Building an HR Department from Scratch
Organizing an effective HR department requires time, patience and planning.
When Lewis Cabinet Specialties in Tremonton, Utah, hired Greg Hawkes as its first full-time HR director, Hawkes had a surprising reaction: "I was overwhelmed," he recalls.
This feeling wasn't prompted by the people he'd be working with, the company's owners or the business itself. Lewis is a well-regarded family-owned business. Hawkes' uneasiness stemmed from the sheer amount of work he was facing in organizing HR for the 94-employee company. When he started with Lewis, Hawkes discovered that its HR activities focused only on payroll and managing time off. "Basically, the whole HR department was a couple of hanging folders, a lot of sticky notes and a few folders on Google Drive," he says.
Hawkes' experience illustrates a key consideration for anyone taking on the task of creating an HR function from scratch: By the time business leaders realize that HR is about more than paying, hiring and firing employees, they've usually put some building blocks in place. At the same time, creating the remaining capabilities requires a tremendous amount of planning. As a result, many HR professionals who've built an HR department say the job begins with reviewing what the company has already, cleaning it up as necessary and expanding it to meet the organization's needs.
In Lewis Cabinet's case, the company's "aha" moment occurred when one of its owners decided to manage HR himself. When he saw that everything was "sticky notes and e-mails," Hawkes says, the owner realized "We need somebody who really knows what they're doing and can devote their entire job to this. We can't just give this to our accountant. We can't just give this to our customer service manager. We need a full-time HR person."
For business owners, hiring a full-time HR professional may feel like an immediate solution to their workforce challenges. But for the practitioner, organizing HR and tuning it to operate effectively requires time, patience and careful consideration. On top of that, it requires a step-by-step plan to identify what's being done correctly and what isn't, what needs to be changed, and how HR will grow with the organization over time.
Taking Stock
Most practitioners agree that the first step is to identify what HR functions are in place and how they're being executed. "That's one of the first things that anybody's going to have to do in a situation like this," Hawkes says. "I just started taking notes, and after about two and a half or three weeks, I had four pages of action items." His list included such steps as introducing E-Verify and destroying confidential information that the company no longer needed to keep.
Susan Baranowski, SHRM-SCP, had a similar experience. When she organized HR for a Pennsylvania-based nonprofit, she started by cataloging the organization's policies and procedures, then determined which ones were working well, which were current and which weren't, and especially which were compliant with applicable laws. "I was really just doing a cleanup, a scrub of what was in place," she says.
Among other things, she found an out-of-date handbook and questionable employment practices. For example, the organization had been incorrectly administering the Family and Medical Leave Act (FMLA). Even though the FMLA is federally mandated for companies with 50 or more employees, "they weren't even considering that somebody might be eligible for FMLA [leave] based on a particular situation," Baranowski says. "That's very risky because you're denying someone something that they're entitled to or making termination decisions that might be wrongful."
That kind of risk is why HR experts say compliance should be top of mind when policies are reviewed. "You want to be compliant with regulations," says Kyle Killingsworth, SHRM-SCP, principal of Catalyst Consultant Group in Oklahoma City.
Compliance means meeting the requirements set out by federal, state and, in some cases, local governments. A company's attendance policies must be enforceable, for example, and employment practices must consider the requirements of the Americans with Disabilities Act. In addition to having the correct policies in place, employers must manage them appropriately. "You want to make sure that they're clear, they're compliant, that you're managing them appropriately and that people are getting what they're entitled to when they're supposed to be getting it," Baranowski says.
Susan Baranowski, SHRM-SCP
The Path Forward
Once you've got your arms around the organization's condition, it's time to begin filling the gaps and putting fixes in place. For many, that starts with creating an employee handbook, which allows you to record your policies and procedures in one place, making it easier to ensure that issues are addressed in a compliant, workable and consistent manner.
It's important to look at HR in the context of the business and not only in terms of the efforts involved in recruiting and managing the workforce, Killingsworth says. As you do, pay special attention to whether your practices are consistent. Many organizations, he observes, don't have policies and procedures documented, but they do have ways of doing things in certain cases.
These informal practices should be formalized, Killingsworth says: Look at your practices, understand the way the business is run, and document policies and procedures so that you can be consistent in the way you administrate the HR functions.
When Hawkes began work at Lewis Cabinet, he found that there wasn't much consistency. Often, new approaches to training or performance reviews were announced and followed—but only for a while. As he developed HR, he found that "the one thing that helped me be successful was consistency."
In fact, Hawkes prioritizes consistency over best practices, at least for now. "If I say I'm going to do reviews, we do reviews, even if they're not the best reviews in the market," he says. "Even if they're not measuring everything that we should be measuring, they're happening. And that's what's been helping the most with creating HR."
