What is HRM in small business - two women sitting at a computer

What is HRM in small business?

Wednesday, December 15, 2021

Effectively managing all aspects of human resources (HR) for small business owners can be a highly complex and detail-oriented task. HR encompasses everything from hiring, employee development, performance management and benefits, to overall safety and wellness for team members. HR departments also oversee benefits, compensation, implementation of job descriptions, the onboarding of new employees, and employee retention. It is just as important for smaller companies as it is for larger ones that HR teams are well-versed on processes, procedures, and plans so that they can operate as effectively as possible. 

For small businesses, HR departments and HR management (HRM) include unique features and considerations. Furthermore, building and implementing management systems for quality HR functions takes time, resources, and business acumen. This article outlines small business needs when it comes to HRM in small businesses and how successful systems can support overall business growth and wellness. 

Defining small businesses 

When considering the needs for small businesses and HRM, it is important to consider what defines a small business. The answer varies by industry, but typically, small businesses are considered to be companies that employ 1,500 people or less. It is important to note that even with a team of only 1,500 people or less, HR processes are just as critical to small businesses as they are for larger-sized companies. 

Depending on the size of the company, some small companies opt for outsourcing their HR processes to third parties while other small businesses prefer to keep HR functions in-house. Regardless, HR teams for small businesses need to be aware of the HR needs and solutions specific to small businesses so that a healthy employee retention rate, robust financial bottom line, and a positive working environment are achieved. 

What is HRM? 

HRM is a formal system that businesses can use to manage and support their team members and overall employee relations. HRM begins with the employee recruitment process and continues all the way through employee engagement and providing support to employees throughout their work lifecycle with the small business. 

HRM systems help to maximize employee productivity while also implementing a company culture that employees are drawn to and want to be a part of. As the COVID-19 pandemic has changed and transformed the workforce, it is becoming even more necessary to consider HRM systems at your company and to be aware of all the parts that make an HRM system function and operate. HRM systems need to be adaptable to the ever-changing landscape of the workforce; for example, addressing the increasing demand for workplace flexibility and work from home options.

Formal and informal aspects of HRM systems

HRM systems include aspects that are very formalized as well as aspects that are informally included in the process. For example, a formalized part of an HRM system is the introduction and execution of employee handbooks. The employee handbook outlines policies and procedures, information for new hires, standards for employees, legal obligations as an employer and the employees' rights, details regarding health insurance and other employee benefits, and processes related to performance reviews, among other items. 

Employee handbooks can be extensive and include detailed information. Most often, employee handbooks are provided to new employees during the onboarding process so that the employees are well-versed on company policies, procedures, and guidelines before diving into their job duties. At this point in the onboarding process, it is crucial that employees have the opportunity to ask questions, sign off on policies, receive new hire training, and receive a copy of the employee handbook for ongoing reference. 

HRM systems also include formalized processes related to management of employee files, compliance with the Occupational Safety and Health Administration (OSHA) policies, the Department of Labor policies, and other employment regulatory agencies’ regulations. There are potentially hundreds of individual rules and regulations with which HR departments are required to comply. And if you’re not trained in this area of expertise, staying in compliance becomes a full-time job. Even if you only have a few employees, you’re still required to follow every rule and regulation. 

Compliance practices require your small business to openly post employment laws so employees can view wage laws and times allotted for breaks, among other items. These employment laws must be posted in areas frequented by employees where it can be easily read during the workday, such as in a breakroom or hallway. 

Informal aspects of HRM systems include ways in which the HR department promotes team building or the values of the company to support a positive company culture. Company culture starts with human resources, specifically around the experience of what it looks like to be a part of that particular small business. For example, HR teams might brainstorm and plan a corporate event and invite the employees’ family members and people from the community to attend. Alternatively, company culture can be cultivated in day-to-day experiences as well like employees having access to company-supplied coffee or snacks on-site, or periodically having an extended lunch period. 

Key considerations for small businesses

HR professionals at small businesses should be mindful of any specific requirements that correlate with the number of staff employed, compliance with the Americans with Disabilities Act (ADA), the management of contractors and full-time employees, building out opportunities for ongoing training and professional development, and the strategizing and outlining of employee roles since small businesses often have job descriptions that overlap. Small businesses may have a higher number of contractors compared to larger businesses to complete various duties at their company, and an effective HRM system will accurately track their hours, pay, and work completed. 

