How to set your first HR department up for success

When you're just getting started as a small employer, you might find yourself taking on new responsibilities and administrative tasks that traditionally fall under an HR department. If so, you're not alone.

ADP's Ad Hoc Human Resource Management Study¹ found that 70% of small employers have ad hoc HR managers (aHRMs) who take on HR responsibilities on top of their day job—and 54% of these aHRMs are the business owners themselves.

While having an aHRM, or even taking on an HR role yourself, may save money upfront, handling all of the recruiting, screening, onboarding, and performance management responsibilities in addition to your other job roles isn't realistic long term.

The ADP study also found that only one in five of the small employers serving as aHRMs felt confident in their ability to manage HR responsibilities without making a mistake.

When your business growth is faster than you can handle on your own, that's when you know it's time to set up your first HR department. As you're getting started, this four-step guide will help you set up an HR team, go over what tasks to accomplish first, and give your newly assembled department the tools it needs to succeed.

Human resources metrics measure the effectiveness of your organization's policies and initiatives. Check out our guide to human resources ROI calculations

What does an HR team do?

Your human resources department is responsible for managing initiatives related to your organization's employees.

Your HR team may be responsible for the following:

• Keeping current employee records
• Talent acquisition
• Developing a recruiting process, drafting job descriptions, establishing an onboarding process, and participating in the hiring process altogether
• Payroll management
• Disciplinary actions
• Updating company rules and policies
• Anti-discrimination policy
• Time-off policy
• Safety policy
• Supporting employee morale and well-being
• Job performance management
• Employee training programs
• Maintaining legal compliance

As you can see, an HR department isn't just for talent management. It's also a resource for building employee trust, addressing employee concerns, responding to the needs of an individual employee, and ensuring that everything runs smoothly between upper management and your staff. An HR department should care about the well-being of its employees and the company's culture.

Define your organization's culture

Before you can start building an HR team, you need to consider the culture and core values you want your organization to embody.

Believe it or not, 47% of job-seekers cite being part of a company's culture as one of the driving reasons they're looking for new employment, according to a study by Built In².

The culture you establish from the beginning will become how your employees, and even your customers, view you as an employer. Is your organization young and outdoorsy? Hardworking and data-driven? Professional yet fun?

The kind of culture you create will determine which kind of employees are suitable for your organization and, in turn, prepare your HR department with the direction they need to make the right goals for recruiting and retention.

Organize important employee documents

The next step is less exciting but necessary—you'll need to establish and organize the employee files your HR team will manage.

In general, there are three distinct types of employee files to create and maintain:

• Employee I-9 forms
• Personnel files
• Medical files

Let's go over each in more detail.

Employee I-9 forms

The I-9 form is an employment eligibility verification file. It simply verifies the identity and employment authorization of anyone hired to work for an organization in the United States.

You're legally required to have a completed I-9 on file for each employee—including citizens and non-citizens.

Employers are also required to keep all of their employees' I-9 forms for a designated period and make them available for inspection by authorized government officers if needed.

To keep things simple, it's a good idea to have all of your I-9s in a single file, so they're easy for your new HR team to access and reference later.

Personnel files

You'll also want to make sure your HR department creates and maintains a separate personnel file for each employee. That way, if they leave your organization, you'll have all of their information in one place.

Here are just a few things you might include in your employees' files:

• Résumé and employment applications
• Offer letters, employment agreements, or contracts
• Payroll information
• Basic employment data (including W-4s)
• Information about participation in benefit programs
• Awards, recognition, or disciplinary documents
• Performance evaluations
• Termination documentation and exit interview information

Medical files

Finally, the last type of file you'll want your HR department to maintain is a separate medical file for each of your employees.

These files include any information related to health or medical issues, such as:

• Applications for insurance
• Doctors' notes excusing an employee from work
• Medical examination information
• Information related to disability

While each of your employees' files should be kept confidential, this is especially important for medical information. Many of these documents are considered protected health information (PHI).

The HIPAA Privacy Rule provides federal protections for personal health information held by covered entities, like employers, and has stringent rules about when this information should and shouldn't be disclosed.

Implement competitive employee benefits

Once you've got all of your essential employee files in order, your HR department is ready to start establishing employee benefits and perks.

To attract and retain top talent in your industry, you'll need competitive benefits.

We'll go over some of the top employee benefits options in the following sections.

Group health insurance

Group health insurance is one of the most popular options for employer-provided health benefits. With a traditional group health plan, insurance is purchased by the employer and offered to eligible employees and their dependents.

