The cost of delay: why skipping HR at the start of setting up a business can turn into a crisis!

HR for start-ups is not a “nice to have” you add in once you hit 50 workers. From your first hire, UK employment law applies, and the way you set up employment contracts, employment policies procedures, as well as the culture of your business will either reduce risk or quietly store up problems that become expensive crises later on. Not to mention the time you will have to spend on trying to sort them out!

Start-ups often put people processes on the back burner, assuming they are an admin overhead that can wait until funding lands or the team is “big enough”.

In reality, HR for start-ups is part of your core infrastructure, alongside finance, tech and product. Once you make your first hire, you are an employer under UK law, with obligations around contracts, pay, policies and how you handle issues such as performance, conduct and grievances.

Handled well, those early decisions build trust, high performance and a healthy culture. Handled badly, they become hidden liabilities that only surface when a key employee leaves, a dispute blows up or an investor asks awkward questions.

Why HR for start-ups is business-critical, not just “nice to have”

HR for start-ups is about three things: staying on the right side of the law, enabling people to do their best work and protecting value as you grow.

From day one you are expected to:

Give every employee or worker a written statement of employment particulars, covering key terms such as pay, hours and holiday, by their first day.
Provide core information about your disciplinary and grievance procedures and follow the Acas Code of Practice if issues arise.

You may not think of these as “HR tasks”, but tribunals and regulators do. If the basics are missing or poorly thought through, the risk is not just technical non-compliance; it is confusion, inconsistent decisions and, ultimately, avoidable disputes which could prove to be very costly mistakes.

At the same time, you are trying to build a compelling product and win customers without consideration for even basic people foundations, managers end up improvising around performance, pay and behaviour, and those one-off compromises become “how we do things here”.

The hidden costs of delaying thought to the need for HR

On the surface, not hiring HR or buying HR support looks like a saving. Under the surface, several hidden costs build up.

1. Leadership time spent firefighting

When something goes wrong – a breakdown between co-founders, a complaint about a manager, a threatened grievance – founders often become the de facto HR department.

Without a clear process, every tricky conversation becomes a time-consuming problem to solve. Senior leaders spend evenings writing letters, searching official guidance, and worrying about “saying the wrong thing”, instead of focusing on their customers and product.

2. Inconsistent offers and pay decisions

If you do not have standardised offer letters, employment contracts and pay ranges, each hire is negotiated from scratch.

That often leads to:

Two people doing similar roles on very different salaries
Vague agreements about remote working, side projects or bonuses
Confusion about probation, notice and IP (intellectual property).

These inconsistencies are difficult to fix later without upsetting people, and they are a common trigger for grievances and “unfairness” narratives as the business grows, or even having to defend your decisions at an Employment Tribunal.

3. Culture drift and unchallenged behaviour

Many founders want a “high-trust, low-rules” culture and worry that HR for start-ups will slow things down. The risk is the opposite: without any agreed standards, poor behaviours go unchallenged until they become entrenched. The outcomes will result in a whole lot of headaches for you to try and sort your way through.

Examples include:

A high-performing manager who regularly shouts at colleagues
“Jokes” that make some team members uncomfortable
Working patterns that assume everyone can respond late into the evening.

By the time someone raises a formal concern, you may be dealing with a serious bullying or discrimination allegation, not a simple coaching conversation.

4. Disputes, grievances and tribunal risk

When problems do surface, the way you handle them matters as much as the underlying issue. The Acas Code of Practice expects employers to follow fair disciplinary and grievance processes; if you unreasonably fail to do so, a tribunal can increase any award by up to 25 per cent.

Even if you never reach tribunal:

Time spent dealing with formal grievances or exit negotiations is time not spent on growth
Legal advice and settlement agreements can be expensive
Reputation damage travels fast in small sectors and local talent markets.

All of this is harder and costlier to manage if you are starting from a blank page with no employment contracts, weak documentation and no clear audit trail of conversations.

HR and employment law foundations in your first 12–24 months

You do not need a full HR department on day one, but you do need solid foundations to build on.

Legal essentials you cannot ignore

At a minimum, most UK start-ups should put in place:

1. Written terms for every employee and worker

A compliant written statement of employment particulars from day one, covering pay, hours, holiday, probation and notice, plus any benefits.
Clear wording on intellectual property, confidentiality and data protection.

2. Core policies and procedures

You are not expected to have an encyclopaedic staff handbook, but you should have short, workable policies as a minimum on:

Disciplinary and grievance, aligned with the Acas Code of Practice
Equality, diversity and inclusion
Bullying and harassment
Sickness and absence reporting.

These give managers a simple playbook and show employees that you take concerns seriously.

3. Right to work, pay and working time basics

Documented right to work checks
A reliable payroll process that complies with National Minimum Wage, holiday pay and pension auto-enrolment rules
Awareness of limits on working time and rest breaks for most workers.

These are often the areas that attract regulatory attention if something goes wrong.

People and culture basics

Legal compliance is the floor, not the ceiling. Early HR for start-ups should also support and ensure clear and direct communication, including:

Regular one-to-ones between managers and team members
Clear objectives and feedback, even if your approach is light touch
A simple and effective way to raise concerns early, before they become formal grievances
A shared understanding of “how we work here” – your norms and values around communication, responsiveness, flexibility and boundaries.

These do not require complex systems. They do require intention and consistency. They do need to be clearly communicated to all.

Mini case examples: how delay turns into crisis

The founder who waited until their fifth hire

A founder recruited their first four employees on handshake deals and basic offer emails. When the fifth hire joined, they wanted a formal employment contract and asked about maternity pay, flexible working and share options.

