How To Build an HR Department: 11 Steps To Get It Right
“You can’t build a great building on a weak foundation. You must have a solid foundation if you’re going to have a strong superstructure,” said author Gordon B. Hinckley. The same idea holds true in business: without a strong HR foundation, you can’t build a successful company.
AIHR for Business
We often talk about what HR departments do and what areas they should focus on, but what about the foundation they’re built on? Getting HR right from the beginning has a huge impact on an organization’s ability to grow and support its people.
Maybe your company doesn’t have an HR department yet and is doing just enough to get by. Or maybe you’re starting from scratch and need guidance on what to set up first. If that sounds like your situation, or if you’re simply curious about how to structure an HR function, keep reading.
Contents
What does the HR department do?
How to build an HR department
Setting up an HR department checklist
FAQ
What does the HR department do?
Before we unpack how to build an HR department from scratch, let’s look at the various things an HR department takes care of within the organization. There are 12 key functions of Human Resources Management, including:
- Human resources planning: HR planning is all about ensuring the company has the right people in the right place at the right time. It’s a data-driven, systematic approach to continuously optimizing the workforce, so the company can achieve its objectives.
- Recruitment and selection: The HR team usually manages the whole recruitment process, from posting job ads and screening candidates to organizing interviews and extending job offers.
- Performance management: Effective performance management enables employees to do their best work, in alignment with the company’s strategic objectives. It’s a continuous process that encourages managers and employees to openly discuss expectations, performance, development strategies, and more.
- Learning and development: Learning and development (L&D) plays an essential role in an organization’s people development strategy. It’s a systematic process of enhancing people’s knowledge, skills, and competencies and is vital for attracting and retaining talent, engaging employees, and improving work performance.
- Career planning: Put simply, career planning (or career pathing) refers to the practice of HR providing ongoing support and guidance to employees to help them progress in their careers. Career pathing enables employees to identify potential vertical or horizontal moves within the company based on their knowledge, skills, experience, and interests.
- Function evaluation: Function evaluation is the process of comparing the various teams of the entire HR operation in terms of working hours, the quality and availability of employees, the economic situation, job location, and more. Function evaluation aims to ensure similar roles are rewarded similarly.
- Rewards: Rewards remain the primary motivator for most employees (and candidates) and a core HR function. In addition to salary, they often include benefits, recognition, opportunities for growth and development, meaningful work, variable pay, etc.
- Employee relations (ER): Employee relations covers everything relevant to the employee-employer relationship. This includes contracts, working conditions, dispute resolution, and maintaining a healthy and productive work culture. Larger companies may even have their own dedicated ER teams.
- Employee participation and communication: A big part of HR’s role is ensuring clear, timely, and relevant communication throughout the organization. However, communication also involves ensuring continuous and open dialogue with employees so they feel heard.
- Health and safety: When building an HR department, prioritize creating a safe work environment. This involves developing and implementing health and safety policies to ensure the organization complies with local regulations.
- Wellbeing: Supporting employee wellbeing has become a significant part of HR’s remit. Depending on the company’s priorities and budget, this could range from a total wellbeing to targeted initiatives focused on areas like mental health, financial wellness, or work-life balance.
- Administrative responsibilities: Despite AI and automation advances, HR still handles various administrative tasks. These can include maintaining the HRIS, processing payroll, managing promotions or relocations, handling time-off requests, tracking disciplinary actions, and overseeing documentation for performance improvement plans or exit interviews.
Not al these areas must be fully developed from day one. But they should serve as your blueprint for what the HR function needs to deliver as the business grows. Let’s now look at how to build your HR department, step by step.
How to build an HR department
Now that we’ve covered the core HR functions, let’s take a closer look at how to build an HR department. While the exact steps may vary by organization, there are several key elements to consider, no matter what HR department structure or functions you plan to establish.
1. Assess the current state of HR in your organization
Before deciding how to structure an HR department, take stock of what’s already in place. What systems, policies, and practices have been developed by founders, managers, or any existing HR staff? This includes hiring processes, tools, performance management frameworks, and more.
Use the HR wheel below to rate your current setup. Score each HR function from 0 (nothing in place) to 10 (fully implemented and effective). This will help you determine whether a process needs to be built from the ground up, improved, or simply maintained.
Also, ask yourself these questions:
- What HR tools are in use? Are they working, or do they need replacing or upgrading?
