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The Top Five HR Issues for Start-Ups

Posted by Michael D. Haberman

startup hr issues

Most entrepreneurs who are starting a company don’t think in terms of HR. Instead, they’re thinking of activities or programs, such as payroll or hiring. In reality it would serve them well to start right out of the gate by thinking of human resources as a system, where an intervention in one area may have an impact on another area. That may be a bit of wishful thinking on my part—after all there are many mature HR departments that don’t even have that perspective. Nonetheless, there are important issues that should be considered from day one. Here are what I consider to be the top five issues for start-ups.

Issue #1: Hiring the Right People

Quite often an entrepreneur will start a business by hiring friends, family, or colleagues as the first employees. Sometimes this is good and sometimes it’s bad, because people are hired because of who they are, not necessarily what they are capable of doing. Sometimes they will step up to the plate and do a great job, other times they are ill suited to the role and then they become a liability and a management challenge.

To avoid this, entrepreneurs should spend some time writing job descriptions for those first key roles. This is really an exercise in thinking through the skill sets that will be necessary in those first jobs, rather than crafting the perfect job description. With a document like this, you’ll have something to measure the capabilities of candidates against, and a starting point for talking to candidates about their experience.

No one should be hired without this kind of evaluation, regardless of how well you know the person. Putting someone in a position for which he or she is ill suited is a formula for disaster and will cause heartache for all parties involved in the future.

Issue #2: Deciding What to Pay People

Money is always an issue in a start-up. What someone is willing to accept and what the company is willing to offer will determine how successful the company is in attracting the talent needed. Typically the package will consist of a base salary plus an offer of some equity in the company, depending on the level of the position. Lower-level non-exempt positions may be strictly based on an hourly wage. The prime consideration will be what the different levels and combinations should be. There’s generally enough industry information available on the Internet about salaries for an entrepreneur to make a guess at what will be appropriate, based on the company finances. Owners may be willing to work for nothing, but employees have to be paid. And that leads to the next issue.

Issue #3: Knowing What HR-Related Laws Apply

Most of the federal laws in the U.S. that are considered to be HR-related don’t kick in until a company reaches 15 employees. But there are several that are not based on size, but on other factors. Prime among these is the Fair Labor Standards Act. This is the law that dictates minimum wage, a 40-hour workweek, and overtime pay. This law kicks in when a company reaches $500,000 in revenue and is engaged in interstate commerce. This is not as big a hurdle today as it was in 1938. That’s why many small companies run afoul of this law early on, and can start loading up a big plate of liabilities.

Other laws a small company needs to be aware of have to do with workers’ compensation, OSHA (if they are a manufacturing startup), and new hire reporting. Outsourcing activities such as payroll will help in understanding some of these issues and can take the worry out of compliance.

Issue #4: Communication

Many entrepreneurs get so caught up in the creation of their product or service and setting up the company that they forget to talk to their co-workers. They operate under the mistaken impression that everyone is on the same wavelength. Unfortunately, sometimes nothing could be further from the truth. Without proper and timely communication, employee efforts can head off in the wrong direction and may only be turned around—too late—as the result of a mistake that occurs.

To me, there are two pieces of communication that are critical for every start-up. The first of these is the employee handbook. I can hear you now, “Are you kidding?” I am not. I am also not suggesting some thick legalistic tome that bores everyone. At this point, the handbook may be nothing more than a brief document that sets the expectations for everyone that joins the organization. It communicates the vision and the culture that forms the basis of the company. It talks about the responsibilities people should expect as an employee, and how to approach customers. It establishes the rules that are important from the get-go.

The second communication issue is feedback. Call it performance management if you want, but it does not have to be some formalized paper process that is conducted once a year. That is a tool and a poor one at that. I am talking about leadership here. I am talking about daily interactions that result in minor adjustments of employee performance and behavior. If someone is going astray, it’s stupid to let him or her go for a year, or a quarter or even a week without saying something. Everyone profits from immediate feedback on their performance.

Issue #5: Terminating Employees

If you have been doing the performance feedback, you may not have to terminate an employee in the early stages. Sometimes, however, the person may just not be the match you had hoped he or she was going to be. Unfortunately this causes heartache for many entrepreneurs; after all, they have made an investment of time and effort in this person, and as a result they often take forever before deciding to let the person go. This is a mistake. It causes productivity problems, morale problems, and it potentially harms relationships with customers and suppliers that may lead to legal liability issues. Therefore, terminations need to be swift, performance-related, and well documented.

Yes, I said it, documentation. This is another thing that entrepreneurs often do a poor job at. Those performance discussions I mentioned before need to be documented, especially if the behavior or performance is not improving. Documentation does not need to be multi-page essays. A simple note or recording that can be put in a Dropbox folder is often sufficient. If you can whip out your mobile device, record a comment such as “Just talked to Joe about the excess waste he produced. I told him I expected an improvement on the next job,” and then save that in the Dropbox folder you have set up on Joe, you will have met the documentation requirement. From there, if you get to the point of terminating Joe, you will have a history of discussions and warnings.

Summary

There are many other things you can do in a start-up from an HR standpoint, such as implementing training programs, but if you tackle these five issues, you will be doing better than most. Make sure you are hiring the right people; you’re paying them correctly; you know what laws you have to comply with; you communicate with them all of the time; you don’t let rotten apples stay very long, and you will be successful. Of course as you grow there will be many more issues and many more laws to comply with, but get off the ground first and worry about those later.

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About Michael D. Haberman

Author

Michael D. Haberman is Vice-President and co-founder of Omega HR Solutions, Inc., a consulting and services company offering complete Human Resources solutions. As the former founder and President of MDH Consulting, a Human Resources consulting firm, Mike has more than 35 years of experience in Human Resources, and he uses his broad-based background to help companies solve employee problems and deal with governmental compliance.

3 COMMENTS Join the discussion
  • Ali Mitchell September, 15, 2014

    Business founders tend to overlook the human resources department. They are more involved in other aspects of a new business that seem to have a much higher priority. HR doesn’t seem as important as marketing, sales, management, or business operations. The founders focus more on the company’s products and services, but they forget that nothing is possible without the right people around their business.

  • Carin Dixon September, 16, 2014

    HR is essential for a start-up – it’s not something to neglect. HR people can help you to find the right employees, identify gaps in the business plan that can affect achieving business objectives, and evaluate the effectiveness of the ongoing processes. Also, when we are talking about start-ups, HR people are very helpful concerning legal issues.

  • Elise S. September, 17, 2014

    Every start-up needs people who can get the business off the ground. Hiring friends or family members is not the best step for a business founder to take. He or she should invest time in searching for people that have the ability to understand the business and make the best of it. A start-up needs people who are knowledgeable about the services or products of the business, because all that matters is to have a high-quality service or product that shows up on time.

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Guest September, 17, 2014