10 Ways to Effectively Set Up the HR Function for Your Startup in 2025

Every startup begins with founders handpicking their early team, tapping personal networks, leaning on gut instinct, and staying close to every hire. In the earliest days, this worked. But as headcount increases, growth exposes new challenges: essential skills are missing, cultural cracks appear, and the pace of recruitment makes it impossible for founders to remain personally involved in every people decision.

At this stage, instinct alone is no longer enough. A startup’s ability to attract, develop, and retain the right talent determines whether it scales smoothly or stalls under pressure. In other words, people are the business, and without a structured HR function, even the best product or funding can falter.

As Moritz Fischer puts it:

“For HR Professionals, the urge to put data at the center of our work is strong, but we should never forget the core of our work- people. Combining data literacy with empathy and understanding is the key to keeping HR human”

Mortiz Fischer

Talent Acquisition Specialist, AIHR

This balance of structure and humanity is exactly what startups need. Put simply, a strong HR foundation makes growth predictable. It turns hiring into a repeatable process, keeps payroll and compliance on track, and sets simple rhythms for feedback and development. It also frees founders to spend time on product and customers instead of constant people fires.

Just as important, HR turns a founder’s vision into lived culture. When you design it on purpose, values, conduct, inclusion, and how decisions get made, people know what “good” looks like. When you don’t, culture forms by accident, and small frictions become churn.

In short, HR in a startup is the operating system for growth. It builds a steady pipeline of talent, sets the guardrails for culture and compliance, and gives managers the tools to keep teams productive as the company doubles and triples in size.

The Need for HR in Startups

In a startup’s early rush, it’s easy to push HR to the background. Founders are consumed by survival tasks, closing customers, shipping features, and finding capital. People management becomes something to “handle later,” squeezed in between investor calls and late-night product sprints.

The danger is that teams feel the impact immediately. Poorly structured onboarding leaves new hires adrift, culture turns into a set of unspoken assumptions, and long hours without support create frustration. Over time, this erodes trust and cohesion. It’s no coincidence that HubSpot data shows 21.5% of startups fail within the first year, with weak hiring practices cited as one of the biggest culprits.

Investors and accelerators notice these cracks. They look closely at retention rates, leadership stability, and how well a team works together before backing growth. A business may have a promising product, but if the team looks fragile, confidence fades quickly. Strong HR practices, on the other hand, demonstrate maturity, showing that the company isn’t just building software or selling services, but also building the kind of workplace where people want to stay.

You can experiment with product features or marketing campaigns, but when it comes to your people, improvisation has limits. Sooner or later, every founder realizes: you can hack your way into the market, but you can’t hack your way into a healthy team.

In the sections that follow, we’ll move from the “why” into the “how.” For most startups, the first HR role begins as a generalist, someone juggling urgent tasks like the next hire while also laying the groundwork for processes that will serve a team of 50 or 100. 

Let’s dive into the practical steps for building HR in a startup.

How To Set Up the HR Function in Your Startup

1. Align with Founders on Goals, Headcount, and Budget

The first step is alignment. HR should be anchored to the startup’s strategic plan from day one. That begins with a conversation between HR and the founders to understand the business goals, product roadmap, and hiring needs. As one HR thought leader advises, HR leaders should have a comprehensive understanding of the company’s vision, mission, and goals, ideally by giving HR a seat at the executive table to absorb strategy firsthand.

This alignment means asking practical questions early: What markets will the company enter this year? Which skills are mission-critical? How many people can we realistically bring on board within budget? The answers shape every HR decision, from recruitment and compensation to culture and policies.

• Set Headcount Plans: If the tech team plans to double in the next 12 months, HR should plan accordingly. Align on budgets: how many hires can be made, with what salary ranges. This helps you design recruitment and compensation plans that are affordable.
• Agree on Culture and Values: Discuss the desired culture so policies and hiring can reinforce it. Make sure founders share their non-negotiables so HR can build those into employee guidelines.
• Clarify HR Role: Discuss what administrative support (if any) exists, and how decisions will be made. Is HR an equal partner, or mainly an advisor? This clarity helps scope your initial focus.

By aligning with founders up front, you ensure HR initiatives directly support business objectives. For example, if growth depends on rapid sales hires, HR can prioritize streamlining sales recruiting and offer processes. If compliance is a priority (in e.g. healthcare startups), budget for legal or PEO help early. Without alignment, HR work risks being reactive or misaligned. In short: start with a clear HR “charter” negotiated with leadership.

