How to Manage HR in a Small Business - Woman in small business working behind counter

How to Manage HR in a Small Business

Saturday, December 06, 2014

What is Human Resources?

The department or team within an organization that handles, among other things, hiring employees and oversight of staff members is typically referred to as human resources (HR). HR professionals fill one of the most important roles within small businesses as well as in larger organizations. Some tasks of the HR department include:

  • Recruitment and hiring
  • Employee retention
  • Performance reviews
  • Payroll and benefits
  • Communication and staff engagement
  • Staff training and development

What is human resources management?

The term human resources management (HRM) refers to the formal system used by the HR department to manage their team members. The goal of HRM is to maximize productivity by facilitating the optimal effectiveness of employees.

Key areas of focus for HRM

For both large and small businesses, HRM teams have important responsibilities. In addition to onboarding, engaging, and offboarding employees, they are responsible for maintaining compliance with legal guidelines regarding hiring and record keeping.

The HR department must ensure that employees follow company procedures, but also help them remain engaged with their role within the company and fulfilled by their accomplishments. Actions supporting employee retention are more important than ever in view of the recent labor shortage due to COVID-19.

HR departments help companies thrive. The following categories provide an overview of some of their major responsibilities.

Hiring the right people

A primary role of HR is employee recruitment and onboarding. Sometimes this seemingly basic task isn't given the attention it deserves.

Many of today's HR managers focus more on merely filling open job positions rather than thoroughly reviewing resumes and checking references to recruit the most appropriate job candidate for each role within the company.

It's stressful and time-consuming to follow the process of replacing the wrong candidate with the top talent who should have been recruited initially. The importance of background checks and other established HR practices for finding the right candidates in the first place shouldn't be overlooked. They save time and support profit in the long run.

Maintaining employee information

Records kept by HR staff include I-9 forms, general employee files, and employee medical information. Performance reviews should also be formally recorded for future reference when making evaluations for pay increases or addressing problems with employee performance.

If employee records aren't kept properly, various situations can be difficult to satisfactorily address, and compliance penalties could be incurred.

Creating and distributing an employee handbook

Every new employee should receive an employee handbook during onboarding. New hires must know your company’s needs, what is expected of them, and what benefits they will receive.

The employee handbook should contain the following:

  • Specific company information and policies, including non-disclosure agreements, if applicable.
  • Anti-discrimination policies, including how your company complies with the Americans with Disabilities Act (ADA) and other employment discrimination laws implemented by the U.S. Department of Labor. Code of conduct issues required of employees should also be addressed.
  • Rules regarding safety and security, including Occupational Safety and Health Administration (OSHA) compliance guidelines and online computer security practices.
  • Guidelines for protecting company property, and the protocol in case of adverse weather conditions or other emergency situations.
  • Information covering compensation and benefits must be clearly stated. Employees should know what benefits are available, the qualifying factors, and how to sign up to receive them.
  • Work schedules, expectations when working remotely, penalties for excessive absences or tardiness, rules regarding vacation, time-off requests, maternity leave, and bereavement leave.

Payroll and benefit distribution

Administering payroll and arranging employee benefits are basic HR responsibilities. HR services also include maintaining health insurance programs, focusing on healthcare goals, and addressing workers' compensation claims.

Posting information as required by law

State and local government agencies require that certain information like local laws covering worker wages and working conditions is posted in places where employees frequent, such as the breakroom. Pre-printed posters are available from state and local government offices to display as a reminder of employment laws covering the rights of workers in your local region and state.

Benefits of HR for Small Businesses

It's important for small business owners to create an HR department and to implement effective HRM. A comprehensive HRM plan is imperative to remain competitive by attracting and retaining top talent.

A skilled HR team is an essential part of any sized business, in the interest of:

  • Finding the right person for each position
  • Managing employee performance
  • Administering benefits
  • Creating a positive company culture
  • Maintaining employee files
  • Achieving greater employee retention. Research shows that 75% of employees report staying longer at a company that listens to them and values their concerns. Employees that are disengaged are 2x as likely to look for new places of employment
  • Ensuring compliance with federal, state, and local laws
  • Resolving employee issues
  • Maintaining a supportive working environment that fuels productivity as well as employee engagement
  • Defining and communicating clear, documented expectations
  • Competing with larger organizations. Small businesses may not have the deep pockets that larger organizations have when it comes to offering competitive wages. But a skilled HR department can find creative ways to provide benefits and perks to attract and retain top talent.

How to Start Your HR System

Even small businesses need HR systems to provide guidance and reminders of rules that must be followed, in addition to the basic functions of administering payroll and benefits and maintaining a skilled and engaged staff. So, how do you start an HR system for your business?

Launching an HR system can seem challenging to a small business. But by following a structured process, small companies can organize and streamline a small business HR team that fills the needs of employees and supports the company’s business goals.

Starting and managing an HR system has never been simpler now that software and supportive technology is available. Automation provides HR solutions and helps businesses initiate and maintain HR functions.

