Key HR and Recruiting Decisions Every Startup Must Make
There’s amazing HR software out there. HR software is important. But it’s not everything. While software can handle a lot of the day-to-day issues faced in HR, the ultimate decisions still lie with the founder. It is up to them to decide how to use software and execute an HR strategy. We’ve compiled a list of HR decisions that management teams confront in the hiring process.
Growing? Hiring? You’re probably doing both. Have a look at some of these factors to help you plan.
Defining a Position:
Why is the position needed? You have to think about what needs are not being met in your company. Every position should be created with a purpose; employees should be serving specific needs.
What are the goals? You bring on new people to accomplish specific tasks within the company and to meet certain goals or quotas. Before investing resources in a new person, you need to think about how they will change the company for the better.
What experience is needed? You probably have an idea of what experience is needed for the role - whether industry experience and/or specific experience in a specific role. For many startups, the experience of working in a small company is important - it’s also helpful to know that the candidate is able to thrive in the startup environment, especially in the early stages.
To whom will they report? Every company has a hierarchy, even startups. These are important as it makes people responsible and accountable to another person. The supervisor for this position should be very involved in this process, if not leading it.
What is the growth potential in this position? You don’t want someone who can only do one job. You want an employee that can fill new roles as they emerge. When envisioning a position, it is important to figure out how it will evolve and how its goals will change.
Will this position displace existing employees or functions? Every new addition will alter a team and, often, new additions encroach on existing employees’ roles. You need to figure out before you bring someone new on how it will affect your team composition. Most likely, you’ll want to have these conversations before recruiting becomes public.
What salary should you offer to the candidate? While the overall value of the comp package should be assessed against market value of the role, as well as the candidate’s experience, the salary component is strongly influenced by the startup’s runway and access to capital. The salary for this position should be assessed in the context of the recruiting budget for the next 6-12 months as well as the revenue and growth associated with each hire.
What about healthcare? There is a lot of variation in how startups treat health care coverage as part of a recruiting plan. In earlier, pre-funding stages, it’s harder for companies to cover much. However, many HR companies make it very flexible for employees to access the favorable rates, even if the employer is not contributing much to coverage.
Should commission play a role? If this is a sales role, yes; this is the best way to give sales employees the incentives to sell the product. It’s worth spending time with experienced sales folks to properly define the commission plan. Details matter here and you want to make sure, in these early stages, that you’re incentives drive the pricing, relationships, clientele and sales behavior that is right for your company.
How much equity should you give? Equity is a common startup tool employed to help make all employees literally and figuratively invested in the company’s growth. Startups usually offer equity in the early stages because offering upside in team’s success helps balance out the risk associated with younger businesses as well as a more limited capacity to pay market rate salary. How much to give should be based on (1) the pool you’ve set aside all hires (2) market norms for your stage and the role and (3) seniority.
What other factors matter in the comp package? Other elements of the comp package could include bonuses or salary bumps based on the company meeting goals. Profit-sharing is also appropriate in some cases, especially when normal equity might not be a perfect fit - such as in an LLC.
Benefits and Perks:
How to treat parental leave? While the United States has very Spartan parental leave laws, many companies go above and beyond. Employees who are planning families will take parental leave into serious consideration when picking a company to work for.
Are 401ks important? People worry a lot about their retirement. If you as a company put forward more towards their 401ks and retirement funds, they will be more likely to work for you.
Do you offer lunch? A big perk we hear about is free lunch. Eating is very communal and a good way for your employees to socialize. Free lunch makes for a happy office.
Is the office fun? This goes hand-in-hand with communicating culture. Having a fun work environment, such as ping pong tables and nap rooms, where employees want to be will make them more productive.
The Recruiting Process:
Where should you post jobs? When deciding where to post, you need to be thinking about what forums and pools of talent you want to access. AngelList will have people looking specifically for startups, and Upwork is great for freelancers.
What is your startup’s culture? As a management team, you set the direction and vision not only for the product but also for the team culture. As your recruiting process begins in earnest, make sure you have a strong sense of your team culture. You’ll need that before you can determine whether candidates are good fit with your brand and company culture.
Who to hire? Everyone looks good on paper, but a resume does not always communicate who will be the best employee. You must learn to identify an employee's strengths and weakness by asking insightful questions and checking with past employers.
