many businesses often settle for dry, generic and boring handbooks that have been copied and pasted from other businesses, thus making them less likely to have any real impact. So, as a general rule, design an employee handbook that potential hires will want to read.

There are a ton of ways you can transform your handbook into a page-turner. For starters, give your handbook a title that both excites its readers and conveys your company's mission. Promote your company's employment perks and ensure the policies represent your company's values. Instead of a plain PDF, go for a colored printout for maximum effect.      

2. Ensure you're covered legally. 

For the most part, legal compliance doesn't become an issue until a business's HR-related functions have grown. In countries such as the U.S., a regular business will fall under the glare of numerous state and federal laws once it brings in more than 15 employees, which necessitates the establishment of sound legal policies from the start to help with regulatory compliance. Companies with fewer than 15 people should still follow certain guidelines

To help work compliance into your young HR department, start with the small things when building it up. Simple tasks, such as proper maintenance of personnel files, ensuring your employees are eligible to work and fulfilling all HR-related tax obligations, go a long way in keeping your business away from lawsuits.

Plus, depending on where your business is located, you can take advantage of different types of employee insurance programs to reduce liability. In many states across the U.S., employees who fall sick or get injured and are unable to work receive compensation from the state, usually using the 2/3 rule. So, as long as your business has subscribed and keeps up payments to this program, employees aren't allowed to sue your business, which means you'll potentially avoid a lawsuit while safeguarding the wellbeing of your employees.

3. Go the extra mile in hiring.

At the end of the day, your shiny new HR department will only ever be as good as the people charged with running it. As such, it pays to be extra picky with the person you bring on board to manage the process, especially if you're lucky enough to afford a full-time HR manager to oversee operations.

Unlike other staff members, your HR manager's experience, education, HR-related certifications, and familiarity with compliance and employment laws should be above board. But don't stop there. Put candidates through cognitive ability tests and conduct blind reference checks to gather more information about your candidates. Employment credit checks, which have become quite common recently, can be quite useful too. An employment credit check lets you peek into a prospective candidate's payment history, which makes up 35 percent of typical credit scores, to determine things like integrity and suitability for sensitive roles. If you do look at credit scores, make sure you're doing so legally

While things like employment credit checks and blind reference checks can seem over the top, they can go a long way to align your young HR department with the best talent and improve your chances of success in future.  

The bottom line

Setting up an HR department is by no means an easy feat. The process, even for the smallest businesses, involves a ton of moving parts that can easily drain human and financial resources

Taking up the services of an attorney who is conversant with employment laws within your country is a smart early step. In addition to keeping your business away from lawsuits later on, a good attorney will help you navigate the complexities around creating a staffing plan, remuneration and benefits structures, and also help you fine-tune your hiring procedures when you're starting up.

Image Credit: fizkes/Shutterstock
Howard Goldstein
Howard Goldstein Member
Howard Goldstein is the Chief Executive Officer of Priceless Funding Group. Mr. Goldstein has been in the business lending industry for over 20 years in a career that has helped hundreds of businesses launch and grow. Mr. Goldstein aims to help business owners get the capital that is needed with the terms that are deserved.