Setting Up, or Re-Evaluating, a Human Resources Department

It happens all the time: a small to medium company that hasn’t had an official human resources (HR) department decides it’s time to establish one and the person who has been the de facto HR “director” has been tasked with setting up the department. If this is you, you might be wondering where to start, and what this looks like. Here are some tips.

Start by asking, listening, and learning. Understand the company’s strategic business plans, culture, and direction. From there, you can start to set goals and objectives for the HR department so HR can be an active business driver for strategic results. Talk to the executives, find out what successful HR looks like to them and what their expectations are for HR’s focus within the organization.

Learning also includes a needs assessment. Are there currently any HR functions in place? If so, who does what? Is accounting doing payroll and/or benefits, should they continue to do so, or will it roll into the HR function? Some areas to assess are:

  • Recruitment and selection;
  • Compensation;
  • Employee relations;
  • Mandated and optional benefits;
  • Payroll;
  • Recordkeeping;
  • Training and development; and
  • Employee communications.

When assessing, ask yourself if  there are immediate HR needs like policy creation, recruiting help, or job description updates. Should we outsource some things like payroll? What resources do we have, both financially and with respect to personnel? How will you prioritize what needs to be done? These questions can help lead to a plan as to what to implement and when. They can also help you determine if you want to organize your department around employment cycles with specific functions or create an HR function that acts more like a customer service unit.

You will also need to determine what success looks like, and how you plan to measure it. HR must be able to demonstrate its effectiveness and determine if the strategic goals are met. Having already set goals and objectives, you also need to measure how well you attained them. This starts with a baseline and a timeline.

The baseline is where you are now. For example, if improving employee retention is a goal, first determine what the current turnover is. Then establish a timeline. Are you going to measure annually? Quarterly? Monthly? Don’t over-do it; be sure to pick a timeline that works for the business. Once your retention efforts are in place, then re-measure to determine effectiveness, and make changes as necessary.

A third aspect of setting up an HR department is budgeting. A good HR budget should align with the organization’s strategic goals and include both current and projected needs. There are several things that can be included in the budget, such as:

  • Current salaries, wages, allowances, benefits;
  • Estimated increases in personnel overhead costs;
  • Estimated cost for bonus payments;
  • Training (for new and current employees);
  • Recruiting costs;
  • Office supplies and equipment for HR department;
  • Cost of HRIS system;
  • Administrative costs;
  • Traveling expenses;
  • Estimated costs for conducting employee surveys for improvement purposes; and
  • Contingencies.

The final question is what the HR-to-employee ratio should be. Unlike a sales team, or a manufacturing floor where you can do a calculation of how many working hours it takes to sell “x” products, or make “x” widgets, HR is not a production-oriented department. How do you take the intangibles and determine how many people you need? According to several studies, a general rule is one HR professional for every 100 employees. It is important to also ask questions, but do your own assessment. Answers to the questions below might affect this number.

  •  Are there multiple locations and is HR centralized or decentralized?
  • Are employees spread out geographically?
  • Does the company operate internationally?
  • Are there outsourced services?
  • How much automation or employee self-service is available?
  • What industry regulations affect the HR functions?
  • How much industry specific reporting, required training, and recordkeeping is there?

Setting up an HR department might seem like a daunting task. Starting with analysis and understanding the business will help you build a strong base on which to build your department piece by piece. Set goals and priorities, determine budgets and assess resources, define success and how you will measure it and you will be on the right path.