Right Time to Set Up an HR Department

When Is The Right Time To Set Up An HR Department?

Human Resource (HR) strategy is a part of business strategy. “Why” HR is an equally important concept as is “when” to set up the HR department? Let us just understand HR is a function and not a department. 

Young entrepreneurs or small business owners can consider outsourcing the HR processes to an external firm as it is more cost-effective than to establish an in-house HR team or may consider recruiting a part-time HR professional as initial activities in a small enterprise are limited to hiring, onboarding, induction and managing the payroll. At the initial stage of the business, you can handle multiple roles including the one as HR as the budget is limited. For some time, you may enjoy this challenge. However, in long term, it would be a burden to handle so many roles simultaneously. Hence, you cannot overlook the importance of hiring full-time HR personnel and maintain it all stages of the business cycle.

Below factors shall help you to decide if you are ready to establish the HR function or HR department now:

  • Availability of budget to hire full-time HR personnel 
  • Need for specialized inputs
  • Time consumption in the HR activities as compared to the presence required in carrying out operation activities to utilize the funds and build business
  • The business impact of not having an HR person 
  • Delay in decision making due to unavailability of HR

Need for specialised personnel in HR Department:

Building the desired culture code in the organisation is very critical which is much simpler to implement in the beginning. So, ensure to make arrangements to have a right fit in HR once your operations hiring and other department hiring is done. HR is the torchbearer of company culture code, showing a way to the employees and keeping up the transparency, establishing a culture of equality no gender discrimination, integrity and fairness. As you have established your dream, you would want to know if you had the right vision and if you have met the expectation you set for yourself. A seasoned HR professional can take care of multiple activities more efficiently than any interim arrangement. HR personnel is required and will take care of the activities if chosen right:

  • Hiring/recruitment and selection process
  • Manage the payroll cycle and employee engagement 
  • Compensation and benefits
  • Deep understanding of the employment laws (labour) and federal laws
  • Manage the compliances
  • Conduct employee satisfaction and feedback surveys 
  • Handle employee grievance and will be a quick solution provider
  • Talent development (training and development)
  • Setting up a performance management system for evaluating consistent performance 
  • Administrative tasks expert (employee leave, absence, absence files, the in- and outflow of employees etc.)
  • Policies as critical as sexual harassment and other travel policies and procedures
  • Arrange a manual or handbook to lay out the rules, regulations and expectations from employees  
  • Direct point of contact for employees (employee relations as the fallout may happen due to increasing workload and diverted attention along with the increase in employee number)
  • Maintain employee records/files
  • Policy and procedure implementations

Now, HR will be an added cost to the organisation. However, at this point, the management must compare the stakes of not initiating to build the HR function. If you have enough budget and vision of how your HR Function should look like, you may want to carry out the search and hiring of the HR. You must follow your instinct and then, it may be the right time to start your search for the HR professional and set up of the HR department.

Consider the below points if you think you need an HR Department – 

  • Business owners to track the time they’re spending on employee-related issues?
  • Are you up to date with the employment laws and compliance procedures?
  • Can you take the risk to get engaged in a legal battle if there is any slip up?
  • Can you engage yourself in the background check and feedback process etc.? 
  • Is the focus shifted from general employees on necessary tasks into more specialized roles?  
  • Are you able to contribute fairly and consistently on HR matters?
  • Have you been able to build a fair reward allocation and performance management system in place?
  • Are you missing on the important paperwork or any delay in updating the paperwork?

At that point, it makes sense to develop an HR department as well. Building efficiency and return on investment checks can help you to make up your mind on hiring the HR team.


Building the desired culture code in the organisation is very critical which is much simpler to implement in the beginning. So, ensure to make arrangements to have a right fit in HR once your operations hiring and other department hiring is done.

Also, when the company employee strength reaches around 100 employees, it may be little difficult to address the HR-related concerns consistently. Even though you may have hired or outsourced the payroll process, the go-to-person shall be available for employees to contribute smoothly. The initial glitches when joining an organisation can make or break the situation. If the employee is comfortable and settled, then they are fearlessly focused on their main goal which may be an administration role, a software team role or project management role etc.  

Having a vision of extending the business, can also make you think in categories and free the bandwidth of the business resource by adding a headcount in the HR team. Thus, as per industries growth rate, strategic planning and workload, you may have the presence of a dedicated HR personnel. Thus, saving you a lot of time because of the experience the HR specialist will bring. After all, “Time is Money.”  Of course, the cash inflow has to be there to sustain the business and addition of any new member to the start-up team will be an additional cost. 

Whom to hire in HR Department?

Now: Hiring the right HR person who is self-motivated and task-driven is very important. You would need to hire a person with strong knowledge of Human Resource Management, strong interpersonal skills, who isn’t terrified of working alone and is ready to explore alone on this journey as it will take some time to build the HR community, company culture and finding people to share the task.

An approachable and highly motivated HR personnel can only motivate the young taskforce joining the start-up. For instance, you are a part of a business group where you need a young mind with exposure in software and hardware building, you would get innovative people who do not restrict themselves and try out new things. Thus, bringing great ideas and freshness to the table.

You would need an experienced HR to lead and recruit fresh talent required within the team. A person high on integrity would be the right fit to create and maintain the culture code rather than keeping this important task of creating a culture for a later stage. It is non-negotiable if employees can’t abide by the culture code of the organisation. We need someone to lead by the example for the same.  

The HR function is called the support function. It is the backbone of the organisation. It gives the organisation the flexibility of moving around the different functions and builds capability to change small enterprises into a big one. Of course, the team building can take time depending on the resources (cash inflow and revenue). However, a basic structure is required from day one and the role of the HR person and any other support function is taken care by the founder of the company until it is outsourced or full-time HR personnel is hired.

HR works at two levels – Strategic and transactional level. An HR person who is a strategic thinker is aware of employment or labour laws as one wrong step can create an opportunity to face the lawsuit or can engage the organisation in a legal battle with the complainant. HR department’s work is to give space to different functions to carry out the daily operation.

The risk associated with not hiring the HR Department 

1. No checks on the incorrect documentation, disorganised record management, irregular attendance and other disciplined activities.
2. Not understanding the culture code.
3. Serious legal consequences if one step goes wrong.

HR is a link between the employer and the employee. Also, HR is a mediator who prevents any occurring issues in the workplace. Some companies survive without a proper HR department. However, creation of the HR function and handover of HR activities to the designated HR at an early stage will be much easier while the company is growing along with addition of workforce. Having an HR with a strategic approach can build capabilities, make the process effective and efficient.


HR function or HR department set up is a requirement in every organisation. Hence, the right time to hire HR personnel would depend on the actual business need and to support the employee and employer relationship by handling the issues arising during the life cycle of any employee in the organisation.  

Roopali Kotwal
Roopali Kotwal
Roopali is a former author with Dutch Uncles, a subject matter expert with over a decade of experience. She writes on Human Resource Management and Business Operations.

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