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 in business.
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’ training needs?
- 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 recent Paychex 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 through.
For information on doing all of these things the right way, see the following tutorials:
- How to Hire Your First EmployeesAndrew Blackman06 Dec 2022
- How to Ensure Diversity in Your Recruiting and Hiring PracticesAndrew Blackman24 Mar 2017
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 and values
- 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 tutorial:
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 experience?
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 rules
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:
- What Are the Important HR Requirements for Small Business?Andrew Blackman07 Sep 2017
- Are You Prepared? How to Make a Disaster Recovery Plan for Your BusinessAndrew Blackman11 Aug 2022
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 problems.
So, it’s worth taking the time to create an employee handbook with clear documentation. A handbook usually includes the following sections:
- company overview
- safety policies
- diversity and equality statement
- pay and benefits
- code of conduct
- discipline and termination
- acknowledgement of receipt (for employee to sign)
- 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 here:
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:
- 20 Worst Small Business HR Issues (+How to Deal With Them)Andrew Blackman22 Sep 2022
- How to Offer Competitive Small Business Pay & BenefitsAndrew Blackman21 Feb 2022
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 a survey 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 small businesses.
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 quick guide:
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.
And 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 guides:
- How to Run Payroll (Systematize Your Process)Andrew Blackman21 Jun 2016
- What Are the Important HR Requirements for Small Business?Andrew Blackman07 Sep 2017
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 practice:
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 more.
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 providers.
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.