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20 Worst Small Business HR Issues (+How to Deal With Them)

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Read Time: 15 min
This post is part of a series called The Complete Small Business Human Resources (HR) Guide.
How to Handle Important Employees Who Want to Quit
How to Outsource Your HR Using the Best Service Companies

So far in this series on HR for small business, we’ve been going through all of the important aspects of human resources and managing employees, from hiring and retaining the best talent through to building an inclusive company culture.

Can you solve the worst hr issues in your small businessCan you solve the worst hr issues in your small businessCan you solve the worst hr issues in your small business
Can you solve the worst HR issues in your small business? (photo source)

The goal has been to break the topic of small business HR down into simple steps that are easy to follow. But as we all know, real life is not always as simple or straightforward as theory. Things go wrong. Sometimes, things go badly wrong.

So in this tutorial, we’re going to look at some of the worst HR issues that a small business may have to deal with. It’s a little early, but think of it as the Halloween edition of the series. Don’t worry, though—it’s not all horror. We’ll also be looking at how you can solve these issues and providing links to extra resources that can help you give Nightmare on Small Business Street a happy ending.

1. Discrimination and Harassment

OK, let’s jump right in at the deep end. One of your employees makes a complaint of sexual harassment against their manager. Or you get accused of discrimination on the basis of race, gender, disability status, or some other category.

If you’re thinking this will never happen to you, think again. The U.S. Equal Opportunity Employment Commission received 91,503 charges of workplace discrimination in 2016. And a few years ago, ride-sharing startup Uber held an investigation into 215 harassment claims that resulted in 20 employees being fired.

Two things are interesting and instructive about the Uber example. The first is that Susan Fowler, the first Uber employee to go public with her accusations, said in a blog post that her complaints were repeatedly ignored or minimized by HR. The second is that the firm belatedly did the right thing by hiring external lawyers to do a thorough, impartial investigation. But by then, a lot of damage had already been done.

So if you want to avoid being the next Uber, don’t ignore or try to minimize any complaints you receive. Make it clear that you take them seriously and will investigate them. 

It’s true that the average small firm can’t afford to hire a former U.S. Attorney General as Uber did, but do what you can, within your budget, to arrange an impartial investigation by neutral parties—outside the firm if possible. If the claims are substantiated, take decisive action to resolve them.

An ounce of prevention, of course, is worth a pound of cure. For tips on fostering an inclusive and diverse workplace culture in which such incidents are less likely to occur, see our diversity series, particularly this tutorial:

2. Employee Conflict

Not all problems between employees involve accusations of harassment. Sometimes, people just don’t get along, or they have a profound disagreement over how to do something.

Those issues can be serious too, though, and not just for the employees involved. If you don’t take swift action to resolve the conflict, it can fester and spread to other coworkers, creating a toxic working environment for everyone.

In a large company, the HR department will be the mediator for conflicts like this, but in a small business, that responsibility will generally fall on the owner. Mediation is a process with some specific steps you can take to achieve a successful outcome that everybody accepts. For more information, see the last section of our tutorial on employee communication.

3. Hiring Mistakes

In theory, hiring a new employee should be a well-thought-out process, starting with careful definition of the attributes required for the role, progressing through other stages like compensation research, advertising and interviewing, and ending with the successful hiring of the perfect fit.

The reality, though, is often different. Firms often rush to fill a hole as quickly as possible, and they settle for a candidate who may have the right qualifications on paper, but doesn’t fit the company’s culture.

To find out how to do things right, see our hiring tutorial from earlier in the series. And if you’ve already hired the wrong person and need to get rid of them, see the last section of the previous tutorial to make sure you’re following the right termination process.

4. Anti-Diversity Backlash

The famous “Google memo” is a well-known example of a common problem: resistance to diversity efforts from those who either don’t see the value of them or object to the way they’re being implemented.

How you deal with the issue will depend on many factors, including the content of the criticism and the personalities of the people involved. But the key is to communicate clearly with everyone involved, making it clear that you encourage debate about the best way to achieve diversity, but that the debate must be respectful of other groups and not reinforce unfounded stereotypes.

Again, you can read the series on improving diversity in your business for more on this.

5. Interview No-Nos

There’s an art to conducting an effective job interview, and you want to be sure you’re using the time most effectively to gauge the candidate’s suitability.