Should you negotiate? There is a balancing act to be struck. First thing’s first, you need a budget so that you know how much you are actually, practically able to pay. When it comes to negotiating with the candidate, you need to determine how valued the potential employee is and how valued the position is. There are many ways to meet reach a mutually beneficial outcome including things like salary bumps when the employee meets certain targets.
Is your offer letter kosher? A proper offer letter should include the name of both parties, a statement that the relationship may be changed, compensation, term of employment, employee benefits, a discussion of PTO, among many other considerations.
How should we plan for onboarding? It takes a while for new employees to become productive members of the team; the better the onboarding process, the faster this happens. Stacklist does its onboarding by giving specific assignments to new hire. If you need to do background checks or verification, we recommend you try TalentWise.
How to choose a payroll provider? There are many payroll tools out there. You need to find one that meets all the needs of your employees. Things to take into consideration is if you are paying in multiple currencies or you have hourly employees. Not all software is created equal.
Why proper Paid Time Off (PTO) management is important? All companies give their employees some vacation time. You need software that can handle and input when employees are taking their vacation days, and you need to decide the right balance for your company.
Is overtime a factor for your startup? In our experience, it’s not common at smaller tech startups with full-time employees. If overtime is a factor for you, first make sure you know how much overtime you can afford.
Can you afford and manage overtime? In the same vein, you also need software that can handle and process overtime tracking and pay, and you need to figure out whether to keep employees for overtime. If the cost justifies it in the end.
Are taxes processed correctly? You want software that automatically deducts taxes from your employee paychecks, so April doesn’t get too messy. Additionally, you want software that can provide your employees with W-2s.
Is the Affordable Care Act (ACA) understood and being adapted to? The ACA is still being implemented and changing how employers handle health care. Your software has to be up-to-date on regulations or you could pay the price.
Are employees being reviewed properly? Understanding which employees are performing best and which are not is an important part of determining the viability of your company.
Can employees move up? Many employees only want to join a company if they know they can work their way up the “corporate” ladder. You need to make sure there is room in your organization for talent to grow and that hard work and success will lead to better compensation and a promotion.
Is there a system in place to manage underperforming employees? If an employee is performing less than they should, being able to intervene and change certain aspects of employee behavior could fix the problem.
Is there an exit strategy? Being able to process exits is fundamental to the employment life cycle. While letting someone go is never a fun experience, sometimes it is necessary for your business. Have you put the processes in place for someone leaving your company?
Are you compliant with state and federal employment laws? What is expected of your company changes from jurisdiction to jurisdiction and messing this up could cost you big bucks. Software like TriNet and Justworks helps make sure you're up to code.
Choosing HR Software
Does the HR company work well with startups? You’ll want to find HR companies that have experience working with startups and some of the complexities that come with startups - whether it’s personnel’s response to some of the more roller coaster nature of startup life or helping smooth the way for management teams during rapid spurts of hiring.
How many employees do you have? HR can be handled in-house to a point. If you have about 30 people on your team, you should probably consider a full time HR hire. The question is if you have too many employees or expanding too quickly to effectively manage HR. The next question to ask is if you need a dedicated HR person on your team.
How user friendly is your HR software? This is a big priority among Stacklist startups. “Justworks is awesome for the $70 or so that we pay per employee. I don’t have to think about anything in regards to taxes or worker’s compensation. It’s all taken care of very easily by Justworks. I would highly recommend them as a tool; they’ve been great for us. I’ve been using them since they were in their early stages 4-5 years ago.” -Derick Thompson, Founder and Managing Director of StartupRunner
Cost? Many early startups are price sensitive. You need to make sure the HR company you choose is worth the money you have to pay for it. Always ask if there is room for them to lower costs perhaps for the first year or for the first X employees.
Is there someone on the other end of the phone? Good UX maketh happy customers in the startup community, but it’s still nice to know there’s a team behind the software that can help. Assess for your own team whether the customer service aspect is important to you. If you’re a founder who would value feedback on comp packages, employee management or termination protocols, you probably want to find an HR company that is well-reviewed on the customer service front.
Do you want a PEO? PEOs often get better deals than non-PEOs. There’s strength in numbers. Generally, this is a great option for smaller startups who don’t have the numbers to negotiate good insurance rates themselves.
Does it integrate with other software? Since you are probably using multiple pieces of software, it is important that they all work together. Integrating with accounting tools like QuickBooks, Xero, or Freshbooks, for example, could save a ton of time that you could invest back into your business.