Do Startups Need an HR Department?

The Milestone Team January 22, 2024
Do startups need an HR dept

No! It’s no longer necessary for startups to have a full-fledged HR department in-house. Does that mean that startups can ignore essential HR functions? Also no! However, outsourced HR for startups makes it possible for startups to have their cake and eat it, too. These services provide vital HR roles while saving your business time, money, and energy.

In this blog, we go over ideas for creating leaner HR systems (including outsourced human resources examples).

In-house vs. Outsourced HR

Deciding between an in-house HR department and outsourcing HR services is a pivotal choice for startups. In-house HR means you have a dedicated team onsite, deeply integrated into your company culture and daily operations. This setup can enhance team cohesion and provide immediate support. However, it comes with higher costs, from salaries and benefits to training and technology.

On the flip side, outsourced HR offers flexibility and cost-efficiency. You access a team of experts without the overhead associated with full-time employees. While concerns about the outsourced team’s integration into company culture exist, the right provider can align closely with your values and goals. This option also scales with your business, ensuring you pay for what you need, when you need it, without the complexity of managing additional staff.

What are HR Needs in a Startup Company?

The role of HR in a startup company is to ensure the rest of your business can operate without legal and personnel issues. For a startup—or a company of any size—to function smoothly, you need to have a plan to fill the following roles of human resource management:

  • Recruiting top talent
  • Leading interviews
  • Onboarding new hires
  • Offboarding employees
  • Ensuring compliance with legal requirements
  • Managing compensation and benefits packages
  • Overseeing time off, sick days, and holidays
  • Leading training and professional development initiatives

Checking off these boxes will support organizational goals, such as growing your team, developing innovative products and services, and staying ahead of the competition. Are you leaving vital functions uncovered? Give us a call to see how our team can help you.

Is It Important To Have an HR Department?

It’s critical for startups—and all businesses—to have essential HR functions covered, but that doesn’t necessarily mean you need an internal HR department. Instead of growing an in-house HR team, startups can partner with an outsourced HR provider. Doing so has many benefits, including:

  • Saving money, time, and energy. With outsourced HR services, you pay for only what you need. This gives your budget more flexibility when allocating resources to different projects, allowing you to invest more time, money, and energy into high-priority initiatives. Considering that Glassdoor reports the average HR professional salary at $78,706, there’s a significant amount of savings you could benefit from! 
  • Tapping into a wealth of experience. HR professionals who work for an outsourced HR services company have experience partnering with a wide variety of business types and industries, including startups! When you bring these professionals into your team, they’re ready from day one to leverage their knowledge to help your business grow.

Ready to see how beneficial HR functions can be, even if you don’t rely solely on an internal HR department? Check out this role of HR in a startup company example:

  • Milestone’s HR function brings continuity to Base, allowing the company to grow quickly and globally. Base—a platform designed to connect executives with executive assistants while avoiding the hassles of the traditional hiring process—had its sights set on global growth. However, “cobbled together” HR systems and complications from a recent merger limited their ability to grow. Then Base partnered with Milestone. Our team worked with theirs to break down silos and unify their team. This allowed Base to focus on their goals rather than back office troubles. Now, Base is operating at the global level that they set out to do.

For more examples of how effective outsourced HR services can be, explore our case studies. To learn how your company could benefit from these services, contact us today. 

Is It a Good Idea for Companies Not To Have an HR Department?

Many companies can benefit from working with an external HR services provider rather than developing an internal HR department. The primary pros to outsourcing HR functions are that your business can save time, money, and energy that would be better spent in other areas. Here’s why you might not need an HR department and a possible HR structure for your business: 

Why We No Longer Need HR Departments

Traditional in-house HR departments are no longer necessary in many cases because outsourced HR services can fulfill all of the necessary functions (at a fraction of the cost). Hearing “My company has no HR department” is becoming increasingly common as startups seek to adopt leaner business models. By working with an outsourced HR services provider, these businesses have more money to reinvest in other initiatives without sacrificing back-office efficiency. Find out more about how much does it cost to outsource HR?

How Should I Structure My HR Department?

For many businesses, a combination of internal and external HR professionals allows for coverage of all essential HR roles without straining budgetary requirements. This model alleviates much of the strain of performing necessary back office tasks, but it keeps an internal team member involved and ready to step in for critical decisions like whether or not to hire or fire someone.

How Do I Create a Company HR Plan?

The best way to create a company HR plan is to audit what tasks you have covered and which have been falling through the cracks. These tasks will fall under the following categories:

  • Legal Compliance
  • Employee Relations
  • Talent Development
  • Staffing, Onboarding, and Offboarding
  • Payroll Management

If your internal team doesn’t have the bandwidth to cover these essential functions, it’s time to consider outsourced HR service providers. Reach out today to make a plan for back-office success. 

Guide on Selecting an HR Service Provider

Choosing the right HR service provider is crucial. Start by defining your needs: Do you need help with recruiting, compliance, employee benefits, or all of the above? Once you know what you need, look for providers with experience in your industry and with companies at your stage of growth.

Ask potential providers about their process, technology, and how they measure success. Request references and case studies. A good provider should offer a clear communication plan and be proactive about integrating with your team. Finally, ensure their pricing model aligns with your budget and offers the flexibility to adjust services as your startup grows.

Modernize Your HR Solutions with Milestone

To stay competitive in the startup landscape, you need as many resources available as possible. Modern HR solutions are more varied than relying solely on an internal HR department. This is good news for your business because you can take advantage of outsourced HR services that free up your resources and give much-needed flexibility to your strategic initiatives.

It’s time to charge to the head of the pack. Your HR solutions are the key. Contact us today to learn how.

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