But, more importantly, there are certain questions that are actually illegal to ask and can lead to lawsuits. This is because of equal opportunity legislation that tries to protect job applicants from discrimination by limiting what information employers can ask them to disclose. To find out what those questions are, and to get tips on some better questions to ask instead, see the following tutorial:

6. Inadequate Documentation

Small businesses often do things more informally than their larger counterparts, and sometimes this can be a positive thing. But it also has its downsides.

If you don’t properly document things like company policies and employee benefits, you’ll face constant questions from confused employees, and you may open yourself up to legal problems in the future if employees claim they weren’t made aware of important company policies.

So make sure you document everything in a clear, easy-to-read employee handbook. For details on how to do this, and some free templates and examples to get you started, read this article:

7. Promoting the Wrong People

Just because someone is good at their current job, it doesn't mean they'll be good at management. We’ve all come across people who were promoted beyond their capabilities. The result is twofold: the loss of an employee who was skilled at a lower-level job, and the creation of an ineffective manager.

So instead of using promotion as a reward, conduct a serious assessment of your employees’ skills to see if they are truly management material or not. You can find more advice on the skills to look for in this Harvard Business Review article.

You can also come up with other ways of rewarding employees, so that they stay happy and motivated in the role that’s right for them.

8. Skipping the Performance Review Process

In a small business, you probably give feedback and have contact with employees regularly, so it may seem unnecessary to sit down and go through a formal review process with them. After all, they already know what you think of their work, right?

Wrong. Giving ad hoc feedback is great, but it’s also important to schedule time on a regular basis for more structured discussion and assessment of the employee’s performance. 

These quarterly or annual reviews are a great time to step back and look at the bigger picture, deciding whether the employee’s role within the company is changing, and setting clear goals and objectives. They also give you data with which to set your employees’ pay and benefits packages and make sure they’re still competitive.

And if anybody is not living up to expectations, it’s better to start dealing with it and documenting it in this formal process than to let the problems linger.

9. Falling Foul of the Law

You may not have a legal team, but you need to understand and abide by employment laws.

These vary by country and region, so we can’t cover them in detail here, but generally you’ll need to be aware of things like workplace safety regulations, workers’ rights to things like parental leave and union representation, and equal opportunity laws.

For more on this, read this tutorial from our small business HR series:

10. Letting New Employees Down

Hiring the right people is great, but if you don’t have a proper orientation or onboarding plan for your new employees, they won’t be able to live up to their potential.

And, even worse, they may just quit. One survey found that 40% of employees leave a job within the first year if they receive poor job training.

So give your new starters the support they need. Create a proper, comprehensive plan for onboarding new employees, and constantly examine it and refine it so that it improves with time. You can find lots more detail in our tutorial on creating training plans for small business employees.

11. Bad Communication

This is one area where small businesses have an advantage. Imagine how hard it is for big corporations to keep everyone on the same page, when they have thousands of employees spread across different offices in different parts of the world. Compared to that, small businesses have it easy.

But communication can still be a problem, especially as you start to grow and take on new employees. The informal methods that worked when it was just you and two other people may break down as the company grows.

Bad communication has real business consequences. In a survey by training company Fierce Inc., 86% of respondents blamed lack of collaboration or ineffective communication for workplace failures.

So get some tips on communicating the right way:

12. Firing Without Due Process

In the world of reality TV, it might be OK just to point a finger at someone and say, “You’re fired.” But in the real world, that approach can get you in a whole lot of trouble.

In many countries, employment legislation protects workers from unfair dismissal, and they can sue you if they feel they were treated unfairly. So it’s important to follow a clear, fair process if someone is not performing adequately in their job.

That means giving several warnings over time, giving the employee a chance to improve, and documenting the process carefully from beginning to end. For more details, see the last section of our previous tutorial in the series.

13. Social Media Disasters

You’re just a small company, and you trust your staff members not to do anything stupid online. You don’t need a social media policy, right?

Actually, social media problems are surprisingly common. More than 70% of employers have disciplined employees for on-the-job misuse of social media, according to one survey. Among other things, employees were using social media to:

  • divulge confidential information
  • misrepresent the views of the business
  • disparage the business
  • harass co-workers

So it makes sense to put a clear policy in place, so that people know what they can and can’t do.

