Roughly 65% of startups lack dedicated HR support, unlike 100% of Fortune 100 companies that have established HR departments. This lack of HR team is often due to limited resources, forcing founders to prioritize between product development and funding.

But limited resources aren’t the only culprit. Lack of information and knowledge but what HR teams do is also an issue. Not to mention the many misconceptions about HR.

HR teams, or HR agencies, provide support for business across legal, administrative, people management, and other functions. HR teams also address ethical challenges and support effective scaling.

By establishing an HR department and following our checklist, startups can foster a positive culture and navigate legal issues confidently. 

Investing in HR from the start sets the foundation for long-term success and keeps employees well-supported and engaged.

Startup HR: Unique challenges

When searching for an HR executive, many startups don’t know where to start or who to start with. Often startups will turn to recruiters. But they also need help managing payroll processing and deducting taxes.

Here are the most common challenges startups face when considering HR services:

• Resource constraints: Startups often operate with limited resources, which results in a small, underfunded one-person HR team (if any). This person usually handles a range of responsibilities without the budget for comprehensive HR software or competitive salaries for experienced professionals. 

Time is also a constraint, as founders and early employees often juggle multiple roles, which hampers effective HR planning and execution.

• Rapid scaling: Startups aim for rapid growth, which requires quick hiring and onboarding of new team members. 

This rapid scaling puts pressure on HR, as efficient onboarding and orientation helps new hires integrate into the company culture and become productive quickly.

Without a structured HR approach, this can lead to disorganization and high turnover.

• Compliance risks: Navigating labor laws and regulations is challenging for any business. It’s even more so for startups that lack in-house legal and HR expertise.

The growth of remote teams complicates compliance with employment laws, increasing the risk of fines and legal disputes from unintentional missteps.

• Culture building: Startups have the unique opportunity to shape their company culture from the beginning. However, this responsibility rests heavily on HR or the founders. 

An unstructured approach can lead to misalignment and difficulties in attracting talent that aligns with the desired culture.

• Talent attraction and retention: Competing for top talent is a constant challenge for startups, especially against established companies offering higher salaries and benefits. 

Startups must creatively showcase unique opportunities, such as equity, a dynamic environment, and impact potential. Retaining talent requires ongoing employee engagement and support, all of which are essential responsibilities of HR.

HR for startups: Common service models 

Here are the most common business models startups can consider when collaborating with HR agencies or HR service providers. 
 

HR agencies or HR companies

An HR outsourcing agency offers a comprehensive range of HR services, including recruitment, payroll processing, benefits administration, compliance management, and employee relations. 

Many agencies, like Tawzef, also provide strategic HR consulting services, helping startups create HR policies and performance management systems. 

Partnering with an HR agency also allows startups to access a customizable suite of services, as the agency becomes an extension of their team. This is especially helpful when in-house HR expertise is limited. 

HR consultants

HR consultants provide targeted, project-based advice on specific HR challenges. This model is suitable for startups needing specialized assistance without a long-term commitment. 

Services include developing compensation structures, conducting HR audits, and creating tailored training programs. Consultants offer deep expertise and an objective perspective to help startups navigate complex HR issues.
 

Professional Employer Organizations (PEOs)

PEOs operate on a co-employment model, sharing employer responsibilities with the startup. They manage payroll, benefits administration, and compliance.

This arrangement allows startups to outsource many of their HR operations, freeing internal resources to focus on core activities.
 

Employer of Record (EOR)

An EOR service provider helps startups hire internationally without establishing legal entities in foreign countries. The EOR employs workers on behalf of the startup, managing payroll, taxes, benefits, and compliance. 

This enables startups to quickly hire global talent without the complexities of setting up foreign subsidiaries. 
 

HR software

HR software includes tools for automating and managing HR functions, such as applicant tracking and performance management. 

It facilitates self-service for employees and automates routine tasks while providing valuable data for decision-making. 

Well-known types of HR software include the HR management system (HRMS) and the applicant tracking system (ATS).

