Building An HR Department: A Step-By-Step Guide

4/19/2023

Building an HR department is an exciting and challenging undertaking that will help your company grow and perform better, but it takes a thorough approach, patience, and strategic thinking.

Lay faulty foundations of your HR function and you risk witnessing your business struggle over time or failing to reach the targeted success.

Even though you might start without a formal HR/People Ops team, it’s challenging to maintain that status if you plan to scale your company and grow your talent pool.

Building an human resources department encompasses hiring for various key roles covering hiring, compliance, compensation management, and administration.

There are certain things you need to address properly in order to build an effective team and ensure everyone does their part of the job efficiently.

Here we’ll cover:

Why having an HR department is important
A step-by-step guide for building an HR department

Let’s dive into why human resources lies at the core of every business and why you need this department.

Why is Having an HR Department Important?

HR departments have five principal functions: meeting staffing needs, employee compensation, employee benefits, performance assessment and appraisal, and law compliance. Their priority is to manage the needs and struggles of a company’s employees.

In that sense, the HR department handles the connection between the workers and the leadership. Moreover, the efforts, actions, and strategies of HR departments help increase efficiency and optimize performance, including in the area of legal and financial matters.

They’re responsible for identifying, attracting, recruiting, onboarding and training new employees and ensuring they match the job requirements and the company’s values.

Besides creating compelling job descriptions, evaluating job applications, and interviewing candidates, these teams must also keep up with the latest tech, marketing, and psychology trends and innovations.

This allows them to learn to use novel technologies and techniques and also to brainstorm new recruitment and candidate assessment methods and strategies.

Hence, professionals working in HR departments must keep their knowledge and skills sharp and continuously upgrade their capabilities.

HR Roles and Responsibilities

What will a properly functioning HR department help you with?

Employee relations. Human resources existence in a company is crucial because they help nurture safe a safe work environment, mitigate risks, resolve issues, and nurture employee productivity and motivation.
Employee development. HR professionals will play a vital role in developing your future workforce. Selecting compatible employees who understand your company’s goals and bottlenecks will make it easier to manage them and improve their performance. On the flip side, the average cost of a wrong hiring decision is at least 30 percent of the individual’s first-year expected earnings. That could impact your company’s finances, stability, and team cohesion.
Risk and compliance. HR departments also manage company risk by keeping all employment and employee management decisions and plans in line with national and local laws and regulations. They ensure that nothing breaches your company’s protocols in terms of hiring, compensation, and layoffs and that it aligns with your strategic objectives.
Compensation management. Employee benefits and salary negotiation are also crucial among HR’s responsibilities, which is essential for fair and timely payroll and relevant perks. However, these departments are typically in charge of employee training and development, a critical area for company growth and progress.

Without these professionals fostering and handling employee retention, succession planning and hiring skilled talent would be challenging.

As your organization develops, human resources or people operations or whatever you want to call the department will help support strategic decision-making when it comes to talent management and development.

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

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

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

1. 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 your current managers and leaders have in place.

Evaluate the following HR responsibilities and their performance:

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

Rate these functions from one to ten to understand how well your current team performs them or whether they exist in your company.

I recommend first taking into consideration any legal compliance issues and then strategy. That will help you discover where you need to expand.

However, you should also consider the questions below, as it’s possible that you don’t have to change everything or start from scratch:

What HR tools and processes exist in your company, do they need further enhancements and development or should they be replaced with more effective tools?
What’s the state of line management, do line managers have clear HR responsibilities and what are they doing in terms of talent management?
Do you have any talent management policies in place?
Does your company have employment policies and procedures such as an employee manual?
Does your company have policies that ensure the minimum work standards?
What are your company’s policy priorities?

Once you have assessed where your company lies concerning HR teams and practices, it’s time to create a well-rounded action plan. List out your business priorities and how having an HR department will help you reach them.

For instance, maybe you’re scaling up, striving to increase the number of employees and reinforce your units.

In that case, you’d want to consider how many recruiters you’re hiring and whether they should possess specialized skills, experience, and knowledge. For example, if you’re recruiting for engineering talent, a technical recruiter will likely add the most value for this hire.