2. Publish a One-Page Working Agreement

Even with a few people, it’s important to establish basic rules and norms. A full employee handbook can come later, but start with a one-page working agreement that everyone can follow. This sheet (or brief intranet page) should cover essential policies and expectations. For example:

• Work Hours & Schedule: Define core office hours (e.g., 10–4) or remote policies. Clarify expectations for working evenings/weekends (if common) or how emergencies are handled.
• PTO and Holidays: State how paid time off accrues and is approved. List official company holidays and any blackout dates (e.g., product launch weeks). Clarify sick leave policy.
• Remote/Flexible Work Rules: If remote or hybrid work is allowed, spell out guidelines (e.g., frequency of in-office days, equipment stipends, communication norms).
• Code of Conduct: Outline expected behaviors and values. Even a sentence or two on diversity & inclusion and mutual respect sets the tone.
• Anti-Harassment & Grievance Process: Make it clear that harassment of any kind is prohibited. List the channels for reporting issues confidentially (e.g., HR contact, email, manager).
• Performance & Feedback: Explain how often feedback or reviews occur (even if informal), so employees know how and when performance is discussed.

This working agreement need not be long, but it should be clear and compliant. According to HR consultants, a compliant employee handbook is a key part of a strong HR foundation because it formally captures how you want your startup to operate.

In other words, even if it’s one page, it ensures everyone understands the basics from day one. It also provides a reference for new hires, so that your 50th employee is told the same ground rules as your 5th. Having a clear handbook or agreement early ensures you have a clear understanding of how you want your business and employees to operate.

3. Define the Basics: Contracts, Payroll, and Compliance

Next, handle the essentials of employment. This step is about legal and logistical infrastructure. For any country (and especially in the U.S.), HR needs to ensure compliant contracts and payroll from the start. Key actions include:

• Employment Contracts: Draft a basic offer letter or contract template. Have a lawyer review it to cover at-will employment, confidentiality, intellectual property, and any specific covenants. Use templates if on a budget, but don’t omit key clauses.
• Payroll Setup: Choose a payroll solution or provider. Many startups use payroll services (e.g., Gusto, ADP) or a PEO (professional employer organization) to handle tax withholdings and benefits. For example, a small U.S. startup, GrowthLoop, working across states might use a PEO (like Justworks) so that payroll taxes, benefits enrollment, and state compliance are all managed centrally. It saves time and reduces risk.
• Taxes and Benefits: Ensure you register for required tax IDs (EIN for U.S. companies). Clarify any mandatory benefits (e.g., health insurance requirements, 401(k) retirement plans, workers’ comp insurance, unemployment insurance) and set them up.
• Compliance Training: Don’t forget mandatory training. For U.S. startups, this often means anti-harassment training (especially in states that require it) and posting employment rights posters (EEO, FLSA, etc.) in a visible area (even digital in some cases). In multi-state or global operations, keep track of local labor laws. Many startups “get caught” by small compliance issues (like not having I-9 forms for employees or forgetting OSHA posters) that are easily prevented with awareness.

In effect, this “basics” step is laying the legal groundwork. HR professionals must learn to apply legal regulations to ensure compliance in areas like payroll and benefits. Whether you outsource or handle it internally, do not skip this.

Noncompliance can be costly. A startup might use simple tools or vendors: e.g., a cloud payroll system that integrates tax calculations, an HRIS that enforces PTO accrual rules, or a benefits broker for health plans. Document procedures: even a small employee count can generate lots of admin (pay stubs, W-4s, contracts).

Automate what you can. Larger companies can significantly reduce administrative HR workload through automation. This automation primarily targets repetitive tasks, freeing up HR professionals to focus on strategic initiatives and data-driven decision-making. Aim to capture some of those efficiencies early, too.

4. Build a Hiring and Onboarding Framework

One of HR’s most urgent tasks in a startup is hiring quality people quickly. You should formalize how you recruit, interview, and welcome new hires. Even if the team is small now, having a consistent process prevents chaos later.

• Recruitment Process: Create a standard workflow. This includes writing clear job descriptions aligned to the company vision, deciding who will interview (founder, team members, HR), and what questions to ask. In startups, founders often improvise interview questions, but it’s safer to prepare a basic scorecard (skills required, cultural fit qualities).
  
  This ensures fairness and speed. As one consultant advises, establish strong hiring practices early: with good job postings and interview guides, you don’t need to reinvent the wheel later when volume picks up. Ideally, your 50th hire should say they had the same clear, positive interview experience as your first.

