Human Resources in Small Business

Last Updated January 17, 2020

Businesses large and small can face the same fundamental challenge: how to efficiently use their employees to achieve goals. Human resources professionals generally face the same basic challenges as well, but things can be different in small businesses compared to large corporations.

Differences Between Small Businesses and Large Organizations

While the challenges they face may be similar, small business HR and large organizational HR can differ in a number of ways:

1. Level of Specialization – Small business HR professionals tend to deal with everything from recruiting and training, to payroll and compliance. In larger organizations, the HR department is usually run by professionals who specialize in each area.
2. Depth of Processes – Larger organizations generally have more formal and established structures in place, with proven processes and procedures, as well as plenty of support so the HR department can run like a well-oiled machine. In small businesses, processes may not be well established and HR is often managed on a more personal, case-by-case basis.
3. Connection to Overall Business – In small business, the HR professional typically knows how the business is doing and how his or her decisions will likely impact the bottom line. In large organizations, HR is often not as closely connected to business outcomes.
4. Resources – If looking for the latest technology in a data-driven HR department, you’re more likely to find it in a larger organization, which often has the needs and the resources to implement the latest tools. Additionally, they typically have more money to invest in recruiting, hiring and training, and tend to attract better quality candidates than a small business. Moreover, HR professionals in larger firms can usually, but not always, offer good employee benefits, such as vacations, bonuses and health insurance plans.

Important Tasks

Here are a few of the most important small business HR tasks:

1. Effective Policy Communication – New hires must be thoroughly introduced to the company, in terms of culture, processes and policies. Clearly state the company’s expectations for employee behavior and performance through well-defined policies that limit liability and help all employees succeed. It’s also important to state the company’s response if rules are violated.
2. Implement an Employee Development Plan – By establishing an employee development plan, businesses can map out needs for hiring and training according to the company’s strategic goals. Good managers typically don’t just supervise, they help their teams reach their full potential.
3. Position Employees for Success – For a small business to thrive long-term, some of the first questions to think of are: where the company is, where it needs to be and what skills are needed to get there. Developing talent is critical to a growing business, and may be accomplished by hiring high-potential employees who can take on a number of roles throughout the various stages of growth.

Mistakes to Avoid

Human resources can be one of the trickiest aspects of running a small business. Employees are usually a major cost center, and turnover can adversely affect profits, as well as the company’s reputation. To keep the HR function running smoothly and contributing to the bottom line, make sure to do these things:

1. Hire Well – Hiring the wrong person can make a big difference to a small business. It’s typically worth the time and trouble to recruit from a large pool of candidates and thoughtfully move through the vetting process, including background and reference checks.
2. Document Everything – Don’t ignore performance issues, just because the company has fewer employees. Be sure to document them as soon as they appear, then be ready to present the employee with a plan of action for improvement. If termination becomes necessary, the documentation will likely be valuable.
3. Create Clear Job Descriptions – A thorough job description that clearly establishes expectations is one effective way to start employees out on the right foot. Include the required skills, training and education, including what tasks are required and what success in the position entails.
4. Know the Law – Especially in small businesses, HR professionals should be knowledgeable about employment laws. Accusations of discrimination or unfair practices are harmful, but breaking labor laws can be devastating to a business and an HR career.
5. Properly Classify Workers – To save on overhead, smaller companies sometimes attempt to classify employees as contract workers. If the company controls the employee’s hours, pay and work performed, then they are employees. Don’t allow the business owners to try to get around the U.S. Department of Labor’s guidelines.

5 Ways HR Professionals Can Help Small Businesses

Small business owners generally don’t have a lot of room for error, but managing human resources on their own can lead to costly mistakes. Fortunately, HR professionals can help small businesses stay out of trouble, while developing a strong workforce to help them achieve their goals and thrive. Here are five tips that can help make a big difference:

• Establish an employee handbook
• Be prepared to help new employees hit the ground running
• Stay on top of local, state and federal regulations
• Hire the best talent
• Bring in professional partners when you need them

A strong HR understanding, as well as smart recruiting, organization, policy implementation and training, can help put small businesses on the path toward continued success.