The path to long-term success can be fraught for startups. Failure rates are high, capital is limited and employees are few. As entrepreneurs try to do more with less, spending a hefty chunk of change on hiring a full-time Chief Human Resources Officer (CHRO), HR Director or other HR management professional probably doesn’t feel like a high priority. But it only takes one preventable human resources misstep that turns into a costly litigation battle to potentially bankrupt an otherwise flourishing business. 

That’s just one reason why outsourcing a fractional CHRO or HR leader can be an extremely valuable investment, and one that has the potential to pay for itself tens, if not hundreds, of times over. Instead of spending $200,000 or more annually to hire a full-time CHRO—not the best use of funds for an early-stage venture with a small team and shoestring budget—you can pay for and get only what you need by using a fraction of the time of an experienced HR professional, for a fraction of their typical salary. It’s akin to owning one-fourth of a Lamborghini instead of buying a Honda outright. The upshot is access to excellence and top-tier expertise for less money and without a long-term commitment. In fact, a fractional HR leader can ultimately help you hire and onboard their long-term replacement when the time comes to fill that role.

Every company, and particularly smaller businesses that are less well-positioned financially to defend themselves in a protracted legal battle, can benefit from the assistance of a seasoned human resources professional to establish and oversee employment policies, procedures and agreements, and ensure compliance with myriad employment laws, regulations and requirements. 

The five most important areas where a fractional CHRO, HR Director or other HR management professional can help protect your business are:

1. Policy Creation: Drafting and enforcing an employee handbook that contains clear, unambiguous and legally compliant company policies related to topics like diversity and inclusion, nondiscrimination, sexual harassment, technology privacy and internet use, sick and vacation days, dress standards, discipline, dispute resolution, termination and all relevant federal, state and local employment laws. 
2. Employment Agreements and Offer Letters: Entering into individual agreements with employees can be risky in “at will” employment situations. This can be addressed by building employment agreements that address confidentiality, non-disclosure, noncompete, intellectual property and other considerations into the employee handbook or by providing them as an attachment to the handbook. Compensation, incentives and other non-standard details should be handled in carefully worded offer letters that are governed by the employee handbook. Exceptions may arise in the case of executives, whose employment agreements should still adhere to the employee handbook but who usually require more individualized agreements that are handled on a case-by-case basis and subject to legal review. 
3. Personnel Oversight: Providing guidance to leadership team members on how to conduct fair and appropriately-timed reviews, equitable compensation, recruiting, interviewing, hiring and retaining top talent, and addressing human resources-related questions or concerns, including mediating disputes around violation of employment policies or other disciplinary situations.
4. Labor Law Compliance: Maintaining knowledge of and working closely with legal counsel to ensure compliance with all regulatory and labor laws, including equal opportunity employment, safety requirements, retirement and health plan benefits, minimum wage and hour requirements, proper employee classification, insurance-related matters, labor union relations and workers compensation benefits.
5. Employee Classifications: Appropriately designating and maintaining full-time, part-time and temporary employee and contractor classifications. There are significant legal, financial and tax risks involved with not properly differentiating the roles of W-2 employees and 1099 contractors. Treating 1099 contractors similarly to W-2 employees can signal to the IRS and legal or governmental agencies that they should be provided with health insurance or other benefits. 

Problems that arise due to lack of specific and well-implemented employment policies or accidental noncompliance with laws and regulations can be bothersome at the least and catastrophic at the worst. Outsourcing an experienced HR professional will help ensure you stand on solid ground in these important areas and go a long way towards mitigating potential risk and financial exposure.