Hundreds of thousands of startups are created each year within the UK alone. Despite the negative consequences that the past few years imposed upon businesses, it remains that there is plenty of room for prosperity in this area. Having said this, founders of startups find themselves in a very difficult position when trying to expand their organisation. After all, the ruthlessness of business is a constant.
It’s for this latter basis why 20% of startups fail within their first year, with 60% not making it into a fourth year of business, as per The Telegraph. It’s easy to assume that this intimidating figure is a result of the majority of startups lacking innovation regarding the end product of their efforts i.e., not catering to a target consumer base satisfactorily. However, this is generally not the case; the common issue that a lot of startups have concerns the quality of their internal operations. Specifically, how well they address human resources (HR) matters.
HR responsibilities are vast, and this is primarily why it tends to find itself in startups’ backlog. To treat HR as such is crucially erroneous, and it’s for this precise reason why we’ve put together our final guide to human resources for startups. It contains everything you need to be informed on about HR as a fledgling business, so that you can prevent your venture from collapsing while it’s still in its infancy. We’ll cover:
- Do Startups Need HR?
- What does HR do in a Startup?
- The Last Step: Getting HR Technology for your Startup
Do Startups Need HR?
Simply put, yes; startups do need HR, to a categorical degree. You may be inclined to think that ‘need’ is a rather strong word, given that HR appears to be an extraneous detail because it is not directly concerned with the primary aim of a business, namely, creating a product or service in order to generate revenue. Indeed, as we mentioned, startup founders typically neglect anything that falls outside the realm of product and/or service development in those critical first years.
This is fairly understandable, forming a startup is an exciting prospect, and becomes even more exciting once the vision is actualised. However, the reality quickly proves to be quite different. Founders will feel themselves to be overwhelmed with the workload, and so tend to focus on securing their spot on the market, in whatever industry that may be.
But this behaviour is remiss, owing to how it doesn’t actively recognise that a business’s employees are its most significant asset. A startup’s workforce is the foundation wherein it finds firm footing. Followingly, if you want to get the most out of a workforce, then you have to prioritise your approach relating to it. The biggest pitfall of startups is attempting to go forward with precarious groundwork.
HR functions are designed to lay a solid foundation with people management, not to mention by fulfilling certain obligations which are a requirement by law. Of course, the intricacies require a lot of time, dedication, and knowledge, resources which are often sparse for startup founders who handle the strategic oversight of their business. Although without HR, teams soon become discordant & inefficient, both of these being red flags for investors. This is why startups usually choose to outsource HR responsibilities, i.e., offload the various involved duties to an external entity.
What does HR do in a Startup?
To outline these aforementioned duties, we’ve compiled a list of what HR does exactly, so that you might better understand what the collective functions consist of entirely. Adequately satisfying each point listed here works to singularly contribute to your success as a startup.
1. Put together employment contracts
Employment contracts are the beginning point of HR for a startup. Reason being, that it’s impossible to formally take on new hires without them, indicating that it can be a barrier to your business’s expansion if done incorrectly. Employees’ contracts contain all the terms that are applicable to them while they are a part of your business.
Because being under contract implies the matter of an individual’s livelihood, it is a subject that demands sagacity. If employment contracts are put together hastily & carelessly, then this acts as a precursor to the possibility of legal action being taken towards your startup in the future. HR professionals are equipped with the skillset to formulate standardised contracts rigorously so that any potential misunderstandings are prevented.
2. Set up mandatory HR policies & processes
Even though all startup businesses are different, they each share the obligation of having a collection of HR policies and processes in place if they are to operate regulatorily. These include a code of conduct for the workplace, expected disciplinary action, certain employee benefits like paid and unpaid leave – whether for holidays, maternity, paternity, bereavement, or otherwise -, employment termination, learning & development, and health & safety.
These policies and processes are very much your startup’s guidelines for operations and give your employees a reference point for internal behaviour. Although they are useful in this sense, it’s also worth noting that they are mandatory. For health and safety in particular, if you do not carry out routine inspections to guarantee that your employees face no risk in the workplace, then it’s likely that you will incur detrimental fines alongside hefty compensation claims. Setting such preventative measures is what HR professionals are inherently geared to carry out before building a tailored handbook for your startup which comprises these core operational features.
3. Ensure your startup’s compliance with UK employment law
As well as having mandatory policies & processes in place within your startup, it’s likewise absolutely necessary for your business to be consistently compliant with UK employment law. This remains the case if you are hiring UK employees and your startup’s base is in another country.
