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How to Know It's Time to Add an HR Department HR activities at startups are often reactive in nature instead of proactive. That leaves gaps in the system.

By Heather R. Huhman

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.


When starting their businesses, most entrepreneurs tend to wear many hats. However, there are times when they need to step back and look at how they may be unintentionally hurting their business and employees.

Related: The Hidden Costs of Undervaluing Human Resources

Consider the experience of Mollie Delp, the designated HR specialist at Workshop Digital, in Richmond, Va. At the digital marketing company, Delp juggled multiple duties while also helping co-workers manage human resource tasks.

"While growing and developing our operational service teams, we also took care of developing HR processes, like hiring, recordkeeping and benefits administration," Delp told me via email. "We only had slightly over 20 employees, but things already felt messy and inefficient. Important things were bound to slip through the cracks."

If Delp hadn't taken charge of HR tasks, the company's leaders would have suffered from the lack of time and attention they weren't able to give other important projects. That's why it's crucial for entrepreneurs to take an unbiased look at their own processes. At what point do you need help?

Here are four indications that it's time fto add a designated human resources department:

1. Apps can do only so much.

The number of HR tech tools on the market is growing every day. While these tools are helpful in running a business, even their founders admit they don't replace people, if you go by the words of Steffen Maier, co-founder of Impraise.

Impraise is a New York-based performance-management and coaching platform, whose co-founder, Maier, says he recognizes human resources (staffed with people, not just tools) as a necessity, rather than a simply nice-to-have department.

"With the rise of HR tech tools that can help with everything from recruitment to payroll, many have tried to simply replace the department altogether with apps. This is actually the wrong move," Maier explained in an email. "Instead, these tools are facilitating the transition of HR from an admin role to a more strategic role within the organization."

Hiring his own human resources team early, Maier continued, allowed him and other Impraise founders to focus on hiring the right people for their team, thus creating a better employee experience and maintaining a positive company culture.

You might want the same for your own company: Take a look at the HR apps you're already using to assist the business. Gather feedback from employees or use analytics to determine what's still lacking in your employee experience and workplace culture.

Related: 'Human Resources' Just Doesn't Tell You What HR Really Does

Use this information to decide what employee and company aspects might be improved with the addition of an HR department. As Maier said, some functions, such as hiring the right people and creating a positive employee experience and culture, can't be done with technology alone.

2. Employees aren't proactive.

In the beginning, startups typically don't have one employee covering human resource duties full-time. Instead, when a problem arises, people react by stepping into the role. Many times, however, this leaves holes in the system.

"The challenge with waiting until that point is, the HR activities that have been done up until then have been reactive in nature and not proactive," Jana Tulloch said by email. She's a human resources professional at Develop Intelligence, a technical learning solutions company headquartered in Boulder, Colo.

The problem with being reactive, Tulloch explained, is that, "This is where companies can get into trouble, when required policies, employee records or other compliance issues have gaps."

While many company leaders view HR as only a transactional function, Tulloch said she believes it's a strategic one.

"HR supports an organization's goals by ensuring the right policies and programs are in place to attract, retain, engage and motivate staff, creating a high-performing organization," the HR professional said.

The message, then, is that business leaders need to decide if current HR practices are reactive or proactive. Start by assessing the most recent HR incidents, transitions or policy changes: Were they built around compensation, benefits, performance management and employee relations? Or were they created in reaction to events that interrupted normal company procedures?

If entrepreneurs continue waiting for HR issues to arise before addressing them, their current HR situations will not help ROI or assist in building a sustainable organization.

3. Someone without HR experience shouldn't handle HR.

Human resource professionals carry a lot of weight and skill. For that reason, having employees fill in when they can, with no knowledge of HR functions, can be detrimental.

Lovely Kaur, founder and executive director of human resources and business operations at ShieldX, a cloud security vendor in San Jose, Calif., has witnessed this scenario many times.

"I helped a startup where the CEO was doing HR without having any HR experience. He was trying to keep the budget low, but overlooked the potential costs and legal ramifications of HR done bad," Kaur told me. "Making a smooth runway before taking off is so important, and HR is a crucial component of that runway."

So, whether a company has five or 500 employees, managing the compliance and legal aspects of the job cannot be overlooked. If the person running between multiple jobs has no history or knowledge of HR practices, it's time to end the balancing act.

Hire someone with the ability to mitigate risks for employees and ensure the company doesn't run into any problems.

4. The cost of having no one doing HR is expensive.

When cutting HR-related costs, company leaders can face expensive legal risks.

"Hiring, firing, promoting, demoting and even paying employees can have significant consequences under the law. So, the more employees you have, the more decisions you have to make, and the greater the risk of a problem," Jaime Lizotte, HR solutions manager at ComplyRight, a compliance resources and solutions company in Pompano, Fla., explained to me.

Thankfully, there are outside contractors you can hire to customize your own organization's HR solutions.

If you're going in this direction, look for an HR company that provides real people -- like Jumpstart HR (rather than an HR platform that's all tech bells and whistles). With this type of "people" service, your startup can customize its HR solutions to fit its needs and have HR professionals watching your back, offering creative problem-solving techniques.

Of course, some entrepreneurs may feel more comfortable with an in-house team member. If that's the case for you, start by looking to mentors and other business leaders to discuss what qualities their HR pros possess that you need, as well.

Related: 4 Ways Technology Improves the Human Resources (and Human) Experience

This will help you feel comfortable about what attributes you're looking for when you set out to form your first HR department.

Heather R. Huhman

Career and Workplace Expert; Founder and President, Come Recommended

Waldorf, Md.-based Heather R. Huhman is a career expert, experienced hiring manager and president of Come Recommended, the PR solution for job search and HR tech companies. She writes about issues impacting the modern workplace.

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