Although not an independent service provider, HR software helps with HR automation and efficient HR management.
 

Essential HR services for startups

The right HR services are not just about managing people; they are about strategically empowering your startup to scale, innovate, and thrive. 

Here’s how specialized HR services for startups can directly benefit your business:

Strategic talent acquisition

Secure the top-tier talent vital for innovation and rapid scaling. HR agencies actively scout, conduct structured interviews, and craft competitive offers. 

They ensure you attract and onboard individuals who are the perfect cultural and skill fit from day one, laying a robust foundation for long-term success.

Streamlined payroll and benefits management

Ensure accuracy and compliance in every pay cycle while offering benefits that attract and retain top performers. 

Professional HR management of payroll, tax calculations, and benefit administration (like health insurance and retirement plans) frees up your valuable time, allowing you to focus on core business growth.

Further reading: How to Create a Women-Inclusive Compensation & Benefits Strategy

Compliance and policy management

Navigate the complex legal landscape with confidence. Dedicated HR services ensure adherence to local labor laws, including wage regulations and workplace safety standards. 

This proactive approach minimizes legal risks, avoids costly penalties, and builds a secure operational framework.

Enhancing employee performance

It’s important to offer a productive work environment. Offering self-development options and training and development opportunities to team members is always a good idea.

But understanding performance management and training needs is a hassle. Startups often turn to specialized HR companies, like Tawzef, to identify training gaps and set training and development KPIs to measure the impact of their efforts.

These efforts also contribute to increasing employee retention, reducing turnover, and driving overall team effectiveness.

Leveraging HR Tech

Centralizing HR data and automating routine tasks like onboarding and time-off requests dramatically reduces administrative burdens, allowing your team to focus on strategic initiatives that directly impact your startup's growth.

However, HR tech may often be an expensive investment for startups, which is why they turn to HR agencies to benefit from their access to tech.

Flexible EOR services

For specialized projects or international hires, EOR services handle all legal employment, payroll, benefits, and compliance, enabling your startup to quickly access talent in new regions and focus purely on project delivery.

Further reading: What Does a Manpower Outsourcing Agency Do?

Startup success: Choose the right HR partner

Choosing the right HR partner is a crucial decision for any startup aiming for sustainable growth. It’s important to find someone who truly understands your unique journey. 

Here are some key considerations when selecting your HR partner:

• Assess your needs: Identify your current HR challenges, such as payroll issues, compliance concerns, or talent acquisition difficulties. Consider your immediate and future growth plans, including potential domestic or international expansion, and establish a realistic budget for HR services.
• Prioritize scalability and compliance: Look for an HR solution that can grow seamlessly with your company. Ensure they can continuously adapt to changing labor laws and maintain compliance, thereby mitigating risks as your business expands.
• Seek strategic value: Avoid settling for just basic administrative support. Your HR partner should offer more than essential services. They should provide strategic insights, best practices, and proactive solutions that can significantly impact your business's success.
• Consider industry fit: Make sure the partner understands the unique challenges and nuances of the startup ecosystem or your specific industry. A strong cultural alignment will foster a more collaborative and effective working relationship, contributing greatly to your long-term success.
   

HR and the cornerstone of startup success

Establishing a strong HR foundation from the outset is vital for fostering sustainable growth. Beyond the essentials of payroll and compliance, strategic talent acquisition and the smart use of modern HR technology significantly boost your chances of early success.

Think of HR as a foundational pillar for your startup, not an afterthought. Neglecting it can lead to major headaches, from compliance pitfalls to high employee turnover.

With Tawzef’s expert HR services handling the complexities, founders can laser-focus on their core vision and business objectives, secure in the knowledge that critical people functions are expertly managed. 

Proactive HR builds a resilient, compliant, and attractive company culture from day one, future-proofing your startup for long-term growth and competitiveness.

Ready to lay a solid foundation for your team and future-proof your business? Explore how Tawzef’s tailored HR for startups can help you thrive.