Whether your tech company is in its first or fourth round of funding, your goal (and the goal of your investors) is continual growth. You’re faced with the challenge of managing your employees effectively, keeping up with the demands of your business, managing burn rate, and pleasing your investors. In order to achieve maximum growth, your leadership can’t be sidetracked by day-to-day HR admin tasks, compliance regulations, payroll, benefits plans, and excel spreadsheets to manage your compensation strategy.
This is not to say your HR and people strategy shouldn’t be a priority. With more than 75% of your overall spend being on your people, it is vital that your people strategy be thoughtfully designed, expertly implemented, and continually adapted.
So, how do you ensure your people strategy is working just as hard as you are to hit your business goals without wasting time managing and monitoring it? It all comes down to having the right HR solutions in place.
There are various HR solutions that will help free up your time to refocus on your company goals. However, some are created to help VC-backed tech companies specifically, while others are created for general purposes.
We’ll review and rank the most popular go-to HR solutions for tech startups and provide the pros and cons of each to help you decide how to best enable your company growth.
#1 PEO Advantages & Considerations
Outsourcing HR, payroll, compliance, and benefits to a Professional Employer Organization (PEO) comes with several advantages for tech startups, especially if that PEO includes a compensation management solution.
Once you find your PEO partner, they’ll work under a co-employment model—the startup’s CEO or founder will maintain control of business decisions and daily operations, but the PEO will be listed as the employer of record for tax purposes. Due to these reasons, PEOs provide cost-effective access to comprehensive benefits and retirement plans that may otherwise be expensive or challenging to set up independently. This allows startups to attract and retain top talent by offering competitive employee benefits packages.
Secondly, by automating the payroll process, PEOs save time and decrease accounting costs for startups. This allows the company to allocate resources towards core business activities and growth.
Additionally, partnering with a PEO provides dedicated knowledge for HR compliance at both state and local levels, reducing the risk of regulatory non-compliance and potential legal issues.
PEOs also offer dedicated employee support, ensuring that startups have access to professional HR assistance when needed, and they often provide an HR platform with valuable insights into people data, enabling companies to make informed decisions about their workforce.
When a PEO specializes in supporting VC-backed tech startups, they’ll also include an end-to-end compensation management solution to help company leaders fully evaluate their compensation strategies and create board-ready reports. Without this, startups may need to develop their own approaches to managing employee compensation, which can be time consuming and potentially less effective without the insight of a compensation management system. If this is the case, you could be stuck reviewing countless spreadsheets with low-fidelity data.
Many tech startups who partner with the right PEO find that the benefits of outsourcing HR functions and accessing a compensation management solution allows them to focus on their core businesses and gain access to professional HR support and services, all while having full visibility into their people spend.
#2 Hybrid Department: External & Internal HR
Hybrid HR departments can combine the benefits of human resource outsourcing (HRO) or administrative services outsourcing (ASO) with your internal HR department. One of the biggest advantages of creating a hybrid HR department is cost savings compared to having a fully internal HR team. It also allows in-house members to foster the company’s culture and maintain control over hiring and onboarding processes. Having internal HR employees who understand the company’s values, mission, and goals can facilitate the recruitment of employees who align with the organization’s culture.
However, most tech startups don’t have dedicated, internal HR teams which means hybrid HR departments can still overburden your Head of People. In many cases, the CEO or founder also plays the role of Head of People. This can hinder the strategic planning and execution required for the overall growth and success of the company. Your Head of People may get caught up in day-to-day operational matters, leaving less time and energy for strategic initiatives and leadership functions.
Additionally, a hybrid HR department may still be more expensive than a fully outsourced HR team, depending on various factors. The company needs to consider not only the costs of hiring and training internal HR staff but also the ongoing operational costs associated with managing and maintaining the department. This includes providing the necessary resources, software, and tools to support the HR function. If the internal HR employees lack the necessary expertise, additional training or external consultations might be required to ensure the department operates effectively and efficiently, which can further increase costs.
Some startups find that partnering with a PEO, even when they do have an internal HR department, is still valuable to ensure they’re staying compliant with federal and state regulations and receiving the latest advisory guidance on how to optimize their total people spend. For example, while your Head of People is working on your fiscal year strategy with data from the PEO’s compensation management solution, your PEO’s team can lead your open enrollment process and answer employee benefits questions.
#3 Internal HR Department
Having an internal HR department enables you to provide onsite conflict resolution or professional development opportunities. Some startup leaders also believe internal HR provides more control over internal practices, policies, and procedures. However, as we covered above, CEOs and founders still have full control of business decisions and daily operations when partnering with a PEO, allowing internal practices, policies, and procedures to be guided by the PEOs advisory, if needed.
One major consideration with going the internal HR route is the cost associated with maintaining a dedicated HR team. Hiring HR professionals knowledgeable in HR practices, payroll, compliance, retirement, benefits, and compensation can be a significant financial burden for startups. In the beginning and well into business growth, startups may lack the same level of expertise and industry knowledge that a PEO can offer. In such cases, partnering with an external HR, compensation, and benefits consultancy as your internal HR department grows might be one of the more cost-effective and efficient HR solutions. This also provides the CEO and founders with the peace of mind that their HR and benefits are being handled properly.
PEOs: The Top Contender of All HR Solutions
While all of these HR solutions have their merits, a PEO is the ideal choice for tech startups looking to optimize their people strategy. It offers a strategic partnership that combines expertise, efficiency, and employee engagement. From streamlined HR operations and comprehensive compliance support to cost-effective benefits and employee satisfaction, a PEO can be your primary weapon in reclaiming your time, allowing you to focus on business goals and achieve long-term success.
And when the PEO, like Sequoia One, includes a total compensation management and benefits solution, it becomes a valuable resource for all company leaders.
Interested in seeing the positive impact our PEO can make on your tech company? Schedule your Sequoia One consultation and experience why Sequoia One is the most referred PEO in tech.