Moreover, to encourage profitability and resource management, it is even more critical for small businesses to develop plans for employee retention, including different types of training for employees, opportunities for growth within the company, providing more positive feedback, annual raises, bonuses, greater communication within the departments and from senior management down, and other morale enhancers. To achieve this, HRM teams should work closely with operational and strategic teams. HRM systems could also help develop a regular training schedule for employees that allows for employees to sharpen their areas of expertise or to learn new skills that they can use to advance in their company. 

What does HRM bring to small businesses?

Setting the tone

Building a successful HRM system within a small business sets the tone for successful operations and employee management. HRM is the launching pad for employee experience and establishes the type of experience that employees have at the company. Your company’s onboarding process is how you make a first impression on your new hires, welcome them to your company, and prepare them for success in their role. On the other hand, when handled poorly, onboarding can have negative effects and can even set your new hires up for failure. More and more, members of the workforce seek companies that have a positive atmosphere where employees are supported, where they can apply their skills as top talent, and where they can learn new business skills that can aid them in advancing within the company. 

Difficulties without an HRM system

Without an HRM system specifically designed for small businesses, it becomes more difficult to track critical metrics like employee satisfaction, employee performance, and profitability as well as apply successful processes for ongoing use. Moreover, without an HRM system, onboarding becomes more difficult because there may be little to no reference to job descriptions, thereby possibly leading to confusion and unclear job duties; or employment laws may not be posted, therefore posing a risk that the laws are not properly followed or that employees are unaware of their rights. Thus, HRM systems not only ensure that small businesses operate effectively, but also ensure that all administrative tasks related to HR and laws related to the small business are kept up to date. 

Administrative support

Staying on top of the administrative needs of the HR department can be successfully achieved with an HRM system. Staffing needs are tracked, performance concerns are recorded, hiring processes and job descriptions are documented, and labor laws are clearly outlined. Small businesses can also benefit from HR software because it helps to automate the comprehensive parts of an HRM system, including the management of employee files, payroll, and performance metrics. HR software has increased in capability and function and can be utilized in web-based or cloud-based platforms. Adopting HR software may be of interest for companies who are looking to automate and digitize their HR department with HR solutions that streamline tasks which are currently being completed manually. 

Promotion of company mission, vision, values, and strategy

Small business employees have a greater opportunity to learn what to expect in their workplace, what is expected of them as employees, and the best way to move up in the company when an HRM system is in place. Much of the workplace norms are documented, and as a result employees know what is expected with their job duties and what steps they need to take to not only succeed, but advance within the company. 

Even for small businesses, it can be difficult to communicate the mission, vision, and strategy of the company. However, adopting an HRM system at your small business creates a special opportunity to get your team all on the same page. Employee handbooks and the company's values and mission give great insight for employees to understand the common goal they are working toward. And when employees buy into the company’s vision, recruitment and subsequent retention of employees becomes more possible. 

Prevents burnout

Small businesses need a clear delineation of responsibilities, especially when job duties overlap. Outlining these boundaries helps employees stay focused on their tasks, helps them to remain productive, and gives them a clear understanding of their specific roles and how those roles figure into the big picture of the company. As a result, not only is the possibility of burnout reduced, but employees will take pride in their job duties and will want to remain with your company, thereby lowering your business’s attrition rate. In fact, companies with high turnover rates tend to lose money and eventually deter top talent. And it’s also costly when employees resign. For every employee who leaves and needs to be replaced, you’ll spend about 33% of that position’s salary before the new employee is up and running.

Another way that HRM systems prevent burnout is by implementing a way for employees to voice their needs and concerns, and for managers, supervisors, and small business leaders to have a formalized way of addressing those needs and concerns. When employees feel like they are heard, when they can share their experiences, and when they have someone advocate for their needs, they will be more loyal toward the company and will be committed to the company’s vision. 

Addressing safety and anti-discrimination concerns

Lastly, for employees at small businesses who may have safety concerns or concerns related to anti-discrimination issues, HRM systems can provide guidance and support to employees. HR departments can build out processes for how to address these concerns when they arise. In turn, HR departments can be proactive and ready to respond to such concerns instead of functioning reactively. Proactive HR teams encourage a positive work environment where employees can trust that the company truly has their best interests in mind. 


Ready to utilize an HRM system at your small business? 

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 heartland.us.