Decide what you're most interested in accomplishing, says Aaron Colby, a Los Angeles-based employment attorney with Davis Wright Tremaine. "Then once you find the red flags, commit your resources to defining the yellow flags. Eventually, you're going to get your processes to a place where you're functioning and going forward, where at least you've got a good feeling that you know what you're doing is compliant. Then it's just a matter of 'We've got to do it. We've got to execute.' "
Reaching Out for Help
Because today's employment regulations are so complex, it's possible that you may miss some errors in procedures or processes without realizing it. That's why, if you're ever in doubt, you should seek outside help from an attorney, an HR consultant or a colleague.
"Don't be afraid to reach out for help just because it feels like you might be the only person who's ever had this issue," Hawkes says. "Your issues aren't unique to you and your company, or even you and your industry. There are plenty of other people who are going through the same thing."
Killingsworth recommends joining the Society for Human Resource Management. He and other practitioners say the organization's website and local chapters can provide answers to a range of questions as well as resources to help HR professionals map out a course of action.
There are times when you'll need more-formal advice, however. "Make sure you've got a good lawyer. Make sure you've got a good accountant," says Lorry Parker, SHRM-SCP, principal of the Chicago-based consulting firm HR Advisement. The attorney should specialize in employment law, she adds. "Being a general counsel doesn't make someone an expert in every facet of the law."
Creating an HR function is daunting. Regulatory requirements can be as complex as they are voluminous, and experts say sometimes the effort is simply too involved for one person to take on alone. On top of that, once HR is established in an organization, it must be managed. Even as practitioners are keeping up with changing laws and evolving best practices, they must see to the day-to-day work involved with handling payroll, managing benefits, recruiting, hiring, onboarding, completing performance reviews, tracking Family and Medical Leave Act leave … and the list goes on.
The good news is that HR professionals don’t have to do everything themselves. Among the most widely cited options:
Professional employer organizations, or PEOs, provide HR services under a co-employment model. This means they become your “worksite employer” while your organization remains the “employer of record.” Under this arrangement, the PEO administers areas such as payroll, benefits and regulatory filings. In practice, it also manages risk by keeping up-to-date on changing employment rules. To be sure, engaging a PEO can distance employees from your company, water down your culture and require HR to manage an outside organization. Also, PEOs may not be a good fit once you surpass 100 employees, suggests Kyle Killingsworth, SHRM-SCP, principal of Catalyst Consultant Group in Oklahoma City. “PEOs are one-size-fits-all,” he says, and employers with more than 100 workers may need more-tailored solutions.
HR consultants can achieve similar results to PEOs but are often engaged to take on a narrower scope of work. For example, some consultants may specialize in designing an HR function and policies, while others focus on creating employee handbooks or talent acquisition or employee relations plans. Consultants can take a lot of work off your shoulders, but, like PEOs, they can also meet resistance from employees who prefer that their benefits, performance reviews and the like are overseen by the company directly.
General outsourcing involves farming out specific responsibilities to a third party. For example, many small and midsize businesses hire outside companies to process payroll or manage benefits. The advantages: A lot of paperwork is taken off your shoulders, and compliance can be more easily managed. The disadvantages: You depend on vendors to complete often-sensitive tasks correctly and on time.
Obviously, when deciding whether to pursue any of these options, you’ll have to consider cost. And over time, you’ll need to regularly re-examine the decision. “You have to try to decide the right balance of the resources available to you,” says Aaron Colby, a Los Angeles-based employment attorney with Davis Wright Tremaine. “That balance changes as you build out your HR department.” Relying on outsourcing is “a good get-up-and-running plan,” but, in the long term, Colby believes employers will pay more in fees than they save in salary.
The Human Factor
Despite all the talk about processes, procedures and compliance, HR professionals stress the importance of remembering the people aspect of your work. Without credibility and buy-in, they say, the HR function you build may not realize its potential effectiveness.
"It's important for HR professionals not to go in with guns blazing, saying, 'This is wrong, that's wrong,' " Baranowski says. "You have to go in with the approach of 'This is my area of expertise, this is where I can help the organization.' " It's all about establishing trust, she adds, which will help you get people on board as you introduce, or experiment with, new ways of addressing workforce-related tasks.
Flexibility also helps. For example, Baranowski suggests that when HR professionals propose a new approach, they should include a promise to the staff to go back to the old way of doing things if it doesn't work.
Finally, Hawkes stresses the importance of keeping your promises. To help with that, document everything—even if much of it is informal. When he joined Lewis Cabinet, he took notes on what he said he was going to do. "I wanted to keep my word," he says.
Mark Feffer is a freelance business writer based in Philadelphia.
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