HR for Small Businesses

Colleen Frislid
Colleen E. Frislid, SPHR, SHRM-SCP
HR has a lot of responsibilities, from recruiting and training to employee relations and administration. In a small business, these tasks often fall to one person, which means the responsibility can be overwhelming! Small companies may not see the full value of HR or understand the breadth of skills it requires to be successful. Similarly, how one person sees the role of HR doesn’t necessarily align with how another person views the role. This speaks to the versatility of a small business HR professional. Read on for a summary of important topics for small businesses to consider and the impact that HR can have.

Watch the world’s largest HR encyclopedia be built in real-time

Subscribe to get a weekly roundup email of all our new entries

What Does HR at a Small Business Look Like?

HR in a small business is responsible for a wide variety of things. The primary functions include:

  • Recruiting and hiring
  • Training and development
  • Total rewards (compensation and benefits)
  • Employee relations
  • Upholding company culture and policies
  • Balancing company needs with employee needs

HR in small companies differs from HR at larger companies for a few different reasons. Small businesses have fewer HR professionals. Whereas HR departments are structured differently the larger they become, small business HR professionals need to have functional knowledge about a wide range of topics (like those listed above) to be successful. Similarly,HR professionals in small businesses have a lot of interaction with the individual workers and are intimately familiar with how each department functions and the personnel behind it.

Why Small Businesses Need Great HR

There are some common issues or wrong turns that small businesses can take in the path to navigate employee relations issues or compliance requirements. HR takes point on these and a variety of other tasks to support company objectives that allows small business owners or primary decision-makers to focus on growing their business.

  • Compliance. FLSA, ADEA, ADA, ADAA, Title VII, ERISA, FMLA I9s, file retention, state and local laws — the regulations could fill up this entire page. Small businesses have a unique challenge of needing to navigate these laws while growing their company with minimal resources. An HR professional can help you avoid common pitfalls with these laws, keeping your business safe from unnecessary risks and costly penalties.
  • Safe Employment Practices. HR professionals can help identify potential safety risks in the workplace and identify opportunities or solutions to mitigate or avoid those risks. They can also educate employees on safety and ergonomics.
  • Managing Company Policy. Creating handbooks and policy development help define company practices formally. They are then easier to enforce and maintain and easier to monitor employee activity. Not only does policy development help to protect the company from risk, it also sets clear expectations for employees.
  • Business Continuity Planning. HR is in a unique position to be able to understand impacts to personnel or employees in the event of a disaster, shut down, logistical interruption, staffing shortage due to illness or technological issues. They know the skills, knowledge and abilities of the workforce, can help perform risk assessments, look at potential staffing shortages, what needs to be replaced or who needs to be trained, and they can use this knowledge to help a company build a comprehensive plan for business continuity.
  • Employee Relations. Not only is HR responsible for recruiting and onboarding, they are also key to effective employee discipline. Termination requires taking action to resolve concerns in a way that will protect the company as well achieve the desired result (improved performance) without damaging employee morale. A lack of consistency, avoidance of these issues or managers that are under trained or overwhelmed can lead to more issues or put the company at greater risk. HR can help to ensure that employees get the support they need by training managers on best practices, reviewing for potential compliance risks, developing employees for success and establishing effective employee relations processes.
  • Compensation and Benefits Planning. The employee landscape can be volatile and changes quickly. Small businesses don’t always have the capital to match what larger organizations do, but there are a lot of ways they can stay competitive. HR can help businesses develop total rewards programs that incentivize employees and that increase overall engagement. Employers should consider health equity compensation, insurance, commuter programs, paid time off, flexible work arrangements, retirement plans, discount programs, non-monetary incentives and other wellness benefits. When created strategically, these programs can drive retention and lower overall costs to employers. For example, smoking cessation programs can positively impact health care costs.

HR Small Business Mistakes To Avoid

There are some common pitfalls that small businesses are more vulnerable to due to having less resources, training or time. Other priorities become the center focus, so it’s important that small businesses carve out time and are purposeful when developing HR practices.

Ineffective Hiring

Start with job descriptions, which need to be accurate, detailed and provide a realistic preview of the job. Determine what the “perfect” candidate’s profile would be, what your priorities are and work from there. Use the right recruiting platform for the role you are hiring for – different job boards cater to different workers, consider direct hire placement or other targeted recruiting efforts. Ask questions that are appropriate and can be benchmarked. Avoid interview questions that stray from job-related topics. Determine a way to fairly rank and compare candidates.

During onboarding, consider the employee experience. Map what you want their experience to be, including to whom and how they will be introduced. Create a training schedule and culture overview and consider whether there are additional costs that may be incurred to the employee – would relocation services help attract the right talent?

Employee Misclassification

There are different types of employee classification, and it can be confusing when trying to determine the correct classifications for each employee in your workforce. Consider:

  • The type of employment: regular, temporary or seasonal
  • Full time or part time
  • Exempt or non-exempt

Exempt or non-exempt tends to be the most challenging area, so be sure to review the classification rules on the department of labor and potentially consult with legal counsel prior to classifying a role as exempt. Many organizations make this error, and unchecked, it can be costly.

Compliance

Managers need to have an understanding and be aware of employment regulations. They also need to know what resources are available to them to stay up to date on state and local laws or where they can go if they have questions. Misunderstanding of required documents like the I9, insufficient handing of potential discrimination or misclassifying an employee (exempt, 1099, etc.) could be costly to the organization.

