How to Build an HR Department: A Practical Manual

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How to Build an HR Department: A Practical Manual

Getting HR right from the start has a massive impact on the success of an organization. Maybe your organization hasn’t had an HR department and has been doing just the bare minimum to get along. Or perhaps you’re starting out and wondering how to build an HR department from scratch.

Not only does an HR department help ensure compliance, but it also plays an essential role in keeping employees engaged and productive. So how do you build an HR department? Here’s what you need to do!

1. Explore the state of HR in your organization
2. Organize employee records and establish a record-keeping process
3. Start formalizing policies
4. Put the bases of recruiting and onboarding processes in place
5. Document your compensation and benefits offered
6. Review the technology and systems you already have and consider what you still need
7. Check compliance guidelines
8. Create an employee handbook
9. Lay the groundwork of a learning and development plan 
10. Create an HR plan
11. Recognize the right time to start building an HR team

1. Explore the state of HR in your organization

What have the founders and/or managers put in place in terms of recruitment, policies, performance management, and tools? Familiarize yourself with the current state of HR to know where to start building your HR department. You can use the below wheel as a starting point to assess your current HR department:

Key HR Functions

Place each of the functions on a scale from 0 (where nothing exists) to 10 (the process is fully in place and working well). This will be a good starting point to understand whether the new HR department needs to start, develop or maintain the particular HR process. 

Furthermore, assess the following questions to understand your current HR structure: 

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  • What HR tools are in place? 
  • Do they need to be replaced?
  • Do they need development? 
  • What’s the role of line management? 
  • Do they have HR responsibilities?
  • What are they currently doing around talent management?
  • What policies are in place?
  • Are the basic policies for employment in place? (This would be your most urgent priority, to ensure your organization is compliant)
  • Have all policies been implemented to uphold the bare minimum work standards?
  • Are there any urgent policy priorities?

So, a combination of understanding your progress on all the HR departments and the most urgent needs will give you a good starting point to build your HR department.

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2. Organize employee records and establish a record-keeping process

HR is responsible for managing the employee life cycle, and your employee records are the starting point. You need to have a clear understanding of how many employees you have and establish documents that are both legally necessary and will also help you in the long run as you work on personal development plans. 

Each employee needs a personnel file. Traditionally, this was paper-based, but most organizations have developed digital systems to manage employee records. These are some examples of the documents you need to keep: 

  • Recruitment documents – These include interview scripts, assessments, job applications, and CVs. Study your local regulations to understand how long you need to keep this on file.
  • Employment eligibility form – Every employee needs this on hand to verify they are legally authorized to work in your country. Each country has its own regulations, but this is a must. 
  • Payroll documentation – Salary statements, wages, promotion letters (increases, approval letters), tax records, and timekeeping records.
  • Employee performance records – Gather all written information, emails, conversation scripts.
  • Termination records
  • Completion of training records
  • Any disciplinary procedure documents

You may find that lots of these documents exist, but it is rather unorganized or informal. That’s fine – as long as you gather as much information as possible, start somewhere, and then build your HR records from there. Speak to all line managers and leaders in the organization and collect as much information as you can from them. 

That would be your starting base. And then, for each of the categories mentioned above, create folders for every employee and start tracking. Work with your IT department to ensure you develop a safe and secure way of storing these documents electronically. 

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3. Start formalizing policies

Maybe you don’t have anything written down, maybe just some basic information. You can prioritize the most important policies and start writing them out. 

These are some of the policies you’ll need to develop: 

  • Attendance 
  • Hours of work
  • Hiring
  • Performance management
  • Overtime
  • Termination
  • Leave policy
  • Anti-harassment and non-discrimination policy
  • Employee conduct
  • Social media policy
  • Confidentiality policy
  • Probation
  • Disclosure of business interests
  • Health and safety policy
  • Drugs and alcohol policy

As you go along, you’ll probably discover some things go together and can be under one policy. Make sure that once you have developed a policy, it is straightforward and easy to understand. Every employee should get a copy of it, and it should be easily accessible on your intranet site. 

4. Put the bases of recruiting and onboarding processes in place

You can use the below image as a guide to building your recruiting process:

Seven Steps of Selection Process

For each of these steps, outline: 

  • Who is involved
  • Templates to be used
  • Questions to be asked
  • Documents to be collected at each stage. 

For the onboarding process, there are five stages you should outline and work on: 

  1. Before the first day (pre-boarding)
  2. On the first day (orientation)
  3. The first week
  4. The first 90 days
  5. At the end of the first year

We’ve developed a useful checklist that you can use at each of these five stages. You can find it here: A Comprehensive Guide to Employee Onboarding (including checklist templates!)