Audit your current department’s roles, positions, and skill gaps. The insights you’ll gain from this process will further help to determine how many employees your new HR department should recruit and what requirements they should meet.

You should now have an idea regarding what the new department should achieve in the first months and any hires you need to make.

2. Systematize Employee Records and Develop a Record-Keeping Process

HR has the highly responsible task of handling the employee life cycle, which typically starts with employee records.

Because of that, you should know how many workers your company has and set up legally required documents to help you establish HR department development plans.

Remember that every worker will need their own 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—your HR teams should keep job applications, resumes, candidate assessments, and interview scripts. They should also know the local and national regulations to understand how long they should keep these documents.
Worker eligibility form—no professional is legally authorized to work in every country, as they will likely need a visa or residence permit for some. Create eligibility forms, as these will make it easier for your HR employees to understand who they can hire and whether they can target international job applicants.
Payroll documents—keep documentation, such as compensation statements, promotion letters, timekeeping records, and tax records.
Employee performance records—remind your HR teams to keep all written documents and information, including conversation scripts and emails.
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.

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

3. 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.

4. Develop the Basic Recruitment Steps and hiring process

Before your HR department is ready, you should know how they’ll conduct recruitment and what they’ll need.

Most selection processes have the same elementary seven steps:

Receiving job applications
Screening and pre-selecting candidates
Conducting interviews
Shortlisting top candidates
Running background and reference checks
Choosing the most compatible job applicant
Extending a job offer.

You should also know who will be involved in each of these steps and what documents and 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 pre-onboarding looks in your company, what happens during orientation on the first day, and what to do during the first week.

Moreover, set employee goals for the first three months and consider what they should accomplish by the end of the first year. Related read: How To Write A 30 60 90 Day Plan For Your Org’s Onboarding + Template

5. Determine and Document Employee Compensation and Benefits

Consider your employee salary and benefits structure and take the final steps toward formalization. When doing that, 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; you can include more well-rounded packages that include professional development, corporate discounts, flexible schedules, employee acknowledgment, and recognition programs.

With time, you can discuss with your HR department the additional employee perks and benefits as, in the beginning, it’s the most important to have the elementary offering.

6. Assess Your Tech Infrastructure

Although you may already use tech to some extent, having an HR department will require more, as you’ll have to streamline and ease their work. Because of that, you will have to invest in more complex HR systems, such as an applicant tracking systems or people analytics software.

Your HR software should 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.

7. 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.

8. 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.

9. 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.

10. Determine the Logistics of Building an HR Department

What are the skills and experiences your HR department personnel should have? For instance, HR managers should be detail-oriented, communicative, open-minded, and skilled in finding the most compatible candidates.

Senior-level HR professionals should be knowledgeable about employment laws, workforce regulations, and how to connect with stakeholders. Consider whether you’ll outsource your HR personnel or prioritize internal mobility.

Employees should have the necessary equipment and technology to perform their jobs efficiently. Ensure that the company can enable smooth work for everyone in terms of logistics (e.g., office materials and laptops).

Also, consider whether everyone will work in the office or remotely or you’ll leverage hybrid work.

11. Determine Priority Roles

What roles are a priority for your HR department? For example, if you’re scaling up rapidly, you will likely need more recruiters.

But if you want to tackle your strategic HR goals first, prioritize HR assistants and administrators. You may also already have employees who can transfer to HR with reskilling.

To Outsource Or Not To Outsource?

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

Outsourcing is often evaluated in the early stages of building out the HR team. Do we engage a professional employer organization or a contractor for certain functions e.g. payroll?

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

For example, if you’re planning on expanding internationally, then an employer of record 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.

Further reading: Outsourcing HR Benefits, Strategies, And Considerations

Wrapping Up

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 and through developing a great employee experience and enviable employer brand.

Start by assessing your company’s current state of HR, matching skills required vs your business goals.

A clear guide will ensure you move through each development phase progressively, not skipping any vital step and tackling your priorities first.

Some further reading to help you with this process and guide your thinking regarding HR:

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