As the founder scrambled to produce employment contracts, earlier hires compared terms and conditions and soon realised they were on less beneficial terms and bonus arrangements. Resentment grew; two people resigned within three months, and a third raised a grievance about unfair treatment.

The eventual cost included legal advice, a settlement payment, recruitment fees to backfill roles, and lost momentum on a crucial product launch. Most of this could have been avoided with a standard employment contract, clear policies and early HR advice. To have a solid foundation from the start, not an afterthought. Damage has already been done- employee satisfaction and motivation, employer reputation and not to mention financial losses. The time and money saved by delaying putting the right foundations in will be far less than those you incur as a result of trying to put problems right.

The “no policies” culture that backfired

A small tech start-up prided itself on “no red tape”. There were no written policies or processes; if someone under-performed, the CEO simply “had a word”.

When a senior engineer was dismissed after a heated disagreement, there were no records of previous discussions, no written warnings and no clear reason given. The employee took advice and brought an unfair dismissal claim.

As the company had not followed the Acas Code or a fair process, the risk of an uplift in any tribunal award was real, and the business chose to settle. The payout, plus legal fees and leadership time, far exceeded the cost of bringing in HR support earlier.

When and how to bring HR into a start-up

There is no single “right” headcount for your first HR hire, but some broad stages are helpful as rough guidance of what you should consider.

Stage 1: 1–5 people – outsourced HR partner

At this stage you typically need:

Robust employment contracts, HR policies and procedures
Help with one-off issues (including probation, poor performance, or flexible working requests)
Professional and practical advice and support for dealing with any tricky people issues that arise.

An outsourced HR service gives you access to expertise without a full-time salary, and helps you build scalable foundations. You access this on a need to basis.

Stage 2: 6–20 people – Part-time HR support

As your team grows, the volume of people questions and support increases: across HR areas such as recruitment, onboarding, performance, wellbeing, managing conflict between individuals, and exits.

A part-time HR or People Lead, supported by external employment law advice where needed, can support on areas such as:

Own your people plan and HR processes
Train and support managers with basic people skills and in the management of their teams
Track data on turnover, sickness and engagement, and designing strategies to address any issues with these.

Stage 3: 20+ people – dedicated People function

Once you pass 20–30 employees, HR should include a strategic element, including:

Designing career paths and progression
Supporting founders with organisational design
Shaping your culture deliberately, not reactively.

Whether you build this in-house or continue using a specialist HR consultancy, the key is to treat HR as part of your growth strategy, not an emergency or administration service.

Practical checklist: where to start this month

You do not need to fix everything at once. Start with a simple, time-bound plan.

In the next 30 days

Audit what you currently have in place and how relevant they still are: employment contracts, offer letters, policies and procedures, handbooks, manager practices
Identify gaps against your legal essentials (written particulars, disciplinary and grievance, diversity, equality and inclusion, right to work checks, pay levels).
Prioritise high-risk areas where you already see friction or high levels of complaints
Decide whether you will use templates, buy in support, or a mix of both.

Over the next 3–6 months

Standardise your employment contracts and key policies and procedures, and roll them out to all
Train managers in how to effectively handle tricky conversations and early concerns
Introduce regular one-to-one meetings between managers and the individuals in their teams and set them simple performance goals to be monitored against
Agree how you will document decisions and keep records (not just files of emails).

Beyond 12 months

Review whether you now need dedicated internal HR or People capacity
Review/ refresh policies, procedures and employment contracts in light of any legal changes or new working patterns
Start tracking basic people metrics to inform decisions (for example turnover, absence, engagement), then act upon them.

FAQs on HR for start-ups

1. When is the “right” time to invest in HR?

The short answer is: from your first hire. You do not need a full-time HR manager immediately, but you do need compliant written employment terms and conditions, basic policies and procedures, and a robust and consistent way to handle issues fairly. As your team grows beyond around 10–15 people, having dedicated HR capacity becomes increasingly important, and will prove to be cost effective in the long run.

2. Can we just use free templates from the internet?

Generic templates can be a useful starting point, but they rarely reflect your sector, funding model or risk appetite, and they may not be up to date with UK law. Always check against authoritative sources such as GOV.UK and Acas and consider having a specialist review or tailor them. Getting advice on implementation of them would also be prudent.

3. What if most of our team are contractors or freelancers?

Many start-ups rely on contractors, but labelling someone as “self-employed” does not remove employment law risk if, in practice, they work like employees. HMRC and employment tribunals look at the reality of the relationship. If in doubt, get advice – misclassification can be costly and certainly an area of employment that is under increasing scrutiny by the Government

4. Won’t HR processes slow us down or kill our culture?

Good HR for start-ups should feel light and enabling, not bureaucratic. Clear expectations, simple processes and fair and transparent treatment usually speed things up by reducing misunderstandings and damage done. You can keep your culture agile while still having guardrails for when things go wrong.

5. How much does outsourced HR support cost?

Costs vary depending on your size and needs. Many start-ups use a retainer model for a set number of hours per month, plus project work for things like handbooks or restructures. The key is to compare that cost with the potential cost of just one serious dispute, claim, resulting damages paid or costs of a key hire leaving.

Building a solid HR foundation at the start makes good business sense, supports senior leaders, line managers and employees alike and will make the journey of business growth much easier and smoother, less costly and give you the confidence and assurance that you have the expertise to look after a key asset of your business- your workers.

As at November 2025 — UK only. General information, not legal advice.