14. Chaotic Record-Keeping

As an employer, you have a responsibility to keep certain records about your employees, such as contracts, pay details, performance reviews, and so on. You also have to make sure you file all the appropriate tax forms, make the right deductions, and run payroll accurately.

None of this is exciting stuff, but it’s very important. You can read more about doing it right in these tutorials:

15. Insufficient Training

A small budget doesn't mean you can't train people properly. With a little creativity and some use of free or low-cost resources, you can provide your employees with all the help they need to get better at their jobs. Some of the benefits are:

  • greater productivity
  • happier staff
  • lower turnover
  • more uniformity
  • staying up to date with the latest trends and information

To find out how to put together a comprehensive training plan on a small-company budget, read this tutorial:

16. Inadequate Safety Provision

Your primary responsibility as an employer is to provide a safe place for people to work. It’s a serious matter: In the U.S. in 2020, 4,764 employees died from injuries sustained in the workplace.

Your business may be based in an office and not seem very dangerous, but you still need to assess the risks and put controls in place to minimize the dangers to which employees are exposed. The first section of this tutorial on HR requirements for small business gives more information on how to do this.

17. Uncompetitive Pay

When was the last time you did some compensation benchmarking?

If the answer is “Never” or “What’s that?”, don’t worry. It can be difficult to know how much is the right amount to offer a new employee, and how much of a raise you should give each year.

And benefits are also part of the equation. If you don’t offer good enough pay and benefits packages, you’ll struggle to hire and retain the best employees—but on the other hand, if you offer stellar pay and benefits, it can really help you punch above your weight.

Find out how to do the right research and stay competitive in this tutorial:

18. Payroll and Benefits Snafus

Offering useful employee benefits is great, but it also adds complexity to your business. From losing track of people's vacation days to failing to contribute the right amount to a retirement account, there's a lot that can go wrong with employee benefits.

And then there’s payroll, which is easier to mess up than you might think. If you pay people late, or pay the wrong amount, or fail to withhold the right amount of tax and national insurance contributions, you’ll make your employees very unhappy, and you may even end up in legal trouble.

Get some help in doing it right in our tutorials on running payroll and HR requirements for small business.

19. Unclear Job Descriptions

We touched on this back in “Hiring Mistakes” earlier on, but it’s a slightly different issue. Unclear job descriptions extend beyond the hiring process and can affect your employees’ ability to do their jobs properly.

Startups and small businesses are often more fluid than larger companies, with everyone pitching in to do all sorts of different tasks. That can be good, but it can also lead to confusion and inefficiency. If responsibilities are not clear, people will end up gravitating to the more interesting and fun tasks, while neglecting the boring but important ones. It’s also hard to judge someone’s performance if it’s not clear what they’re supposed to be doing.

So be sure to write proper job descriptions for every staff member, both new and existing. They don’t have to be exhaustive or limiting, but they should cover the basic responsibilities of each employee. You can still encourage people to get involved in new things as well—the job descriptions can always be updated!

20. Losing Your Best People

Last on the list is a situation no small business owner wants to come across, but most will at some stage—your key employee wants to quit.

People change jobs frequently these days, so sometimes the situation is unavoidable. But there are things you can do to improve your retention of key employees and reduce turnover. Many of the things we’ve talked about in this series will help, such as providing good training, better communication, and competitive pay and benefits. Also use your performance reviews with employees to make sure you’re giving them enough motivation and new challenges to keep them happy.

If you’ve done all you can, and a key employee still wants to leave, at least you can handle it in the best way possible. To find out how to do that, read our tutorial on what to do when a key employee wants to quit.


As you’ve seen, a lot of things can go wrong for small businesses! We’ve looked at some pretty serious HR issues you may end up facing, from conflicts and harassment through to uncompetitive pay and inadequate safety provision.

But you’ve also seen that there are solutions for all of these issues. Because this article has covered a lot of ground, we haven’t looked at any individual issue in great depth, but I hope that this article has given you some food for thought, and that you enjoy diving into the other linked resources for more information.

Our Complete Small Business HR Guide isn’t finished yet! In the next installment, we’ll look at some of the best HR software solutions you can use in your business.

Editorial Note: This content was originally published in 2017. We're sharing it again because our editors have determined that this information is still accurate and relevant.

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