When you’re running a small business, there
are so many things to take care of—sales, marketing, product development,
etc.—not to mention the very important task of trying to make a profit and stay
With all of that to worry about, human
resources (HR) work can sometimes slip down the list of priorities. That’s a
shame, because there are some very important HR basics that every small business
should be taking care of. For example:
- Do you know about all the employment laws
that affect your business?
- Are you taking care of your staff members’
- Have you benchmarked your compensation to
make sure it’s competitive?
- Are you doing everything you can to keep
your staff safe, to resolve conflicts effectively, to create a diverse and
inclusive workplace, and more?
If not, don’t worry—you’re not alone. A
survey found that 21% of small business owners were not confident in
managing the HR function, and many were unaware of or were not enforcing
important employment laws affecting their businesses.
So in this article, we’ll go through 15
basic HR functions that every small business owner should know about. Because
this is a high-level overview, I’ll just give a brief introduction to each
topic, but I’ll link to more resources so that you can find more information
when you need it.
Also be sure to check out our Complete
Small Business HR Guide, which covers a wide range of HR topics, from
hiring to firing and everything in between.
1. Hire the Best People
There’s a common business saying:
“You’re only as good as the people you hire.”
No matter how good your business concept,
your marketing, your planning and everything else, it’s your employees who must put it all into practice. If you don’t have the right people designing your
products and representing your company to your customers, you’ll be in trouble.
A recent CareerBuilder
survey found that three-quarters
of employers have hired the wrong person for a position, and the average cost
of a bad hire is nearly $17,000 in lost productivity, the time and cost of
hiring and training a replacement, and so on.
Effective hiring starts with putting
together a clear job description that sells the job, doesn’t unnecessarily
exclude good candidates, and is posted in the right places. Then you’ll need to
prepare properly for the interview, including knowing what to ask and what not
to ask, and put together a competitive package of salary and benefits for your
chosen candidate. And finally, there are some important legal hoops to jump
For information on doing all of these
things the right way, see the following tutorials:
- ManagementHow to Hire Your First Employees
- DiversityHow to Ensure Diversity in Your Recruiting and Hiring Practices
2. Get New Staff Up to Speed Quickly
When you’ve gone to so much effort to hire
the right people, the last thing you want to do is lose them. But that’s
exactly what can happen if you don’t have the right onboarding training. A recent survey found that 40% of employees leave
a job within the first year if they receive poor job training.
When you’re just starting out, you can
train the first few new employees yourself. But as soon as you grow beyond a
few members of staff, you’ll need to create a formal orientation training plan
that includes at a minimum:
- an introduction to the company’s history
- practical information about pay, benefits, company
policies, vacation time, etc.
- the business structure and key people
- who your customers are and what they want
- what behavior is expected from employees
- the tools and software that the new
employee will need to learn
You can find more details in the following
3. Offer Competitive Pay and Benefits
How do you know how much to pay your
people? And once you’ve found the right number, how can you keep up with a
changing market and your employees’ constantly improving range of skills and
The answer is compensation benchmarking. And
offering attractive benefits like health insurance, parental leave and
retirement plans can also help persuade talented people to join your company
(and convince them to stay longer once they’re on board).
To find out how compensation benchmarking
works and which employee benefits you should be offering, read this article:
4. Keep Your Employees Safe
This may not be something you think about
much, especially if you run an office-based business with few obvious hazards.
But consider the fact that in the
United States in 2015 alone, 4,836 employees died from
injuries sustained in the workplace.
It should be clear that your employees’
safety is your most important responsibility. So it’s important that you:
- assess the risks
- put controls in place
- ensure that everyone follows the safety
There’s much more detail to it, of course,
and you can find that in the U.S. Occupational Safety and Health
Administration’s Small Business Handbook, or in the following tutorials:
- Small BusinessWhat Are the Important HR Requirements for Small Business?
- FinanceAre You Prepared? How to Make a Disaster Recovery Plan For Your Business
5. Have Clear Employment Policies
Small businesses are often run very
informally, and sometimes that can be a strength. But it can also lead to
confusion, inefficiency, loss of productivity, and sometimes potential legal
So, it’s worth taking the time to create an
employee handbook with clear documentation. A handbook usually includes the
- company overview
- safety policies
- diversity and equality statement
- pay and benefits
- code of conduct
- discipline and termination
- acknowledgement of receipt (for employee to
- legal notices
Not sure what these sections should
include? Human Resource Solutions provides a free
employee handbook template on its website, or you can find more guidance
6. Measure Employee Performance
So, you’ve hired the right people, you’re
paying them fairly, and you’ve ensured that they’re safe at work and know all
the company policies. Great!
Now you need to set up a performance review
process. The point is not just to check up on people. Performance reviews can
be very helpful to employees as well, by establishing clear goals and
expectations and letting them know how they’re doing.
For more on the importance of performance
reviews and how to set them up right, here are some extra resources:
- Small Business20 Worst Small Business HR Issues (+How to Deal With Them)
- Small BusinessHow to Offer Competitive Small Business Pay & Benefits
7. Communicate Clearly
Good communication is at the heart of any
successful business. And the flipside of that, of course, is that bad
communication can be disastrous. In
by training company Fierce Inc., 86% of respondents blamed lack of
collaboration or ineffective communication for workplace failures.