• Applicant Tracking: Even a simple spreadsheet or free ATS (applicant tracking system) can be invaluable. It tracks candidates through stages (applied, phone screen, onsite, offer) so nothing slips. Log candidate data, feedback, and offer details in one place. This also helps with compliance (e.g., recordkeeping under EEO rules).
• Onboarding Plan: After someone signs, ensure a smooth first day. Prepare their workspace (laptop, accounts, badges) in advance. Have a checklist: e.g., paperwork collection (forms, IDs), introductions schedule, training plan. In a startup, a new hire might otherwise feel lost if no one has time to orient them.
  
  Even a simple “Welcome” agenda (meet key people, set up systems, explain company story and goals) goes far. Effective onboarding sets the tone for a positive experience and helps new hires contribute more quickly. A clunky onboarding can drive turnover as fast as a bad interview. So assign a buddy or buddy manager to guide them.

• Early Engagement: Plan a series of check-ins in the first 30-90 days. The HR founder or manager should meet new hires weekly to answer questions and gather feedback on the process. Many startups fail to do this and lose good people who felt unsupported early on.

Effective recruitment and staffing create a consistent hiring and onboarding experience. SHRM found that employees are 69% more likely to stay for 3+ years after great onboarding, and companies with standardized onboarding see 50% higher new-hire productivity.

5. Create a Clear Compensation and Rewards Structure

Startups often worry about competing with big companies on salary. While you may not match Google paychecks, you can still have a fair and transparent system. First, establish a compensation philosophy in partnership with founders (e.g., “pay at market median for core roles,” or “lean on equity to compensate for cash limits,” etc.).

Then apply it consistently. Defining pay structure early helps avoid wildly inflated salaries later on. Work with founders to set realistic salary bands for each role based on the startup’s budget.

Specifically:

• Salary Ranges: For each position, define a minimum and maximum salary. Ensure ranges reflect market rates (sites like Payscale/Glassdoor or recruiter data) but also your funding constraints. This prevents having to renegotiate wildly later.
• Equity and Bonuses: If offering stock or profit-sharing, document how it works (e.g., vesting schedule). Decide how raises and bonuses will be awarded. Even small perks (tech stipends, conference budgets) should be outlined.
• Payroll and Benefits: Tie this back to your earlier payroll setup. Make sure paydays and payroll administration are unambiguous. Communicate how health insurance, retirement plans, and other benefits work.

A well-structured compensation plan attracts talent and reduces turnover. Employees who understand how their pay and rewards are determined tend to feel more secure. Consider formalizing all this in writing (though your one-page agreement might cover the high level, a detailed plan can be in a separate guide for managers).

Many startups wait until 100+ employees to do this, but it’s worthwhile even in the first 50, as it shows professionalism.

Compensation and benefits work best when treated as a system, not a series of one-off decisions. That means thinking through salaries, bonuses, health plans, and PTO in a way that feels consistent and fair as the company grows.

6. Introduce a Simple Performance and Feedback System

Even in a small startup, employees crave feedback and understanding of how they are doing. Don’t wait until you have 100 employees to start performance conversations. Establish a simple review and feedback loop from the beginning. This need not be a full-blown appraisal process – in fact, startups benefit from agility. Some practical steps:

• Set Clear Expectations: At hire or start of each quarter, make sure each employee has a short list of priorities or goals (even just 3–5 key tasks or OKRs). This way, they and their manager know what “good performance” looks like.
• Regular Check-ins: Instead of an annual review, aim for frequent (e.g., bi-weekly or monthly) informal check-ins between managers and direct reports. In fast-paced startups, feedback should be ongoing.
• Lightweight Reviews: You can still do quarterly or semiannual reviews, but keep them brief: a one-page form or a lunch discussion. Focus on achievements, any roadblocks, and next steps. Avoid lengthy bureaucracy – the goal is to make feedback part of a normal routine, not a dreaded event.
• Feedback Culture: Encourage peer recognition and manager praise. Even a simple shout-out in Slack or a team meeting builds engagement. Remember, engaged employees are more productive and less likely to quit.

In short, you don’t need complex KPIs or rating scales yet; just make sure there’s a basic structure. Document the frequency of meetings, keep notes, and coach managers to give constructive feedback. Strong performance management at this stage is about transparency; employees should never be surprised by a review because they’ve been receiving regular feedback all along.

