How to Build an HR Function in a Small Business
Building a professional HR function in a small business is essential for long-term success. Whether you’re scaling rapidly or want to streamline your operations, having the right HR practices in place can not only save time but increase revenue, enhance employee satisfaction and support your business goals.
Here’s a step-by-step guide to help you get started with small business HR processes and systems.
Our Fractional HR Department, HR for SME and startup businesses
Step 1: Assess Your Current HR Needs
Before implementing any changes, take stock of your current HR practices. Ask yourself:
Do you have proper employment contracts and policies in place?
How are recruitment, onboarding, and payroll currently managed?
Are you compliant with employment laws?
What are your most pressing HR challenges—e.g., high turnover, trouble recruiting, or inconsistent processes?
Have their been changes in your business? Maybe you’re growing or adding a new service line?
An honest assessment will help you identify gaps and prioritize what needs immediate attention. Small business HR compliance is critical, so ensure this is part of your evaluation. If you need help with this, you can download our free HR needs self-assessment tool here.
Step 2: Establish the Basics
Start by implementing core HR processes and tools to handle day-to-day operations efficiently. Once you have this in place it will free up your time to focus on the bigger issues. This includes:
Contracts & Policies: Ensure employment contracts, an employee handbook, and key policies (e.g., absence management, disciplinary procedure, grievance procedure) are up-to-date and compliant.
Recruitment Process: Create clear workflows for hiring, from drafting job descriptions to making offers.
Onboarding: Develop a structured onboarding process to help new hires integrate quickly.
Payroll & Admin: Streamline payroll administration and introduce templates for managing employee data.
HR System: Consider implementing an HR software system to capture job applications, centralise employee records and automate tasks like holiday approvals.
Using small business HR software can save time and reduce errors, especially when scaling.
Step 3: Build for Scalability
Once the basics are in place, focus on creating systems that can grow with your business:
Performance Management: Introduce regular goal-setting and performance reviews.
Manager Training: Equip managers with the skills to handle HR responsibilities effectively, such as conducting reviews or managing conflict.
Resource Planning: If you are clear about your business needs, then you can develop a resource plan to ensure you have the right people in the right roles, at exactly the right time
Pay Reviews & Benchmarking: Establish a fair and transparent pay review process.
Employee Engagement: Roll out engagement surveys to gather feedback and identify areas for improvement.
Small businesses that prioritize scalability in their HR setup see better retention and higher employee satisfaction rates.
Step 4: Embed HR into Your Culture
HR shouldn’t just be a standalone department—it should be part of your company culture. Communicate new processes clearly to your team and involve them in the changes. Consider initiatives like:
Monthly HR clinics or drop-in sessions.
Regular communications about policy updates or new tools.
Coaching programs for managers.
Embedding HR into your culture ensures alignment between business goals and team performance.
Step 5: Monitor, Evaluate, and Adjust
HR is not a set-it-and-forget-it function. Regularly review your processes and gather feedback from employees and managers.
Be open to making adjustments to ensure your HR practices continue to meet your business’s needs and stay legally compliant.
Use small business HR metrics to track progress, such as turnover rates, time-to-hire, and employee satisfaction scores. This is easier if you have selected and implemented the right HR system!
Where We Can help
Building an HR function from scratch can feel overwhelming, especially when you’re running a growing business. That’s where we can help.
After 10 years of working with small businesses, we’ve consolidated our expertise into a comprehensive 12-month program that does all of this for you. From creating compliant policies to training your managers, we take care of every detail while managing your day-to-day HR needs.
By the end of the program, you’ll have a fully functional HR department tailored to your business, ready to support your growth.
Why Choose Our Fractional HR Department?
Proven Expertise: With 100+ years of collective experience, we’ve supported hundreds of small businesses.
Practical Solutions: We focus on what matters most to your business—no fluff, just impact.
Custom processes: Every process is designed around your unique needs and goals.
Time Saved: Free up your leadership team to focus on growing the business, not HR admin.
Let us help you take the stress out of HR and build a foundation for your business’s success.
Find Out More About Our Fractional HR Department by Booking a Virtual Coffee, or Check Out Our FAQ.