HR for Startups: 5 Challenges and How to Overcome Them

For small-size companies with a relatively small number of employees like startups, hiring HR professionals might be the last thing on their priority list. The truth is, employers of all sizes have human resources challenges in efficiently managing their workforces and maintaining compliance with what might seem like an endless number of labor rules. Typically running on a shoe-string budget, however, startups might face unique challenges in overseeing HR.  The following are five typical HR challenges for startups along with some useful tips for dealing with them.


1 . Hiring Qualified Candidates

According to a survey by ADP, almost half of all startups admit they have difficulty in finding and hiring qualified employees. This can be due to candidates being unsure about the future of startups, since they are relatively newcomers. Whereas, choosing the right people is vital to a startup’s success because it determines productivity and organizational growth.

Solution: startups need to come with a thorough hiring plan. Make sure that job descriptions provide detailed requirements for the position, mention benefits, and are free from unconscious bias. Consider using a variety of platforms to advertise job vacancies, such as online job boards, social media, and partnerships with universities.


2 . Budgeting for Benefits

In order to remain competitive in the job market, many companies recognize the need to provide employee benefits. Needless to say, startups might find it difficult to provide attractive benefits packages mostly due to their tight budget. Additionally, with the rising cost of health insurance and other traditional benefits, budgeting for benefits becomes one of HR challenges for startups.

Solution: startups can consider offering low-cost or non-traditional benefits like paid time off, flexible work hours, and an option for hybrid or remote working. These advantages may be beneficial to startups in terms of achieving a work-life balance while saving budgets for benefit. Employee discounts, casual dress days, and an employee appreciation program are other cost-effective alternatives.


3 . Establishing Internal Policy

A company handbook is a great tool to ensure that employees obtain essential information about a company’s internal policy. A well-written employee handbook can actually develop performance and behavior, answer frequently asked questions, and specific information to employees in detail. However, some startups are not aware of these advantages and do not have a company handbook in place. 

Solution: the solution is clear that startups need to pay attention to small details, including to establish an internal policy handbook. Consider your startup culture while creating a handbook, along with frequent employee concerns and questions, in order to address them proactively. Once the handbook is issued, seek an acknowledgement from employees confirming that they have understood the company internal policy.


Read Also: How to Strengthen Cultural Values of Your Startup


4 . Compliance to Regulations

Compliance to regulations is another vital HR challenge for startups. In a survey by ADP, 43% startups have low confidence in their ability to keep up with developing labor regulations. Meanwhile, 17% of startups said they had been the subject of an internal complaint, an agency complaint, or a lawsuit in the past 3 years. Wage and hour issues, as well as recordkeeping concerns, are among the most worrying issues for startups. 

Solution: it is critical to guarantee that all employees are appropriately categorized under both federal and state law where a startup is registered. Startups should make an effort to keep all employment-related data in a personnel file. This can be in a separate confidential file for each employee containing any data related to their medical condition and other confidential information.


5 . Managing Employee Productivity 

Employee retention has been one of the most common HR challenges faced by startups nowadays, as they are usually attributed to ‘high turnover’ stigma. While there are many factors that can harm retention, failing to manage employee productivity actually becomes a latent but serious cause. 

Solution: when employee productivity is declining, it is essential to identify the cause of the problem. Startup leaders should pay close attention to employee performance and take corrective action as soon as something goes wrong. Consider doing frequent performance assessments to assist with feedback, goal planning, and progress reporting. Startups should also ensure that their employees are motivated and engaged by appreciating milestones, recognizing achievements, and giving opportunities for development.


HR challenges vary from one company to another. Given their scope and resources, startups may face even more HR challenges than bigger companies. Nevertheless, with appropriate strategies in place, startups can address HR challenges head on and refocus on expanding their business.

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