An efficient plan for launching an HR system at your small business includes the following steps:

Create processes that are known by all members of your team

This helps your staff optimize resources, stay aligned with organizational strategies, and meet company goals. Wise collaborative decisions can be made without hesitation when company policies are made clear to everyone.

Establish a departmental structure and assign tasks

Delineate HR tasks to specific team members and departments. HR manager, HR director, hiring manager, recruiting specialist, and HR coordinator are all job titles with accompanying roles that keep HR departments organized and running.

It's difficult in a business of any size to effectively accomplish every HR task and keep track of the seemingly ever-changing compliance rules and tax laws. But if everyone has specific job duties, the HR department and the company will run smoother.

As a small business owner, you may not be able to afford a highly paid HR staff. But investing in automated software can help your HR team keep up with your business's needs.

Plug skills gaps in your HR staff

Hire HR professionals experienced in skills your current staff lacks. Or, invest in training for current HR team members. It's essential that your HR department has the tools it takes to keep services and processes up to date.

Establish key performance indicators

Setting measurable and attainable goals is important for any program. To know whether your HR plan is accomplishing what you set out to achieve, there must be features which can be analyzed and measured.

Some key performance indicators (KPI) for assessing your HRM system include statistics related to acquisition and retention of talent, employee satisfaction and engagement, attendance, performance management, effectiveness of training programs, and productivity gains.

Encourage collaboration with other departments

The HR department isn't an island. It's a system that helps to supply, manage, and train the talent that accomplishes the goals of providing superior products or services. Managers from all departments should work together on a cooperative basis with the HR team.

Incorporate technology and software

Automated data processing (ADP) can assist your HR department in staying on course by making tasks easier, helping to ensure compliance, and aiding in the measurement of the effectiveness of plans and goals.

How to Manage Your HR System in a Small Business Setting

Here are some rules to remember which can help you meet the challenging goal of efficiently managing a small business HR system without overlooking important considerations.

  • Ensure coverage over all areas of HRM: talent oversight, training, compensation, employee engagement, staff development, labor relations, and compliance.
  • When recruiting, provide a clear and concise job description.
  • Have a straightforward onboarding process that is thoughtfully structured to prepare each employee to effectively work in their position.
  • Use tailored, automated systems to document employee performance, including any reviews, issues that come up, or their contributions to the company.
  • Maintain a complete and thorough employee handbook that accurately reflects company policies and procedures.
  • Stay up to date with changes in labor and tax laws.

HR in small businesses versus large organizations

Small businesses typically differ from large corporations in many aspects of operations, including the structure of their HR department.

Some differences are unavoidable, but thoughtful planning and the installation of HR software to simplify HRM can improve the performance of smaller HR departments.

Small business HR teams often lack specialization

Small businesses naturally have smaller HR teams. In very small businesses, a single person may juggle all HR responsibilities. The HR team member(s) may even hold dual roles within the business. That's not an optimal setup.

Large organizations are normally much better prepared to deal with HR issues. They can usually maintain a complete HR team, often with an HR professional devoted to each aspect of HRM. This specialization supports the HR department's efficiency, and in some ways contributes to larger organizations' ability to recruit superior talent.

Small businesses with more limited resources traditionally struggle to keep up with necessary HR tasks. But with the help of today's software, small businesses can compensate for the limited size of their HR staff by boosting efficiency with technology.

Depth of process is often less established

Large HR departments fully staffed by specialists are highly organized. Everyone is well-versed in processes and procedures which can be applied to practically any situation.

Small businesses are more likely to address issues on a case by case basis. This practice could cause points of contention in some situations, especially as the business grows. Employees could become disgruntled if a company isn't in compliance with labor laws.

However, technology can help small businesses regulate policies and remain in compliance.

Connection between HR and operations is stronger in a smaller businesses

A small business's HR team can more easily see how their department's actions can affect the overall business. This is one important asset of the small business model.

In a large organization, there is sometimes a disconnect between HR and actual business operations.

Resources are often more available to the HR departments of large businesses

Funds for offering higher pay and better benefits, as well as resources for recruitment efforts, are often more available within larger businesses. And large HR departments are more likely to have access to the latest technology.

Smaller businesses oftentimes must cut corners with certain costs, so owners and managers sometimes hesitate to invest in the latest HR software.

But small businesses are even more in need of automated software and tools to make HR tasks easier. They need every asset possible to remain competitive against larger businesses in attracting, managing, and retaining top talent.

Maintaining an efficient, effective staff isn't an easy task for a small business. But structure, planning, KPI measurement, and the adoption of today's technology and specialized HR software can help small businesses meet the challenge of establishing and maintaining an effective HRM system.

HR software makes it simple to start and manage a small business HR system

New developments in technology support nearly every aspect of business, and HRM for small businesses is no exception.

Options are available to help manage payroll, employee records, and remain in compliance with ever-changing regulations without adding additional HR staff members. Attracting and retaining top talent becomes easier with software tools because it makes the tasks that are necessary for organizing a solid HR system simpler and more streamlined.

Are you ready to learn more about how to manage HR in a small business?

Heartland is here to help. Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at