7. Choose the Right Tools for Scale

Technology can automate or simplify HR’s administrative work. In a startup, choose tools that will scale. You don’t need enterprise software day one, but do consider at least:

• HR Information System (HRIS): Even a basic HRIS (like BambooHR, Rippling, or the aforementioned Zelt/Pricing platforms) can store employee records, manage time off requests, and centralize data. This beats spreadsheets quickly.
• Applicant Tracking/Recruiting: An ATS (like Greenhouse, Workable, or even a free one) keeps your hiring organized. It can integrate with job boards and email, so candidates don’t get lost.
• Payroll/Benefits Platform: As noted, Gusto or a PEO is critical for payroll compliance.
• Collaboration Tools: Make sure you have communication channels (Slack, Microsoft Teams) set up for HR announcements. Use shared drives or intranet space for policies and documents.
• Performance & Engagement Tools: For growing teams, consider lightweight tools (e.g., 15Five, Lattice, or even Google Forms) for running pulse surveys or capturing 1:1 notes.

The goal is to eliminate manual “busy work.” For instance, an onboarding sequence can be automated: when a new hire is added to the HRIS, it might trigger welcome emails, tasks (set up email, send laptop), and meetings (calendar invites for orientation). While it might feel premature, even doing simple flows now saves confusion later.

For inspiration, a startup called A Zelt HR Software notes that automating payroll can significantly reduce the time spent on manual tasks, freeing up HR teams to focus on more strategic initiatives. Additionally, Zelt notes that payroll processing can be completed in under 60 seconds from start to finish, including salary and HMRC payments, thanks to deep integrations and automation technology such as Open Banking. 

8. Establish People Metrics and Review Cadence

What gets measured gets managed. As soon as you have data, start tracking basic HR metrics. These help you spot problems and show progress. Key people metrics for startups include:

Each metric should be reviewed regularly (often quarterly) with the leadership team. For example, if turnover spikes, HR should investigate causes (perhaps conduct exit interviews). If hiring falls behind plan, HR and founders must adjust strategy. The cadence of review – monthly 1:1s, quarterly OKRs reviews, etc. – ensures you act on data rather than guess.

Metrics matter, but so does interpretation. Engaged employees tend to be more productive and have lower voluntary turnover. In practice, even simple tracking (using spreadsheet dashboards or built-in HRIS reports) can reveal trends. Don’t neglect anecdotal data either – managers’ qualitative feedback should be part of the review. The combination of metrics and narratives will guide your people strategy as the startup scales.

9. Foster a Safe and Inclusive Workplace Culture

Culture and belonging are the secret sauce in startups. With small teams, the culture you create now becomes the DNA of the company. Make a point of fostering inclusion, psychological safety, and diversity from the beginning. Include the following practices:

• Diversity & Inclusion Initiatives: Proactively recruit diverse candidates and include diversity criteria in hiring (e.g., diverse interview panels). Start training about unconscious bias early. A 2018 McKinsey study found that companies in the top quartile for gender diversity on executive teams were 21% more likely to outperform on profitability. More recent data shows this figure reaching 39%. Startups are uniquely positioned to start with diversity; getting a woman or minority on the team is much easier when you’re at 5 people versus 50. In other words, invest in inclusive hiring now to avoid “diversity debt” later.
• Inclusive Policies: Ensure your policies explicitly protect and support underrepresented groups. For example, offer equitable parental leave, incorporate flexible work to accommodate different needs, and publicly forbid harassment and discrimination. A clear, enforced code of conduct (from your working agreement) helps everyone feel safe.
• Employee Resource Groups (ERGs): Even with a small team, informal support groups (for women, LGBTQ+, or other communities) can give voice to concerns and help drive policies. Encourage their formation and listen to their feedback.
• Training and Dialogue: It plays a big role in building awareness. Regular workshops on topics such as unconscious bias, cultural competence, and anti-harassment help strengthen workplace diversity and inclusion. You can also create open forums or town halls where employees feel safe to discuss culture and suggest improvements.
• Celebrate Differences: Do simple things like observing cultural holidays, recognizing achievements from all groups, and encouraging people to share about their backgrounds. A culturally rich environment boosts creativity.

Creating an inclusive culture isn’t just the right thing to do; it’s smart business. Diverse teams bring more perspectives and drive innovation. For example, Atlassian publicly boosted its share of female engineering hires from ~10% to 18% through intentional practices, seeing concrete business benefit. Likewise, Hinge Health (a healthcare startup) credits building a strong people culture with rapid growth.

Finally, ensure employees feel safe to speak up. Establish anonymous feedback channels or regular pulse surveys. This not only catches issues early (e.g., burnout, harassment concerns) but reinforces the message that every voice matters. A psychologically safe environment will help your startup attract and retain talent – a competitive advantage in a tight labor market.