UK employment law states that all workers under employment must receive the correct wage from payroll, relative to their contract, with deductions for income tax (through PAYE), national insurance, and student loan repayments being made regularly. Details of these contributions must be sent to HMRC, so it’s essential that all the information is recorded accurately. Additionally, each employee is lawfully entitled to a workplace pension, of which they have to be automatically enrolled into as soon as they enter their employment. Failure to auto-enrol workers into a pension scheme will result in a substantial fine. It’s at this point where it becomes stressful for founders to navigate through without the help of a HR professional, down to the scale of administration demanded.
4. Store & organise employee documentation
Every employee comes with, and generates, documentation during their tenure at a startup. Intrinsic with the onboarding of a new hire is obtaining their P45, checking their right to work documentation, and providing them with a new starter form & contract of employment. You will then need to store information on recruitment, hours worked & overtime, workplace incidents, employee performance, training completion, and termination for every worker under contract.
Storing and arranging all that is entailed within the topic of employee documentation on file is tricky to do in a logical manner, and the level of complexity is only amplified as your startup increases in size. Good organisation within a business shouldn’t be considered as a suggestion, wholly due to the fact that legal complications can arise in cases of poor management concerning sensitive employee information. The severity of distinct consequences are akin to data breaches, the effects of which can permanently damage your startup’s reputation. This is just one of the reasons why it’s so integral to have a dedicated HR team to assist you in your business’s procedures, at all stages of its life cycle.
5. Grow your startup’s team
Subsequent to covering the fundamentals of HR in your startup, you will be able to seize the opportunity to grow your team. Evidently, growth is important for all businesses, albeit particularly so for smaller ones. A larger workforce affords improvements in stability, productivity, and overall revenue. As such, it is the standout goal for newly-formed ventures. Before going into specifics, It’s salient to take into account that growth can only occur once the foundations of HR have been laid out.
As noted in the introductory portion of this guide, the world of business is quite fierce, and so the competition you will face when trying to establish a lucrative position for your startup is incomparable. In recent years the world of work has changed, to a large extent. Employees now want a lot more than they once did from their employers; work no longer solely represents a means of monetary gain. Sophisticated HR is how your startup can attract and retain the employment market’s top talent. For instance, by how it enables the offering of generous employee benefits packages that go beyond the mandatory requirements, pathways for career & skills development, and flexible and remote working capabilities. This last example is especially pertinent, considering the relevance that the four-day working week now has.
6. Create a positive working culture
It’s typically accepted that workers don’t leave a job role because of the role itself, but rather because of their employer, and by extension, the working environment that they have personally fostered for their business. On the back of making your organisation attractive to both prospective and current employees, it’s vital that a startup has a positive culture, as opposed to one that is characterised by toxicity & active discrimination.
Given that startups are relatively vulnerable businesses, as highlighted by how many of them fail, the importance of creating – and nurturing – the right team cannot be understated. In practice, this means justifiably rewarding hard work & productive attitudes, solving internal disputes conscientiously, and abiding by the diversity, equity, inclusion, and belonging (DEIB) initiative so that employee wellbeing is a mainstay. DEIB is a pillar of all sound HR strategies, the concept is designed to promote fair treatment, equal opportunity, and a welcoming workspace which is free of prejudice. It’s expected that DEIB will become a humanitarian requirement for businesses, so it’s advised that all startups familiarise themselves with the idea, all while carrying out regular surveys to assess the quality of their working culture before accordingly adapting.
The Last Step: Getting HR Software for your Startup
Tackling all the above responsibilities of HR is formidable, even for specialised professionals. And so, naturally, for the onus to be on a startup’s founder, in addition to their usual directive duties, is an impracticality. What makes the exhaustive responsibilities lighter for HR departments are the tools that they have access to.
These tools are embodied by HR technology. That is, software which is purpose-built for HR functions like payroll & employee benefits. Modern HR software allows for the various innate administrative aspects of HR departments to be automated and streamlined so that, not only are they carried out more efficiently, but more accurately too. What HR software provides is appreciated both by those who operate within the sector, as well as by those who are affected by it, such as startup businesses. Utilising the latest HMRC-approved HR technology is exceptionally effective at giving new organisations the best chance of surviving and flourishing in today’s employment climate.
Thank you for taking the time to read our final guide to HR for startups. We hope that this piece has comprehensively shown you why startups need HR, what HR does for startups, and why you should get HR software for your startup organisation. If you’re interested in outsourcing a team of professionals to handle everything we’ve gone over throughout this guide, then be sure to get in touch today and one of our HR consultants will be with you as soon as possible! For further reading material, feel free to visit our news page where we publish content like our definitive guide to human resources for SMEs, something you’ll surely find useful for when your newly-formed business inevitably takes off.