Those in charge of Human Resources at small businesses have their work cut out for them. Like their corporate counterparts, they’re responsible for compliance, recruiting and hiring, performance management, workforce and succession planning, onboarding, payroll and benefits, and more. But unlike their peers at larger companies, small business HR departments usually lack deep pockets and robust resources.
Even so, a smaller headcount comes with its own benefits. Those in charge of HR at small- and medium-sized businesses (SMBs) have the opportunity to really get to know their employees and tailor HR initiatives to the workforce. Smaller companies can also mean less red tape, allowing Human Resources professionals to develop and launch programs or spearhead passion projects.
But whether you’re a small business owner (SBO) or an HR professional in charge of Human Resources management at a smaller company, there are some essential areas that can’t be overlooked. Here are four of the most important areas HR needs to focus on at small businesses.
4 Key Areas of Focus for HR Teams at Small Companies
Compliance gets a bad rap for its complicated landscape and ever-changing rules and regulations, but the reality is unavoidable: You can’t skip out on compliance.
“Knowing the legal side from a local, state, and federal level is critical from a small business standpoint,” said Matthew Burr, SPHR, SHRM-SCP, MBA, an HR consultant and Associate Professor of Business Administration at Elmira College in upstate New York. “HR teams at small businesses need to create and enforce policies and procedures that uphold employment law.”
Remaining compliant legally protects your business from fines and penalties, but also helps protect it from employee litigation. For example, a company that is legally compliant with the sexual harrassment training requirements of its state will have more protection against employee claims than a company that is not compliant.
Compliance is critical — but it presents very real challenges. Part of the difficulty for small businesses is that many owners allocate HR needs to other employees in lieu of having a formal HR department. Research shows that 70% of businesses with under 50 employees delegate HR tasks to non-HR employees, to be handled on top of their other duties.
But compliance spans multiple jurisdictions and a number of regulatory bodies, so remaining compliant without the appropriate professional knowledge or support is tough. Businesses must comply with everything from the US Department of Labor’s Occupational Safety and Health Administration (OSHA)-mandated workplace signage and posters, to Americans with Disability Act (ADA)-compliant job descriptions and required reasonable accommodations and Fair Labor Standards Act (FLSA)-compliant compensation practices.
“Putting that on front-line managers who have their hands full and lack the necessary HR training and expertise is risky,” cautioned Jeff Mains, CEO of Intelligent Contacts, a communications and payment company for the healthcare industry, and author of Small Fish, Big Pond: Building a World-Class Business That Swims Circles Around Competitors.
Making matters worse, small businesses can be more vulnerable to the hefty fines imposed by regulatory bodies for being out of compliance. In 2017, the National Small Business Association of America (NSBA) released research finding that while the majority of small businesses haven’t been fined for regulatory noncompliance, the five-year average fine for small businesses that have is steep: a whopping $30,651.
According to Burr, compliance must be the foundation of an HR function at a small business. “The compliance piece is really essential,” he said. “I’ve done a number of audits over the past few years and I can guarantee a [compliance] mistake in every audit — usually I’ll find one in the first two minutes.”
As a business owner, it may be feasible to handle HR-related compliance on your own at first, but it’s wise to seek professional support once your team starts to grow. If you’re not ready to hire a dedicated HR professional, investing in HR technology that handles compliance is a good first step.
2. Recruiting, Hiring, and Compensation
Recruiting and hiring top-notch employees is tough. At small businesses where owners and managers already have their hands full focusing on the firm’s needs, it can be even more difficult to give recruiting and hiring the attention it requires. But “recruiting and retaining people is a big deal and should be an area small businesses are emphasizing,” stressed Burr.
What’s more, in the midst of the Great Resignation, when employers of all sizes are vying for employees in a highly competitive landscape, small businesses have been hit especially hard: A 2021 Indeed survey found that 82% of SMBs report it’s been difficult to hire, compared to 75% of larger enterprises.
Small- and medium-sized businesses aren’t able to rely on their employer brand the way big companies are when it comes to hiring — nor are they able to match the wages, which may account for the extra challenge in hiring.
