How to Build an HR Department from Scratch

Do you own a small business? 

Do you have an HR Department? 

If you have a company but do not yet have an HR department in please you may not even know where to start. What we will cover in this video and essay will be how to build an HR department from scratch. What is the most important part? What are your greatest needs? We will cover that and more. 

Something we have experienced is being in a company with no HR. It’s not pretty. To make matters worse, if you do decide to hire an HR professional at some point if you do not already have a process and procedure in place for that HR employee to pick up and run with, I can almost guarantee you that they will become overwhelmed and quit.  

If you hire an HR Professional, you want to essentially hand them a package of your HR department as it is. That means you need something in place to give them. That way, they know where to start.  

If you hire an HR professional, they come in on day one, and you say OK well that’s it get started, with nothing in place? It will not be a pretty picture. The better option would be, that you hire an HR professional, and over the previous few years had worked with an outsourced HR team like CYB to build the basics of the HR department already. That way, when you hire a new HR professional, you can say you will be tasked with updating and reviewing all of our HR processes, here is what we have so far. That is a much less overwhelming task for anyone.  

Here is a quick story from a real-life small business as stated on SHRM. A perfect example of what I have personally experienced: 

“When Lewis Cabinet Specialties in Tremonton, Utah, hired Greg Hawkes as its first full-time HR director, Hawkes had a surprising reaction: “I was overwhelmed,” he recalls. 

This feeling wasn’t prompted by the people he’d be working with, the company’s owners or the business itself. Lewis is a well-regarded family-owned business. Hawkes’ uneasiness stemmed from the sheer amount of work he was facing in organizing HR for the 94-employee company. When he started with Lewis, Hawkes discovered that its HR activities focused only on payroll and managing time off. “The whole HR department was a couple of hanging folders, a lot of sticky notes and a few folders on Google Drive,” he says. 

Hawkes’ experience illustrates a key consideration for anyone taking on the task of creating an HR function from scratch: By the time business leaders realize that HR is about more than paying, hiring, and firing employees, they’ve usually put some building blocks in place. At the same time, creating the remaining capabilities requires a tremendous amount of planning. As a result, many HR professionals who’ve built an HR department say the job begins with reviewing what the company has already, cleaning it up as necessary, and expanding it to meet the organization’s needs.

In Lewis Cabinet’s case, the company’s “aha” moment occurred when one of its owners decided to manage HR himself. When he saw that everything was “sticky notes and e-mails,” Hawkes says, the owner realized “We need somebody who knows what they’re doing and can devote their entire job to this. We can’t just give this to our accountant. We can’t just give this to our customer service manager. We need a full-time HR person.” 

For business owners, hiring a full-time HR professional may feel like an immediate solution to their workforce challenges. But for the practitioner, organizing HR and tuning it to operate effectively requires time, patience and careful consideration. On top of that, it requires a step-by-step plan to identify what’s being done correctly and what isn’t, what needs to be changed, and how HR will grow with the organization over time.” 

As you can see, this is a common occurrence among small business owners.

Eventually, you will get to the point of needing HR. You don’t want to wait to that point to start thinking about it for the first time. Preparation is HUGE in this type of situation, that is where working with an outsourced HR professional like us at CYB comes in handy. You don’t need to hire a full-time employee, we are used to working with small businesses and simplifying what they already have in place. At that point, we can more clearly see what is missing and assist in moving forward.  

The first step of How to Build an HR Department From Scratch at your business is to review what you currently have in place.

Any policies, procedures, processes, job descriptions, handbooks, etc. When we first start working with a client, the first thing we have them do is get together everything they currently have whether that is one sticky she or an entire drive of HR paperwork. Once we review what they currently have in place we can create a game plan for the next steps. 

An example that I have seen is A company that had been incorrectly administering the family medical leave act.  CLICK HERE to visit our HR Library.

As stated on dol.com: “The FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave. Eligible employees are entitled to: 

• Twelve workweeks of leave in a 12-month period for: 
  • the birth of a child and to care for the newborn child within one year of birth; 
  • the placement with the employee of a child for adoption or foster care and to care for the newly placed child within one year of placement; 
  • to care for the employee’s spouse, child, or parent who has a serious health condition; 
  • a serious health condition that makes the employee unable to perform the essential functions of his or her job; 
  • any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter, or parent is a covered military member on “covered active duty;” or 
• Twenty-six workweeks of leave during a single 12-month period to care for a covered servicemember with a serious injury or illness if the eligible employee is the servicemember’s spouse, son, daughter, parent, or next of kin (military caregiver leave).” 

CLICK HERE to download the FMLA guide for employers. Keep in mind, this applies to companies with 50 or more employees.  