Employees like group plans because they're usually already familiar with group health insurance, and the premium cost is typically split between the employer and the employee.

However, the downsides are group health policies can be expensive, the risk is only spread amongst the organization and its employees, and the premium rate typically increases every year.

Health reimbursement arrangement (HRA)

A health reimbursement arrangement (HRA) is a tax-free health benefit option that allows you to provide a healthcare reimbursement allowance that employees can spend on qualifying medical expenses, including individual health insurance premiums.

Three of the most popular types of HRAs available are the:

• Qualified small employer HRA (QSEHRA)
• Individual coverage HRA (ICHRA)
• Group coverage HRA (GCHRA), also called an integrated HRA

With a QSEHRA or an ICHRA, employees can purchase an individual health plan that fits their needs, while a GCHRA allows you to supplement your existing group health plan. With an HRA, employers have complete cost predictability.

Employee stipends

If you want to give your employees flexible benefits that they can use for a variety of expenses, you should consider an employee stipend. Employee stipends enable you to provide a monthly expense allowance or reimburse your employees for various expense categories of your choosing.

Some of the most common stipends available are for health, wellness, transportation, professional development, and remote work expenses.

A taxable health stipend works similarly to an HRA but with fewer regulations on what expenses are eligible for reimbursement. They're also an excellent option for organizations that employ 1099 contractors or international workers. If you have any employees who receive advance premium tax credits (APTC), a health stipend allows them to receive a health benefit without affecting their APTC eligibility.

However, because of health stipends' taxability, many organizations prefer HRAs.

Wellness stipends are an increasingly popular option for organizations looking to improve their employees' well-being or expand their employee wellness programs. Instead of managing in-office amenities, creating fitness classes, or negotiating with gym membership vendors, you can provide a monthly allowance for employees' wellness expenses.

With a wellness stipend, you can reimburse employees for expenses like:

• Gym memberships
• Fitness and yoga class fees
• Wellness mobile apps
• Home exercise equipment
• Wearables and devices, such as fitness trackers

But the options don’t stop there. You can offer professional development or learning stipends to encourage your employees to be lifelong learners. This type of stipend typically reimburses employees for things like conferences, workshops, tuition, or mentorship programs. With a transportation stipend, you can also help them save money by reimbursing them for work-related travel costs like gas.

If you have any remote employees, you can offer a remote work stipend to ensure that they have all the tools to succeed. This allows you to reimburse your employees for their internet access costs, cell phone bills, or home office setup costs.

You can offer a stipend for just about anything, even a spot bonus. Spot bonuses are immediate rewards provided “on the spot” to employees who deserve recognition.

Other employee benefits ideas

There's no shortage of employee benefits and perks that you can offer your employees.

Other employee benefits ideas include:

• Life insurance
• Disability insurance
• Unemployment insurance
• Retirement benefits
• Education assistance

Providing employee benefits will help increase employee satisfaction and your employee experience, reducing employee turnover and promoting a more positive and productive work environment.

Create an employee handbook

The last item on your HR department's to-do list is to create an employee handbook. Handbooks aren't exactly the most exciting thing to read, so it's not uncommon for new employees to skim over them without actually understanding them.

It's your HR team's job to make your handbook engaging, memorable, and easy to read—that way, new employees don't miss out on essential information they need to be successful at work.

If you're not sure what to include in your handbook, here are a few ideas:

• Your organization's history
• Onboarding procedures and goals
• A reference to organization-wide procedures or resources
• How-to guides on tools the team uses
• Payroll information
• Dress code policies

Conclusion

Building an HR department from scratch takes time, but it comes with a great payoff for your business. Once you've completed the four steps listed above, your HR team will be able to keep your organization running smoothly—without requiring you to manage every HR detail yourself. Investing your resources into building an effective HR department will equip your organization with the essential HR expertise you need to recruit, retain, and stay compliant.

If you're interested in offering benefits to your employees, PeopleKeep can help! Our HRA and employee stipend administration software solutions help organizations like yours manage their benefits in minutes.

Schedule a call with a personalized benefits advisor today to see how employee benefits can work with your organization

This blog article was originally published on January 6, 2015. It was last updated on March 29, 2023.

1 https://images.adpinfo.com/Web/ADPEmployerServices/%7b8e6d7bf2-960a-4ad5-9896-b35e2205dfb2%7d_AHRM_Infographic_190482.pdf?elqTrackId=d4392f597b2b41e4990a107b3e25a235&elqaid=7145&elqat=2

2 https://builtin.com/company-culture/company-culture-statistics