10. Support and Equip Line Managers

As your team grows past a handful of people, you will likely promote individual contributors into manager roles. Many first-time managers need training to lead effectively. HR’s role includes equipping them with skills and tools. For example:

• Leadership Training: Many new managers in startups step into the role without prior leadership experience. Structured leadership skills training can help them develop core skills such as communication, delegation, team motivation, goal-setting, and conflict resolution capabilities, enabling them to lead a team effectively.
• Management Processes: Teach managers to conduct regular 1:1 meetings, give feedback, and conduct reviews. Provide templates or guidelines (e.g., how to do a performance check-in). Encourage them to participate in broader HR initiatives (like recruitment interviews or culture-building events) so they stay aligned.
• Accountability and Metrics: Hold managers accountable for team metrics (hiring funnel speed, engagement scores, attrition in their group). This ties their success to people outcomes, not just project delivery.
• Peer Support: Encourage new managers to form a peer network (even informal) where they can share experiences and tips. This can be as simple as an internal chat channel or regular manager huddles.

A startup’s success depends on the bench of good managers to multiply its effectiveness. Organizations with highly effective managers are innovative and more agile. Well-trained managers are one of HR’s best investments for performance.

By proactively training and mentoring your managers, you ensure your growing teams stay productive and engaged.

Case Study - Hinge Health: Scaling People Ops with Workday + PwC

Hinge Health, a digital health startup tackling musculoskeletal (MSK) pain, grew rapidly across the U.S., UK, Canada, India, and Latin America. But behind the growth, its HR operations were stuck in spreadsheets and disconnected tools. Payroll, recruiting, and compliance processes dragged, creating a serious bottleneck just when the business needed speed.

The Challenge: As Brandon Woods, Head of People Operations, explained, Hinge had multiple HR systems that couldn’t communicate with each other. Manual workarounds slowed everything from onboarding to compliance. Fragmented data made scaling and preparing for future milestones like an IPO risky.

The Solution: Hinge partnered with PwC’s Workday specialists to roll out Workday Human Capital Management (HCM) as its single global HR system. In just nine months, they deployed core HR, time tracking, compensation, absence, and U.S. payroll. The result: a unified “source of truth” for workforce data, replacing spreadsheets and siloed platforms.

Results: The impact was immediate:

• Onboarding time cut by ~60%.
• Payroll processing is 40% faster.
• HR task efficiency up by 50%.
• Manager self-service adoption grew by 40%+.

Freed from admin headaches, HR and managers could focus on strategy, not paperwork.

Outcome & Outlook: The modern platform didn’t just boost efficiency; it strengthened compliance and IPO readiness. Integrated payroll, benefits, and vendor connections made scaling seamless. Just as importantly, Workday’s user-friendly, mobile interface empowered employees, giving everyone real-time HR data and analytics. As Woods put it, the right technology should empower people rather than frustrate them.

Key Takeaways

• Modern HR is Non-Negotiable: Spreadsheets can’t keep up with scale.
• Fast Rollout Matters: PwC’s expertise ensured a global launch in nine months.
• Data Drives Better Decisions: One platform = one version of the truth.
• Empower Employees: Mobile-friendly tools build trust and transparency.
• Compliance Future-Proofs Growth: Standardized processes set the stage for IPO readiness.

Hinge’s story shows how investing early in unified HR tech isn’t just about efficiency, it’s about building trust and preparing for growth at scale.

Frequently Asked Questions

Conclusion

Building the HR function in a startup is a journey from chaos to coherence. In the beginning, you may feel like a one-person band playing every instrument. But by aligning with founders, setting up policies and systems, hiring with care, and nurturing your people, you lay the foundation for sustainable growth.

HR doesn’t have to be overwhelming. With clear agreements, processes, and feedback loops, you save time later. Use data, track turnover, hiring metrics, and engagement, and iterate. Foster a culture where employees feel safe, valued, and empowered. Equip managers well, because their impact multiplies across teams. And never stop learning: tailored training can accelerate this journey.

This is where Edstellar makes a real difference. As a one-stop, instructor-led corporate training and coaching solution, we address global upskilling and talent transformation needs. With 2,000+ tailored programs across Technical, Behavioral, Management, Compliance, Leadership, and Social Impact, startups can build strong HR foundations without guesswork.

Our skill matrix software helps leaders identify skill gaps across the workforce. With that visibility, you can create targeted training pathways for both HR professionals and employees, ensuring the right capabilities are built at the right time. It’s not just about systems, it’s about investing in skills and building a team ready to thrive as the startup scales.