Take big-box employer Target, for example. The nationwide mega-retailer just announced a minimum wage of $24 per hour for certain locations. “It’s highly unlikely that small businesses can compete with wages like that,” Burr noted.
But what they can do is learn how to position themselves as competitors even if they can’t meet the same pay. “Small- and medium-sized businesses can offset that with benefits, perks, [and] better work-life balance, which can entice someone to want to come work at a small organization,” he said.
The per-need basis of recruiting and hiring at small- and medium-sized businesses likely accounts for the additional difficulty in finding employees right now. “In small businesses, a lot of hiring is reactive, not proactive,” said Mains. “Many business owners only think of bringing someone in when they have an immediate need, which is a mistake — especially now.”
This can be tough in an employer-driven talent market — but it’s a Herculean task in a candidate-driven market, like today.
The good news is that tools and technology can make this work a lot easier. Rather than manually sorting through resumes, SMBs can use recruiting and hiring platforms like Indeed or Glassdoor and applicant tracking systems (ATS) like Paylocity or SmartRecruiters to streamline this process so they can focus their attention where it really matters — on their most promising candidates.
In a scrappy and nimble small business, it can be easy to think of onboarding as an unnecessary corporate procedure. Your superstar new hire is sure to figure things out for themselves, or proactively turn to colleagues to get the answers they need, right? Don’t be so sure.
A more effective strategy is to create a basic, standardized onboarding program that equips new employees with the resources and information they need to thrive at your organization. This eliminates uncertainty around expectations and gives employees a tangible set of tools and resources to help them solve problems or find answers. Research shows that companies with a strong onboarding program improve retention by 82% and productivity by over 70%. A solid onboarding program also sends a clear message to employees: We want you here and we want you to succeed. Here’s what you need to know.
Especially for small business owners without an HR team, outsourcing onboarding to a comprehensive onboarding platform can be helpful. Business leaders will get updates and notifications on what they need to do prior to the employee joining the company and after they’ve started. And employees can work through individualized training and introduction sessions that will support them in familiarizing themselves with their new job, team, and organization.
This can help ensure that minor but impactful actions (like granting network access!) don’t get forgotten. It also gives HR managers, SBOs, and new hires a clear roadmap for a successful onboarding experience for everyone.
4. Succession Planning
Succession planning, the process of analyzing your workforce, identifying employees who would be a good fit for an eventual promotion, and providing the training needed to prepare them for this role, supports a business long-term, but is far too often overlooked in small businesses. “Succession planning is a big piece SMBs miss and often don’t understand,” Burr said — even though it could be even more important at small- and medium-sized businesses.
The impact an employee makes at a small business is usually bigger, because they account for a larger percentage of the workforce. They own a greater share of tasks, roles, and responsibilities and have more institutional knowledge, making succession planning all the more important.
“A lot of times people wear multiple hats in small businesses, and if you lose someone because of turnover, negative workplace culture, [or poor] work-life balance, you could be losing someone who is a key stakeholder,” said Burr. “That’s going to really affect the long-term viability of the company.”
SMBs often skimp on succession planning because they don’t have a firm grasp on the training and development piece of it, Burr said. The logic isn’t hard to follow: What good is it to identify who could fill what role if you can’t equip them with the skills and knowledge they need to be ready for it?
This is where outside help can be invaluable. Consultants or technology, like Lattice’s People success platform, can provide employee development solutions that support employee growth and equip the company with the skills and talent it needs — now, and in the future.
Human Resources at small businesses face many unique challenges, but overcoming them doesn’t have to be overwhelming. While it’s unlikely that as an SMB you’ll have a huge budget for HR technology or limitless personnel resources to support the HR function, there are many helpful resources you can turn to for support.
Tools and technology don’t have to be expensive, and for those choosing to handle HR in-house, the support of People success platforms can be transformational. To start, download Lattice’s People Program Models eBook for ideas on how to structure and run the People function at your small business, and schedule a demo to learn how Lattice can help your SMB streamline and automate everything from compliance to onboarding.