Building Your First HR Function - A Practical Guide for Growing Businesses

CIPD research shows 73% of UK small businesses cite "people management" as their biggest challenge, yet only 23% have dedicated HR support. If you've grown past 25-30 employees, you're likely feeling this pain daily.

The Tipping Point:

FSB's "Voice of Small Business" survey shows businesses hit a critical point around 25-30 employees where ad-hoc people management becomes unsustainable. Management time on HR jumps from 5 to 20+ hours weekly—time not spent growing the business.

Signs You Need HR Support:

Time drain: Average UK small business owner spends 22% of their time on people management (CIPD). That's over one day weekly.

Inconsistency risk: 35% of successful unfair dismissal claims result from inconsistent treatment (tribunal statistics).

Legislation overload: Over 65 employment law changes in 2023 alone (CIPD). The Employment Rights Bill 2024 promises day-one unfair dismissal protection and significant changes.

Recruitment chaos: UK recruiting costs average £3,000 per hire (CIPD 2023), yet 41% of SMEs have no structured onboarding.

The Numbers:

Simply Business research: UK small businesses lose average £8,000 annually through HR issues:

• £2,400: Poor recruitment and early turnover
• £1,800: Absence management
• £2,000: Time on employee issues
• £1,800: Compliance breaches

Your UK Options:

Option 1: Internal HR Hire

• Full cost: £43,000-£55,000 annually (salary £35k-45k + NI 13.8% + pension 3% + recruitment £3k)
• Best for: 80+ employees with daily HR needs
• Reality: Graduate Recruitment Bureau shows average UK HR Manager salary is £42,000 (£48,000+ in London)

Option 2: Outsourced HR Consultant

• Cost: £3,600-£7,200 annually (£300-600 monthly retainer)
• Best for: 10-100 employees with advisory needs
• Reality: 90%+ cost savings vs internal hire whilst accessing senior expertise

Option 3: Hybrid Approach

• Part-time HR Administrator (£20-25k) + Retained HR Consultant (£300-600 monthly)
• Best for: 40-100 employees balancing cost and coverage

What You Need (UK Legal Requirements):

Essential Documentation:

• Employment contracts (2020 compliant)
• Employee handbook
• ACAS-compliant disciplinary and grievance procedures
• Data protection policies (UK GDPR and DPA 2018)
• Equality policies (Equality Act 2010)

Core Processes: ACAS Code isn't legally binding, but tribunals can increase awards 25% for non-compliance. You need:

• Recruitment and onboarding
• Performance management
• Absence management
• Holiday tracking
• Disciplinary and grievance processes

Building in Stages:

Stage 1: Foundation (Months 1-3) - Legal compliance

• Audit current contracts
• Implement compliant employment contracts
• Create ACAS-compliant procedures
• Set up secure HR records (UK GDPR)
• Establish right-to-work checking

Stage 2: Standardisation (Months 4-6) - Operational efficiency

• Develop core policies
• Create employee handbook
• Implement holiday system
• Establish performance reviews
• Train managers on employment law

Stage 3: Development (Months 7-12) - Strategic capability

• Design L&D framework
• Implement succession planning
• Enhance engagement initiatives
• Review and refine processes

Cost Reality (UK-Specific):

Internal Hire: £43,880-£55,560+ annually

‍HR Consultant Retainer: £3,600-£9,600 annually

‍Savings: 85-92% vs internal hire

The Employment Rights Bill 2024:

Coming changes include:

• Unfair dismissal from day one
• Day-one statutory sick pay
• Predictable hours for workers
• Enhanced paternity leave
• Stronger flexible working rights

These changes mean HR support isn't optional—it's essential for compliance.

The Biggest Mistake:

ACAS reports 80% of businesses only seek HR advice after a problem arises. By then:

• Situations have escalated
• Options are limited
• Costs are higher
• Tribunal risk is elevated

Early advice prevents problems. Crisis management fixes them—at 5-10 times the cost.

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Your Next Step:

Conduct an HR capability audit:

1. What contracts and policies do you have?
2. Are they legally compliant?
3. How much management time goes on HR weekly?
4. What's your biggest HR risk?
5. What would good HR support achieve?

Don't wait for a crisis. Prevention is cheaper than cure.

Sign up to Link into HR Consulting today to match to the right HR specialist who can support you with building your first HR function.‍