- Do line managers have HR responsibilities? If so, what are they currently handling?
- What policies are in place? Are they up to date and legally compliant?
- Are any urgent policies missing? If so, what are they?
Evaluating your current situation and identifying gaps or immediate needs will give you a solid foundation to begin building your HR department.
HR tip
Enrolling in an HR Generalist Certificate Program will equip you with everything you need to build an HR department from scratch, and help you avoid common pitfalls.
2. Organize employee records and create a record-keeping process
Accurate employee records are essential. You’ll need a clear picture of your workforce and the required documents to support HR operations and development planning.
Each employee should have a personnel file. Traditionally, this was paper-based, but most organizations today have developed digital systems to manage employee records. These are some examples of the documents you need to keep:
- Recruitment documents: These include interview scripts, assessments, job applications, and CVs. Study your local regulations to understand how long you must keep these on file.
- Employment eligibility form: Every employee requires this form to verify if they are legally authorized to work in the country where your company is based.
- Payroll documentation: Salary statements, wages, promotion letters (increases, approval letters), tax records, and timekeeping records.
- Performance records: Gather all written information, emails, and conversation scripts.
Other important documents include — where applicable — termination paperwork, training completion certificates, and disciplinary records. Even if some documents exist informally, that’s okay. Collect what you can and begin organizing it into individual folders. Connect with line managers to fill in missing information and coordinate with IT to set up a secure electronic storage system.
3. Start writing HR policies
If you don’t have written HR policies yet, start with the essentials. These might include:
- Attendance
- Working hours
- Recruitment
- Performance management
- Termination
- Leave
- Anti-harassment and non-discrimination
- Employee conduct
- Social media use
- Generative AI usage
- Confidentiality
- Probation
- Disclosure of business interests
- Health and safety
- Drugs and alcohol.
As you go along, you will discover that some policies complement each other and can be combined. Keep them simple, readable, and accessible, ideally stored on your company intranet for easy reference.
4. Build the foundations for recruitment and onboarding
You can use the image below as a guide to build your recruiting process:
For each of these steps:
- Define who’s involved at each stage
- List templates (e.g., job descriptions, interview guides)
- Prepare interview questions
- Identify which documents to gather.
For onboarding, structure the process into five phases:
- Before the first day (preboarding)
- On the first day (orientation)
- The first week
- The first 90 days
- The end of the first year.
Setting up HR from the ground up? Whether you’re establishing policies, picking tools, or planning your first hires, getting the structure right early makes all the difference.
With AIHR for Business, your team will:
✅ Learn how to design a compliant, future-ready HR function
✅ Build foundational capabilities across recruitment, onboarding, and L&D
✅ Access toolkits and frameworks to guide every stage of setup
✅ Develop the skills to align HR with long-term business goals.
🎯 Lay the groundwork for an HR department that grows with you.
5. Document compensation and benefits
Explore what you currently have in place in terms of compensation and benefits, even if it’s basic. Write down your policies and make sure they align with labor laws.
Start with what’s required:
- Base pay or hourly wages
- Retirement or pension contributions
- Paid time off
- Health insurance (if required in your region).
Next, explore extras (depending on your budget and employee needs):
- Performance bonuses
- Stock options or profit-sharing
- Additional insurance (vision, dental, etc.)
- Travel reimbursement
- Relocation bonuses.
You can also build a total rewards framework that includes non-monetary incentives like flexible schedules, professional development, recognition programs, and wellness support.
Be transparent about what’s offered and include this information in offer letters, the company’s employee handbook, or a dedicated benefits portal.
6. Review existing tools and identify what you still need
Building a Human Resources department gives you a clean slate to choose tools that actually fit your needs, without having to work around outdated or bloated systems.
Start by identifying what your organization needs right now:
- Compliance tools: Payroll software to meet legal requirements.
- Hiring tools: An applicant tracking system (ATS) to streamline recruitment.
- Employee management tools: An HRIS to centralize employee data, contracts, and time-off tracking.
- Learning platforms: To deliver training and track completion.
- Performance systems: For setting goals and conducting reviews.
Again, prioritize systems your organization needs to be legally compliant, then add those that would advance the business.
For example, investing in an advanced data and analytics HR system might be useless if your organization has only 20 employees. However, you must also think long-term and acquire technology that can scale as your organization grows.
7. Check compliance guidelines
Compliance isn’t just a box to tick—it protects your business and employees alike. Start by reviewing the employment laws relevant to your country, state, or industry.
