Does Your Startup Need an HR Department?

Deciding whether your startup needs an HR department can be tricky. If you create an HR function, you are spending money to ensure smooth operations rather than increasing your spend on product development, marketing, or sales. If you invest too early, you have wasted money and demonstrated poor planning and problem solving. If you invest too late, you will likely subject your startup team to derailment as employee conflicts inevitably appear. There is also the risk of claims as managers make decisions that may conflict with the intricate web of employment laws and regulations. Read on to learn how technology can help you delay making this tricky decision.

New Technology Lets You Delay Creating an HR Department

Current technology gives your startup the option of waiting much longer to create the HR function. There are new SaaS HR systems that automate all the transactional HR functions like onboarding, payroll, and benefits that even a few years ago would have required at least one in-house HR employee to manage. Here’s a quick list of three HR systems specifically designed for startups:

1. Zenefits: A free online HR system that automates onboarding by sending out the offer letter and employee handbook. It also manages healthcare benefits, tracks stock option grants, time and attendance (for employees eligible for overtime pay), and stores all employee data. Zenefits makes its money from payroll and health insurance vendors which makes it free to companies.

2. BambooHR: BambooHR tracks all your employee information and also automates onboarding new employees, tracks time off, and manages benefits. BambooHR can also store performance management data and offers very easy integrations with suggested partners for applicant tracking, online document signatures, payroll, performance reviews, productivity, training, time, and attendance, etc. The service is less than $200 per month for a team under 50 and they have excellent customer service, and engaged user community, and a useful online help center. Personally, I think the BambooHR system is easier to set up and launch than Zenefits, which is helpful if managing this system is someone’s “side job.” BambooHR has a great roster of clients such as Lyft, Coursera, Atlassian, Disqus, and others.

3. Justworks: Justworks is the newest team to enter this space. Their HR system is similar to Zenefits in that it connects you with payroll and benefits providers and automates all the HR transactional processes such as time and attendance, onboarding, and I-9 compliance. The user interface and design of this system is very sleek and intuitive. Plus, their system includes helpful tools like employee handbook builder, job description builder, performance review tools and a white paper library.

These HR systems automate most of the transactional HR tasks for startups and probably require one person to take responsibility for implementing the system and serve as the point person to follow up on issues relating to payroll, benefits, PTO, etc. That person does not need to be an HR professional.

However, you will need an HR professional to help you navigate employee issues relating to performance, discipline, conflicts, leaves of absence, wage and hour, etc. These issues do not crop up very often when you have fewer employees, so it makes sense to outsource and use an HR consulting firm to help you address these issues as they crop up from time to time.

50 is the Magic Number Requiring HR

Once your organization is 50 employees strong, you need a real HR professional as a regular member of your team. There is a reason many employment laws, both federal and state, cover employers once they hit 50 employees. This is the point that your company is just too big for one or two people to proactively watch for employment issues. If left unchecked, employment issues can derail your team and definitely stunt the growth of your company. At this point, you need an HR professional with domain expertise and the proven skills and experience to spot and resolve potentially messy situations before they turn into bigger problems that can derail the team.

Startup teams often do not appreciate the role that experience plays in mastering the HR function. Searching Google just does not cut it as nothing in the search results can warn you of an impending employee conflict, a harassment claim, a workers’ compensation claim, a medical leave or wage and hour issue, etc. It takes having seen a lot of workplace situations to spot a problem and predict how it is likely to evolve. There comes a point in every growing startup’s lifecycle when conflicts and workplace issues require in-house expertise to resolve while keeping the startup productive and growing.


HR technology is automating many of the HR transactional tasks and allowing startups to delay investing in an HR function. However, when you hit 50 employees, you need to invest in a more robust HR function within your team to ensure your workplace remains conflict free, productive, and on track for big growth.



Janine Yancey is the President of Emtrain, an ed tech company for the enterprise, working to strengthen workplace skills and build better business cultures.