In the early stages of working on a startup, there is little time to spend on areas other than product development and talking to users. However, as you start to hire people and build a team, there are HR fundamentals worth investing in. Having basic HR practices in place can help your startup scale quickly and may eliminate unforeseen and often costly problems down the road.
The People Person
Many founders ask me “when is the right time to hire a HR person?”. My recommendation is around 20-30 employees or after a Series A round. Bringing on a dedicated HR person earlier than this may make sense for some companies if they intend to scale their workforce quickly or for other reasons; for example, a non-exempt workforce that needs managing. (See below for more information on “classification.”)
In the absence of dedicated HR, there should be someone on your team acting as your “people person.” This person is not a founder and acts as a sounding board or liaison for your team. Having a people person that your team can come to and voice their concerns is important. This person should have good judgment, be intuitive, and know when to escalate issues. It is not their job to solve HR issues, but rather to receive feedback from your team and keep a pulse on cultural issues that may be brewing.
This is not to say employees should not be encouraged to speak with their founder(s), though often employees are not comfortable doing so and need another outlet. Providing your team with multiple ways to voice their concerns may help you resolve issues faster and promote a culture of transparency and open feedback.
There is little need in the early stages to have a robust hiring regime, however, a few hiring fundamentals can go a long way.
First, appointing a person to manage your hiring pipeline and keep candidates moving through each phase of the hiring process is a good idea. Your hiring experience provides insight into your company culture and a positive candidate experience may be the reason a candidate accepts one offer over another. For those candidates who are unsuccessful, closing the loop with them is important and shows that you respect their time and appreciate their interest in your company.
Second, create a hiring plan and formulate a set of questions for each interviewer during the onsite. Too often the same surface level questions are asked over and over again when there's no internal interview plan. Each interviewer should play a role in the hiring process and deep dive into different areas of the candidate assessment for eg. culture fit, soft skill assessment, technical assessment, management approach, working style, and communication.
In recent years, the classification of personnel has been a hot topic. It is important that your workforce is classified correctly. Classification categories include regular full-time, part-time, temporary and seasonal employees that are either exempt or non-exempt. Other classification categories include W2 employee versus 1099 contractors and consultants. YC company Gusto has some helpful information on its Help Center regarding Employee Classification Options. The CA EDD also has a worksheet to determine if a worker is most likely an employee or independent contractor.
Misclassification can be a costly mistake with potential back payment and penalties. Keep in mind that there are specific laws for nonexempt workforces pertaining to meal breaks, overtime, and holiday pay that your company must adhere to despite the size of your team.
Payroll & Benefits
Employee benefits are a big overhead expense for startups. In the early stages, you don’t have to offer a full suite of employee benefits from day one, though keep in mind that quality benefits are a drawcard for many potential candidates.
TIP: Offer a silver or gold tier base plan with an optional buy-up plan. Often startups pay 100% of premiums for a base plan (generally a silver or gold tier plan) and give employees the option to enroll in a higher tier plan, with the additional cost of the premium paid by the employee. This approach helps startups anticipate their employer costs while giving flexibility to employees.
As for payroll, keep it simple. I’m a big fan of providers such as Gusto, Zenefits and Rippling that administer both payroll and benefits in one portal. When assessing payroll and benefit providers, look at the amount of backend administration needed, available integrations such as 401(k), Flexible Spending Accounts and bookkeeping services, and the tools available to employees such as dashboards, calculators and online support.
A company handbook outlines the policies and procedures that govern your company. It outlines policies such as paid sick leave, paid time off, parental leave and other state and federal mandated laws. An acknowledgment form is signed by each employee, confirming that the employee 1) received the handbook, 2) has read and understands the contents of the handbook and 3) will adhere to the policies in the handbook.
TIP: Outside legal firms often provide free company handbook templates to their clients. The template forms the basis for your handbook and can be easily customized. YC Company Human Interest has a free Startup Employee Handbook template available on its site and note handbook examples from Zappos, Valve and The Motley Fool.
Outlining a clear onboarding process from when a candidate accepts an offer to joining your company will provide a positive introduction and get your new employees up and running quickly. Some startups use an “Onboarding Guide” to help educate their new employees. An Onboarding Guide outlines all the need-to-know items such as what internal tools the team uses, team Slack channels, where to find important information, employee benefits, perks and where to find the snacks (always important).
Hub has published The Ultimate Guide for Onboarding for Lean Startups including helpful tips, tools and a timeline for successful onboarding.
It’s inevitable that you will have people leave your company, whether voluntary or involuntary. It is important to have a process for offboarding to ensure the employee that is leaving receives their final paycheck (including all reimbursements, commissions, bonuses, etc), company equipment is returned and IP is protected. A separation agreement outlines the conditions of the termination and may include a separation amount. It is a good idea to use your legal counsel for guidance and ensure your separation agreement is updated according to the specific situation at hand.
Lastly, exit interviews are a good way to get insight into your company culture and areas that need more attention. Sometimes the feedback from exit interviews can be good, bad or downright ugly. Despite the type of feedback, having data points and examples of positive or negative aspects of your company is a big plus and may help you make important changes.