Make sure your policies cover the following basics:
- Minimum wage
- Working hours
- Breaks and leave entitlements
- Non-discrimination
- Harassment prevention
- Occupational health and safety.
Also, if your team includes remote workers in other locations, check if additional laws apply based on where they’re based. Document these differences and update your policies as needed.
You don’t need to be a legal expert, but consulting an employment lawyer or local HR consultant can be worthwhile to avoid costly oversights.
8. Create an employee handbook
The employee handbook serves as a comprehensive guide to your company’s mission, vision, and values, as well as your employee and workplace polices, employee benefits, HR-related procedures, and code of conduct in the workplace. It defines employee rights, clarifies expectations, and communicates your organization’s legal obligations.
There are plenty of templates and tools online, like Handbooks.io and generative AI platforms like Mistral or ChatGPT, that can help you generate a handbook.
9. Start laying out a learning and development plan
Helping employees gain new skills and progress in their careers is a vital function of an HR team. Hence, when creating your HR department structure, you need to start with learning and development planning early on.
- Step 1: Define your goals. What are the goals and objectives of your learning and development framework?
- Step 2: Identify the competencies and skills needed. Understand where your organization is, where it’s going, and the skills your workforce currently has. Next, identify the competencies required to achieve your company’s objectives. A skills gap analysis is useful in this context.
- Step 3: Speak with your employees. Have one-on-one conversations with all employees or get line managers to do this. These discussions will give you valuable insights into each person’s career goals and aspirations, as well as a natural starting point for creating individual development plans.
- Step 4: Create a training framework. Based on the skills gap analysis and the needs of both your organization and its employees, you can develop a library of useful training materials and courses. This library should include materials that line managers can recommend to their teams, as well as courses employees can explore. Be sure to include any mandatory compliance training that all employees are required to complete.
- Step 5: Help develop personal development plans. Work with each employee to create a personal development plan as part of their ongoing growth process. Offer support through resources like mentors, coaches, templates, and generative AI tools with practical prompts. Document and track these plans to monitor progress over time.
10. Create a long-term HR plan
Engage in an HR planning process to identify your organization’s needs in terms of skills and capabilities, and timelines from a longer-term perspective. Creating such a plan will help you prioritize and manage your HR budget.
This will show you which of the components mentioned above you should focus on first. For example, you should prioritize a solid recruitment and onboarding process if your organization is growing rapidly. You can only prioritize properly once you understand your company’s needs and plot them along a timeline.
11. Decide when to expand your HR team
Eventually, you’ll need to expand your HR department. Who you hire first depends on your immediate needs. If you’re growing fast, a Recruiter might be your top priority. If your systems are in place but you need help with day-to-day operations, an HR Assistant or Administrator could make more sense.
Before recruiting externally, look at internal possibilities. The company might already have employees who can absorb some HR responsibilities, or want to start a career in Human Resources.
Alternatively, you could start by hiring an HR professional who can perform hybrid roles (e.g., recruiting and day-to-day HR activities). Again, this all depends on your organization’s needs.
HR tip
Generative AI can be a valuable tool when writing policies or building HR processes. If you want to learn how to apply it effectively in your work, check out AIHR’s Artificial Intelligence for HR Certificate Program. It offers practical guidance on using GenAI to streamline tasks and improve quality.
Setting up an HR department checklist
To help you on your way when you start building an HR department, we’ve created a downloadable checklist template. It covers all the steps outlined in the “How to Build an HR Department” section and is available for free below.
To sum up
Building an effective HR department is key to any organization’s long-term success. If you’re figuring out how to build an HR department from the ground up, whether you’re starting with nothing or setting things up in a growing startup, this article and its step-by-step approach can help guide you through the process.
FAQ
How you structure an HR department depends on several factors, including the company’s size, employee headcount, existing HR processes, and overall business goals. For example, if your company is experiencing rapid growth, your immediate focus might be building a strong recruitment and onboarding process and bringing in a recruiter to manage the hiring workload.
HR for startups usually involves the following key steps:
1. Determine the company goals, priorities, and concerns
2. Focus on core HR fundamentals, like policies, compliance, and documentation
3. Keep the employee experience at the center of your approach
4. Set up a clear recruitment and onboarding process
5. Simplify and organize payroll
6. Begin building your HR tech stack with tools that fit your current size and can grow with you.
Learn more
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