Inconsistent Policies or Practices

Every business, despite its size, would benefit from having formally outlined expectations and procedures. With the ever-changing legal landscape, employment regulations also need to be updated. A best practice would be to review handbooks or documented policies annually. Policies should be complete and answer questions that may not be immediately pressing but will serve as a guide in the future. For example, a non-solicitation policy would be something an employee can reference in the future when they find themselves in that situation. It’s also important to ensure that managers are trained and understand those policies so they are able to hold employees accountable or guide them through complex issues.

Lack of Documentation

Documentation serves multiple purposes. First, it demonstrates to employees that performance is taken seriously. Second, it creates an affirmative defense for the employer. This can seem like a low priority or too time consuming at the moment. It is important in these times to remember that employee development and performance management is a long game. Few situations are so urgent that there isn’t time to document, but when those moments do occur, make time afterwards to record the situation.

Lastly, when a business has inconsistent practices related to documentation it can inadvertently lead to discrimation or disparate impacts.

Insufficient Training

Training should begin at onboarding and continue through the entire employee lifecycle. Training can cover a wide range of topics, from company culture, practices and policies to development for future roles.

Ongoing learning and development opportunities motivate employees and lead to lower morale over time. Training plans can also come from performance gaps and provide a clear path forward for employees to learn and grow.

Poor Employee File Maintenance

There are specific file retention guidelines for each document. Employers should make themselves aware of these requirements and find the right storage solutions.

How You Can Set Up HR for a Small Business

There are options for the best way to set up HR for small businesses, so it’s important to evaluate what will be the best option for your organization and what will be the best tool to help you reach your goals.

HR Software

HR software can help track information and automate certain tasks that you would otherwise need to do yourself. It is best to monitor the amount of time that you are spending on administrative tasks, and what types of tasks you are doing, prior to choosing a software. There are a lot of options that vary in terms of what they can help with and how robust they are. A consideration when implementing HR software is the time and resources you’ll need to spend to get your company’s information loaded. Depending on the amount of data and the type of software, this can be a time-consuming process.

Professional Employer Organization (PEO)

PEOs are organizations that aim to reduce the administrative burden of small to medium-sized businesses. They typically have HR, benefits and payroll staff and work under a co-employment agreement. Co-employment allows the PEO to be the employer of record for your employees and they then administer certain services such as benefits and payroll. Working with a PEO could limit some of your autonomy as a business owner and in many cases still requires you to work directly with employees regarding certain issues. There are a lot of different PEOs available so it’s important to do your research to make sure that the one you choose is the best fit for your business.

In-House HR

Hiring someone to work full time in house can be more costly than some of the other solutions discussed. In addition, depending on responsibilities and the number of employees, one individual may not be sufficient for business needs, which means this option is frequently a lower-priority investment than something like a PEO or comprehensive Human Resource Information System (HRIS). However, an in-house HR professional provides the business more control over the day to day responsibilities and their vision for the future. An in-house HR professional can learn the ins and outs of the business and provide solutions tailored to the company and its workforce.

Outsourcing

Another common option is outsourcing. Companies can choose to outsource a single or several HR functions. There are many companies that focus solely on payroll processing, or HR consultants that help with benefits, training and development or employee relations. Some companies, both small and large, work on larger-scale projects like high employee turnover or low morale.

Ultimately, it is most important to pick the option that is best for your small business and that will help make you successful.

Watch the world’s largest HR encyclopedia be built in real-time

Subscribe to get a weekly roundup email of all our new entries

Questions You’ve Asked Us About HR For Small Businesses

When should a small business hire a HR admin?
As soon as possible! HR can be just as helpful during the startup phase of a business as it can in any other. Once you have a few employees it would be a good idea to start considering what your options are by bringing in HR support.
What are some recommended HR tools for a small business?
The society for human resource management (SHRM.com), Eddy’s encyclopedia, NOLA law books – they have great resources for interviewing, dealing with harassment investigations, etc. Sign up for newsletters from employment law offices or HR-specific news to stay up to date on changing regulations and trends.
Colleen Frislid
Colleen E. Frislid, SPHR, SHRM-SCP

Colleen manages a team of HR consultants that work with a variety of industries, specializing in the fields of human resources, strategic planning, and human capital management. Colleen applies expert knowledge, industry experience, and relentless energy to solving companies’ issues. She is a member of the Society for Human Resource Management as well as women in leadership groups. She is PHR, SPHR, and SHRM-SCP certified. She has an awesome pet cat, Attila and, when she’s not working she loves to travel, enjoy the great outdoors, and volunteer with different local charities.

Want to contribute to our HR Encyclopedia?

Posts You Might Like

What is People Management Software?

What is People Management Software?

People management software sounds important, but what exactly does that mean? Does your business need it? What businesses benefit most? All these questions and more are answered as we dive into the fascinating world of people management software and determine what’s best for your company.

Read More »
The Ultimate Guide on How to Manage Employees in a Small Business

The Ultimate Guide on How to Manage Employees in a Small Business

When it comes to running a small business, we know that managing employees is often one of the most difficult tasks. People are complicated, and finding a way to keep your employees happy and productive can be challenging. This article shares specific advice for what you can do in the three phases of the employee lifecycle to get the most out of each employee.

Read More »

Want to join our network of contributing HR professionals?

Scroll to Top

Submit a Question