Small businesses have a clear advantage
here—it’s much easier to communicate with a few dozen employees than a few
thousand. But you still have to be careful to set things up right. In the
following tutorial, you’ll learn all about the best ways to keep people
informed, communicate the company’s values, get feedback from staff, and more.
8. Provide Effective Training
We’ve covered orientation training for new
employees already, but training is a consistent requirement. If you want to
stay ahead of the curve in an evolving and competitive marketplace, you’ll need
well-trained employees who are constantly learning new skills. Good training
can also be a powerful tool for improving employee satisfaction and retention.
If you’re thinking you can’t afford it,
think again. While traditional corporate training programs can be expensive,
there are plenty of free or low-cost alternatives. You can read more about
them, along with details of how to put together individual training plans for
each employee, in this tutorial:
9. Keep Your Staff Happy and Improve Retention
Many of the other things we’re looking at
in this article, such as good communication and effective training, will lead
to happier staff who stay with you longer.
But it’s still worth paying particular
attention to this area and tracking your staff turnover rate. High turnover can
be costly for your business, not just because of the cost of hiring and
training replacements, but also because of the lost knowledge and expertise
that departing employees take with them. It can also be disastrous for staff
morale to see people quitting all the time.
To find out how to track staff turnover,
see the last section of this tutorial:
And for tips on persuading employees to
stay, read this:
10. Comply With the Rules
Here’s an important reason not to run your
small business informally: employment law.
There’s a whole raft of regulations out there, and many of those rules apply to
Are you complying with equal opportunity
laws? Are you giving your employees the rights they’re entitled to under your
country’s legal code? Are you processing payroll efficiently and keeping any
records you’re required to maintain?
If not, you may want to check out this
11. Resolve Conflicts
In a large company, when conflicts arise
between employees, they’re typically handled by managers and then passed to the
HR department if they become more serious and intractable.
Those conflicts can arise in small
companies too, and if you don’t have dedicated HR staff, you’ll probably be the
one to resolve them. Try this checklist from
the Human Resources department at the University of California, Berkeley:
- Acknowledge that a difficult situation exists.
- Let individuals express their feelings.
- Define the problem.
- Determine underlying needs.
- Find common areas of agreement, no matter how small.
- Find solutions to satisfy needs.
- Determine follow-up you will take to monitor actions.
- Determine what you’ll do if the conflict goes unresolved.
you can also read the last section of our communication tutorial:
12. Be Efficient With Payroll and Other Paperwork
Everybody loves to get paid on time. Running
payroll effectively should be quite straightforward, especially if you use good
software to help you, but it’s still possible to make mistakes. There’s no
surer way of losing an employee’s trust than being late with a paycheck.
And then you need to make sure you’ve
deducted the right amount of tax and filed the appropriate forms with the tax
authorities. It’s not the most exciting stuff you’ll ever do as a business
owner, but it’s very important that you get it right. Here are a couple of
- PaymentsHow to Run Payroll (Systematize Your Process)
- Small BusinessWhat Are the Important HR Requirements for Small Business?
13. Ensure Diversity and Fairness in the Workplace
It’s 2017. If your workplace is not as
diverse as the society you live and work in, you need to ask yourself why, and
take steps to address the problem. I’m sure you’re not consciously excluding
people based on gender, race, age or other criteria, but you may well be
doing so unconsciously—and harming your business in the process.
Here’s a guide to the benefits of diversity
(hint—making more money is top of the list).
And here’s a guide to putting it into
14. Handle the Termination Process
If you’re doing HR right, your employees
should be happier and more productive in their jobs, and fewer of them will
want to quit. But still, no matter what you do, at some point you’ll have to
handle the situation of an employee wanting to quit—or sometimes, you’ll need
to fire someone for poor performance.
From ensuring a smooth handover to covering
your legal bases, there’s a lot to do. And you’ll also want to run an exit
interview to make sure you know what went wrong and how you can improve things
to avoid similar situations in future. Read this tutorial to find out more:
15. Get the Right Help
We’ve covered a lot of ground in this
article. If you do everything we’ve talked about today and everything that’s
recommended in the supporting tutorials, it could quite easily get
overwhelming. As a small business owner, you’ve got so many other things to take
care of, like planning for the future of your business, putting together
effective sales and marketing strategies, monitoring the accounts, and much
So, it’s likely that you’ll need help with
HR in some form. That could mean hiring someone, but for a small business it’s
more likely that you’ll use outsourcing services or HR software. We’ve got a
tutorial on HR software coming up soon, and you can read the following tutorial
to find out how HR outsourcing works and get profiles of some of the main
In today’s article, you’ve got an overview
of the essential HR basics for small business owners to understand. You should
now have a clearer idea of what’s involved in managing HR.
To take action on each area of HR basics, you’ll need to
get some more detail, of course, so I’d encourage you to read the linked resources
when you have time, or check out the full series
on HR for small business.