5. Document your compensation and benefits offered

Explore what you have in place regarding compensation and benefits structures, and proceed to formalize and categorize this. Start with the bare minimum to ensure you are compliant. This includes:

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  • Salary or hourly wages
  • Retirement savings
  • Paid time off
  • Health insurance

Once you have that in place, you can start advancing your compensation and benefits offered to include:

  • Performance bonuses
  • Profit-sharing
  • Stock options
  • Supplemental insurance
  • Travel reimbursement
  • Uniforms/suits
  • Relocation bonuses

To add to that, you can start developing a total rewards package, showing employees the total value you’re providing them with, which is not always monetary. This entails the following: 

  • Career development
  • Flexible work arrangements
  • Corporate discounts
  • Employee recognition programs

Later in the line, you can start adding on perks (e.g., wellness support, in-house daycare, free meals, etc.), but only do that once you have the basics in place. Having a good grasp of different types of compensation will help you create attractive compensation packages.

How to Build an HR Department

6. Review the technology and systems you already have and consider what you still need

You might already have some tools in place (Slack, project management tools, etc.), as well as spreadsheets. Because you are starting out fresh, this is your opportunity to have a sleek and simple process in place without having to deal with legacy HR systems that might hold you back. Some of the core systems that need to be in place include:

  • Payroll
  • Workforce management (time off, attendance, schedules)
  • HRIS – This includes employee information and all essential HR documentation 
  • Applicant tracking system – Used for all of your hiring and recruitment practices
  • Learning and development
  • Performance management

Again, prioritize those systems that need to be in place for your organization to be legally compliant, and then add on those that would advance your organization. For example, investing in an advanced data & analytics HR system might not be useful if your organization only has 20 employees. However, you also need to think long-term and acquire the technology that can scale as your organization grows.

7. Check compliance guidelines

HR plays a significant role in ensuring that your organization is fit to operate and all employment laws are followed. At a minimum, you should review your country’s compliance guidelines for all the policies listed above under “Start formalizing policies”.

To understand then, if your policies meet the minimum compliance guidelines, you can use the process below:

HR Audit Cycle

Furthermore, besides the standard policies that need to be in place, you also need to ensure you have considered all local laws and regulations. What if your employees work from another state or country? Are there any laws specific to your industry? 

8. Create an employee handbook

Include the basic policies in your employee handbook and share it with your employees. Also, add in things such as your organization’s values, mission statement, vision, and background information of the organization. There are plenty of templates online or even tools that help you generate a handbook, like

9. Lay the groundwork of a learning and development plan

Helping employees gain new skills and progress in their careers is a vital function of an HR department. Hence, you need to start with learning and development planning early on when building your HR department.

Define your goals 

What are the aims and objectives of your learning and development framework?

Identify the competencies and skills needed

Understand where your organization is, where it is going, and the skills you currently have within the workforce. Then identify the competencies required to achieve your goals. You can do a skills gap analysis to understand what is existing and what is missing. 

Speak to your employees

Have one-on-one conversations with all employees, or let the line managers do this. It will provide insights into each employee’s aspirations and what they see their career path as, and also serve as the kick-off process for individual development plans.

Create a training framework

Based on the gap analysis and your organization’s and employees’ needs, develop a library of purposeful training materials and courses. This will be the library that line managers can offer employees to do or that employees can browse as well. Alongside this, it will also be useful if you add in any mandatory compliance training material that needs to be done by each employee. 

Help develop personal development plans

As you go along, help each employee develop their own personal development plan. Provide them with the resources to do so (mentors, coaches, templates) and ensure it is logged and tracked.

10. Create an HR plan

Engage in an HR planning process to identify your organization’s needs in terms of skills and capabilities and timelines from a longer-term perspective. Creating such a plan will help you prioritize and manage your HR budget.

You will know which of the components mentioned above you need to focus on first. For example, if your organization is growing rapidly, establishing a solid recruitment and onboarding process will be a key priority. You can only do this properly if you understand your organization’s needs and plot them along a timeline.

11. Recognize the right time to start building an HR team

Who are you going to start hiring to expand your HR team? It will depend on your priorities and what you need the most help with. For instance, if you’re growing a lot, you might need a recruiter. Or you might consider an HR assistant/administrator to get more time for strategic tasks.

Before recruiting externally, also look internally. There might be employees in the organization who could absorb some of the responsibilities of HR or are looking to move in that direction. 

Or perhaps you will start by hiring an HR employee who can perform hybrid roles (e.g., recruiting and day-to-day HR activities). Again, this is all dependent on the need of your organization.

Over to you

Building an HR department within your organization will help you hire and retain good people, engage your employees, and improve the overall performance of your business. Starting an HR department is no easy feat, but it will pay off massively in the near future.

And remember, you don’t have to start from scratch or build everything yourself. There are ready-made, customizable templates that you can use and start from there. Follow our comprehensive guides and templates to get you started!

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