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What small businesses should know about human resources

There’s more to HR than payroll and exit interviews. Learn more about this critical function

Illustrations courtesy of iStock

Business owners often think they have a good grasp of what human resources (HR) entails. But understanding the full scope of HR is one of the more complicated aspects of owning or running a small business—especially for business owners who wear multiple hats.

From health and safety measures to diversity, equity, and inclusion (DEI) initiatives, there are a lot of different elements when it comes to HR. Training, hiring, and having documentation behind employee pay and benefits are just some of the issues that fall under the HR umbrella—and each of them is important in its own way. In this article, we’ll cover HR basics, common mistakes, as well as HR strategy planning to help you manage your human resources with ease and confidence.

What is human resources?

The role of a human resources professional is to manage employee relations and development within the organization. This department, or role, is a long-standing, essential department and service for businesses large and small. It focuses on business management, recruiting and talent acquisition, employee learning and development, among other key issues.

Businesses with fewer than 50 full-time equivalent (FTE) employees should get started by focusing on employee data and security. Create and maintain an employee handbook complete with all-encompassing policies and procedures and a conservative list or posting of federal and state notices, including but not limited to labor law posters like the federal minimum wage.

Once an employer hires their 51st FTE (and beyond) there are additional provisions or regulations that apply to the business, including the Affordable Care Act (ACA) and the Family and Medical Leave Act (FMLA).

Small business owners with fewer than 25 employees may not see a need for an experienced HR person. However, HR influences the development, reinforcement, and change of an organization’s culture. It also manages the administration of compensation, performance management, professional training and development, recruiting and onboarding employees, and strengthening the organization’s values. A qualified HR person or team is the right move for any business looking for sustained growth and revenue.

HR management 

Human resource management includes keeping track of integral business functions, including recruiting, hiring, and onboarding, compensation and benefits, professional development learning and training, legal compliance, and employee relations. There are four key components to human resource management for small businesses:

1. Managing current employee-related matters. Company managers typically oversee employees’ day-to-day duties, whereas HR departments address employee-related concerns, such as benefits, compensation, training, and conflicts that need resolution.

2. Onboarding new employees. HR departments spearhead the hiring process from arranging background checks and drug testing, to providing new employee orientation (including completion of forms and other documentation).

3. Overseeing employee separation procedure. HR departments typically handle an employee separation—whether an employee voluntarily leaves the company, is laid off, or is terminated—and ensure that the business’s compliance is followed. The HR department makes sure that proper documentation is recorded and filed, any severance pay or benefits are settled, and all company materials (i.e., access keys or badges, company computers, sensitive documents) are returned.

4. Boosting employee morale. HR departments are tasked with monitoring, boosting, and maintaining employee morale, establishing a positive workplace, and implementing initiatives such as employee rewards for excellent performance.

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Common HR mistakes to avoid

For small business owners who assume human resources management themselves, there may be a steep learning curve. To stay ahead of the curve while deciding whether to build out your HR team, read about these common HR mistakes—and how to avoid them.

Underdeveloped hiring strategy

As business grows, you’ll need to expand the talent pool. Review your business growth plan and start planning future staffing needs to stay ahead of the growth curve. Your hiring strategy should identify the ideal candidate, such as characteristics, behavioral tendencies, and aspirations. Once you understand the ideal candidate you seek, it will help determine where to look for them.

Laissez-faire leadership 

Sometimes in a startup or small business, the workplace may be relaxed and informal. However, a common issue with these types of unstructured workplaces is the prevalence of employees challenging the employer. To avoid this issue, it is important that employers maintain an appropriate distance—meaning that you should find a balance between making difficult decisions and maintaining an engaging and friendly demeanor with employees.

Inadequate training

While some employers may think that they don’t have the bandwidth to properly train their new employees, it’s important to know the impact employee turnover has on a business’s budget. For example, hiring a new employee for a $10-per-hour position will cost an employer 16 percent of the employee’s annual salary. Businesses typically have unique processes that require new employees—even seasoned professionals—to be trained. Additionally, providing professional development opportunities can help increase morale.

Compliance issues

Many businesses struggle to keep up with changing regulations. This includes changes to documentation on minimum wage, overtime, employment of minors, employee classification (i.e., non-exempt vs exempt, W2 vs 1099), and much more. Compliance can also vary at the local and state level, adding another challenge. When it comes to labor and employment laws, it’s helpful to have an HR department to lean on.

Outdated or no employee handbook

Employee handbooks outline an organization’s mission, values, policies, and procedures, oftentimes setting the tone for the company culture. According to research, 87 percent of small businesses have employee handbooks. While only one in three employees may find an employee handbook helpful, it is still critical that businesses create and update their employee handbooks to prevent liability and compliance issues. Employers should also require employees to sign an acknowledgment stating that they have read and understand the handbook.