In the situation I am referring to, the company themselves was not making employees aware that they may be eligible for FMLA. That is a huge problem. Business owners need to let their managers know what to be looking for when it comes to FMLA. For example, if a manager overhears one employee telling another that their parent is seriously ill and that they are thinking they need to quit their job to take care of them, that manager needs to stop in and let the employee know they may be eligible for FMLA and they need to speak to HR. If they do not do that, and the employee quits, there may be a significant legal issue. I have seen employees get attorneys after realizing that they did not need to quit their job. They would have been eligible for FMLA if they knew about it. In this specific instance, it was found that the employee was eligible for backpay which the company had to pay. This is a great example of something that if you are not an HR professional you may not have the knowledge surrounding it. That is why it is so important to have someone who is a full-time HR professional on your side.  

The second step in how to Build an HR Department From Scratch, we take one building a client’s HR out, following the gap analysis, is to begin creating a suggested path of moving forward. CYBHR certified HR professionals will prioritize what needs to be put in place.

Typically, our first step when working with a client is the employee handbook. Our belief is as most other HR professionals, is that an updated employee handbook that is industry specific is the basic building block of your HR. And employee handbook allows a small business to record all policies and procedures in one place. That way, all issues are addressed in a simplified, consistent, and legally compliant way. 

Much of the time, organizations may have ways of doing things that are not documented. These informal practices should be formalized. They need to be written down to defend business decisions that the owner may make. If your employee handbook says things are to be done a certain way, that is the way they should be done. If they are not done consistently, it essentially invalidates the rest of the policies in the handbook. All policies should be followed. That being said, your policies must be policies that make sense for your business and the individual managers who will be implementing the policies. That is why we find it very important to include all levels of management in the creation of the employee handbook. Our experience has been that the process is much cleaner when the management team and its entirety has had a say in the creation of the policy itself. 

There are a few options when looking outside for HR help.  

As stated on SHRM, “Creating an HR department and function at your business for the first time can be a daunting task. Regulatory requirements can be as complex as they are voluminous. Many experts say that the effort is simply too involved for one person to take on alone.  

On top of that, once HR is established in an organization, it must be managed. Even as practitioners are keeping up with changing laws and evolving best practices, they must see to the day-to-day work involved with handling payroll, managing benefits, recruiting, hiring, onboarding, completing performance reviews, tracking Family and Medical Leave Act leave … and the list goes on.  

The good news is that business owners don’t have to do everything themselves.  

Here are a few widely used options: 

Professional employer organizations, or PEOs, provide HR services under a co-employment model. This means they become your “worksite employer” while your organization remains the “employer of record.” Under this arrangement, the PEO administers areas such as payroll, benefits and regulatory filings. In practice, it also manages risk by keeping up-to-date on changing employment rules. To be sure, engaging a PEO can distance employees from your company, water down your culture and require HR to manage an outside organization. Also, PEOs may not be a good fit once you surpass 100 employees, suggests Kyle Killingsworth, SHRM-SCP, principal of Catalyst Consultant Group in Oklahoma City. “PEOs are one-size-fits-all,” he says, and employers with more than 100 workers may need more-tailored solutions.  

HR consultants can achieve similar results to PEOs but are often engaged to take on a narrower scope of work. For example, some consultants may specialize in designing an HR function and policies, while others focus on creating employee handbooks or talent acquisition or employee relations plans. Consultants can take a lot of work off your shoulders, but, like PEOs, they can also meet resistance from employees who prefer that their benefits, performance reviews and the like are overseen by the company directly.  

General outsourcing involves farming out specific responsibilities to a third party. For example, many small and midsize businesses hire outside companies to process payroll or manage benefits. The advantages: A lot of paperwork is taken off your shoulders, and compliance can be more easily managed. The disadvantages: You depend on vendors to complete often-sensitive tasks correctly and on time.  

When deciding whether to pursue any of these options, you’ll have to consider the cost. And over time, like any area of your business, you’ll need to regularly re-examine the decision. 

Finally, the most important part of how to Build an HR Department From Scratch, humans. As I always like to say, human beings are notoriously unpredictable, you can have all of the proper processes procedures and compliance in place however you can never fully be prepared for everything. Our best advice to our clientele is to cover your bases the best you can work hand-in-hand with an HR professional to be sure that you are prepared for the worst while you were hoping for the best. 

A few ways to manage the human element: 

1. When suggesting a policy or procedure, it is important to recognize your expertise and the expertise of those surrounding you. Trust will be huge when moving through the process of implementing HR. It is important to get people on board as you introduce, implement and experiment with new ways of doing things.  
2.  Be flexible. Be willing to adjust a policy if it doesn’t exactly fit what you need. Be ready to edit standard operating procedures and handbook policies if they are just not working. This is normal. Employee handbooks are living breathing documents. There must be room to flex and change when there is a clear problem with a specific policy or process. 
3. Keep your promises. All you have in life is your word. This is not only in HR but in general if you say you were going to do something do it. Document everything. This will go a long way in building trust. 

If you are interested in learning more about Build an HR Department From Scratch, please visit us at www.cybhumanresources.com and let us help. We do it regularly and we know what we are doing as we are all certified HR professionals. I don’t know about you, but it is worth it to me to outsource my accounting, versus attempting to spend 100 hours watching QuickBooks tutorials. My time could be much better spent doing other things, such as helping my clients build out their HR departments because that is my expertise. We look forward to hearing from you!