Missing or incomplete employee records

It is valuable to keep detailed employee records. These range from employment verification (e.g., Form I-9), tax withholding (e.g., Form W-2, Form W-4), and leave and disability documents, to performance management and healthcare-related information. To safeguard compliance, it is important not only to obtain these employee records but to also ensure you’re following all recordkeeping regulations (e.g., Health Insurance Portability and Accountability Act (HIPAA) and Occupational Safety and Health Administration (OSHA)).

Insufficient communication

No matter the size of your business, concise and consistent communication should be an essential part of HR planning. Small business owners often mistakenly assume that because of the company’s small size, employees should inherently know what’s happening. That’s not always the case; it is critical that employers overcommunicate company goals and strategies and ask employees to provide questions and feedback in response.

Implementing HR for small businesses

Once you determine the need for an HR professional or team, it’s time to form an HR department. Here are five steps to stand this up.

1. Identify gaps. As your business begins to take shape, gain employees, and make waves on social media, you’ll start to identify process and personnel gaps. Start by pinpointing new processes that need to be memorialized and documented, documenting frequent employee questions (likely around payroll or benefits), and noting lack of knowledge around compliance-related items such as labor laws.

2. Develop an operating structure. Companies need a defined set responsibilities or role expectations for every team member across the organization. The best way to do that is to develop an operating structure. Take the time to understand how the business will create value. Then, build out the administration and management of the organization in those primary areas. For example, a small local business that offers realty services will want to focus on residential cross-selling vs. independent, large-scale commercial leases.

3. Create an employee handbook. An effective way to store policies and procedures for your business or industry is in an employee handbook. To start, employers should include policies on Family and Medical Leave, Equal Employment Opportunities, and workers’ compensation. Additional useful information to include are the company history, high-level information on how to access employee benefits, and a brief description of the benefits offered.

4. Collect proper documentation. The HR role also functions as an accountant of the workplace—their focus is ensuring compliance from an administrative and personnel perspective. HR will need to account for employee eligibility (Form I-9), safety and security policies, creation of organizational charts, résumés, payroll details, W-4 forms, schedules (e.g., company-paid holidays, sick time, paid time off, and leave), and the organization’s mission and values, among others.

5. Find a supporting technology platform. The best way to manage HR-related activities is through human resource information software (HRIS). When choosing software, start by making a list of critical features and functionality it must have and a complementary list of “nice to have” features, then secure the budget for this investment. In 2021, most of these systems are available in the cloud vs. on premises, which allows them to be accessed remotely through a self-service portal.

HR strategic planning

Human resource strategic planning analyzes current and future business goals and determines what skills, knowledge, and proficiencies a business would need to succeed. For example, if an organization is currently doing everything in-house, as the company grows it may make more sense for the organization to outsource services to free up time to build its bottom line. This could be fulfilled by independent contractors or a full-scale professional employer organization (PEO) to alleviate core business competencies, so employers can return to employee management and revenue-building goals.

Human resource strategic planning and business strategy work synergistically, where each task depends on the other. Here are some examples of this symbiotic relationship.

Identifying organizational needs. Human resource planning explores what the present HR capabilities are, including what currently works and where gaps may be developing. In reviewing the present HR functions through human resource planning, human resources can formulate a more informed business strategy that is customized to the organization’s overall goals. A business strategy will look at the financial demand for recruiting, training, and retaining, the time it takes to hire or upskill permanent employees, and alternative temporary solutions, such as outsourcing tasks or roles to independent contractors.

Establish and analyze the plan. Once a business strategy is established and approved, the HR department’s first task is to communicate the upcoming changes to the current employees. These changes may include updating job descriptions, transferring employees to new departments, revising policies and procedures, creating employee development or professional development programs, and strategizing recruiting efforts.

Retention. Many believe internal recruiting is more important than external recruiting. A LinkedIn survey shows that employees are 41 percent more likely to continue their career at a company if they make internal hiring a priority strategy over organizations where this strategy has little to no importance. HR plays a major role in the internal recruiting/hiring process. It can help foster a culture that supports this type of movement within the organization, prepare and upskill employees, and provide a quality internal hire experience for employees.

Regardless of how your business started, your go-forward plan should include a team of HR professionals. From HR Generalists and Employee Relations Managers to Payroll Managers and Recruiting Directors, the levels of HR knowledge and expertise are limitless. If you’re not quite ready to hire your own HR team, check out the variety of HR services offered by VensureHR. With a range of technology options, performance management and applicant tracking solutions, and full-service HR at their disposal, WeWork members, who have discounted as well as complimentary access to VensureHR products and services, can be set up for success.

Julie Dower is a marketing and communications manager at Vensure Employer Services, living in Chandler, Arizona. A mother of twin girls, she holds a master of science in technical communications from Arizona State University and a master of arts in English from Northern Arizona University.

Lizz Morse is a marketing and communications supervisor at Vensure Employer Services. She holds a master of science in psychology from Grand Canyon University and has been published in Attorney at Law Magazine, Real Estate Agent Magazine, and The Good Men Project, among others. Morse has also ghostwritten a number of articles focused on small business administration and operations, appearing in publications such as Thrive Global and Small Biz Daily.

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