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15 Important HR Basics for Any Small Business Owner

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When you run a small business, there's so much to do - sales, marketing, product development, etc. - not to mention the all-important task of trying to make a profit and stay in business.

Not to mention the very important task of trying to make a profit and stay in business. With all of this going on, the work of human resources (HR) can sometimes be relegated to the bottom of the priority list. That's a shame, because there are some very important HR basics that every small business should take care of. For example:

  • Are you aware of all the employment laws that affect your business?
  • Are you meeting the training needs of your staff?
  • Have you evaluated your compensation to ensure it is competitive?
  • Are you doing everything in your power to keep your staff safe, resolve conflicts effectively, create a diverse and inclusive workplace, etc.?

If not, don't worry, you're not alone. A recent survey found that 21% of small business owners were not confident in managing the HR function, and many were not aware of or enforcing employment laws important to their business.

So in this article, we'll review 15 basic HR functions that every small business owner should know.

Hire the best employees

There's a common saying in the business world: "You are only as good as the people you hire".

No matter how good your business concept, marketing, planning and everything else is, it's your employees who have to put it all into practice. If you don't have the right people designing your products and representing your company to your customers, you're in trouble.

A recent survey found that three-quarters of employers hired the wrong person for a position, and the average cost of a bad hire is nearly $17,000 in lost productivity, time and cost of hiring and training a replacement, etc.

Effective recruiting starts with developing a clear job description that sells the position, doesn't unnecessarily exclude the right candidates, and is published in the right places. Next, you'll need to prepare properly for the interview, including knowing what to ask and what not to ask, and offering a competitive salary and benefits package to your chosen candidate. And finally, there are significant legal hurdles to overcome.

Get new employees up to speed quickly

When you've put so much effort into recruiting 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 proper onboarding training. A recent study found that 40% of employees leave their jobs within the first year if they receive poor job training.

When you first start your business, you can train the first few employees yourself. But once you grow beyond a few employees, you need to create a formal orientation training plan that includes at least the following:

  • An introduction to the company's history and values
  • Practical information about salary, benefits, company policies, vacations, etc.
  • Company structure and key people
  • Who your customers are and what they want
  • The expected behavior of employees
  • The tools and software that the new employee will need to learn

Offer a competitive salary and benefits

How do you know how much to pay your employees? And once you find the right number, how can you keep up with the changing market and the ever-improving skills and experience of your employees?

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).

Keep your employees safe

This may not be something you think about much, especially if you run an office-based business with few obvious risks. But consider the fact that in the U.S. in 2015 alone, 4,836 employees died as a result of injuries sustained in the workplace.

It should be clear that the safety of your employees is your most important responsibility. Therefore, it is important that you :
  • Assess the risks
  • Put controls in place
  • Make sure everyone is following the safety rules.

Have clear employment policies

Small businesses are often run very informally, which can sometimes be an asset. But it can also lead to confusion, inefficiency, lost productivity and sometimes potential legal issues.

So it's worth taking the time to create an employee handbook with clear documentation. A manual typically includes the following sections:
  • Company overview
  • Safety policies
  • Diversity and equality statement
  • Compensation and benefits
  • Code of conduct
  • Discipline and termination
  • Acknowledgement of receipt (to be signed by the employee)
  • Legal notices

Measure employee performance

You've hired the right people, you're paying them fairly, and you've made sure they're safe on the job and know all company policies. Good for you!

Now you need to implement a performance evaluation process. The goal is not just to monitor employees. Performance reviews can also be very helpful to employees, by setting clear goals and expectations and informing them of their results.

Communicate clearly

Good communication is at the heart of any successful business. And the flip side, of course, is that poor communication can be disastrous. In a survey conducted by training company Fierce Inc. 86% of respondents said that lack of collaboration or ineffective communication was responsible for workplace failures.

Small businesses have a distinct advantage in this regard: it's much easier to communicate with a few dozen employees than with a few thousand. But you still need to make sure you set things up right.

Delivering effective training

We've already covered orientation training for new employees, but training is a constant requirement. If you want to stay ahead in a competitive and ever-changing marketplace, you will 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 think you can't afford it, think again. While traditional corporate training programs can be expensive, there are many free or low-cost alternatives.

Keep your staff happy and improve retention

Most of the other points discussed in this article, such as good communication and effective training, will keep your staff happier and stay with your company longer.

But it's worth paying special attention to this area and keeping an eye on your staff turnover rate. High turnover can be costly to your business, not only because of the cost of hiring and training replacements, but also because of the loss of knowledge and expertise that employees who leave take with them. It can also be disastrous for staff morale to have people quit all the time.

Follow the Rules

Here's an important reason not to run your small business informally: labor laws. There are a variety of regulations, and many of them apply to small businesses.

Are you complying with equal opportunity laws? Do you give your employees the rights they are entitled to under your country's legal code? Are you handling payroll efficiently and keeping all the records you are required to keep?

Resolve conflicts

In a large company, when conflicts arise between employees, they are usually handled by managers and then passed on to the HR department if they become more serious and intractable.

These conflicts can happen in small businesses as well, and if you don't have dedicated HR staff, you'll probably have to resolve them.

Try this checklist from the University of California, Berkeley's Human Resources Department:
  • Acknowledge that a difficult situation exists.
  • Let individuals express their feelings.
  • Define the problem.
  • Determine the underlying needs.
  • Find common points of agreement, no matter how small.
  • Find solutions to meet the needs.
  • Determine what follow-up you will do to monitor actions.
  • Determine what you will do if the conflict is not resolved.

Be efficient in handling payroll and other paperwork

Everyone likes to get paid on time. Managing payroll efficiently should be fairly straightforward, especially if you use good software to help you, but it's always possible to make mistakes. There's no surer way to lose an employee's trust than to hand them their paycheck late.

And then you have to make sure you've deducted the right amount of tax and filed the proper forms with the tax authorities. It's not the most exciting task you'll do as a business owner, but it's very important to get it right.

Ensure diversity and equity in the workplace

It's 2017. If your workplace isn't as diverse as the company you live and work in, you need to ask yourself why and take steps to solve 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 hurting your business in the process.

Manage the termination process

If you do your HR job well, your employees should be happier and more productive at their jobs, and fewer of them will want to quit. However, no matter what you do, at some point you'll have to deal with an employee who wants to quit - or sometimes you'll have to fire someone for poor performance.

There's a lot to do, from ensuring a smooth transfer to covering your legal bases. And you'll also want to conduct an exit interview to make sure you know what went wrong and how you can improve things to avoid similar situations in the future.

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 recommended in the accompanying tutorials, you could easily get overwhelmed. As a small business owner, you have so many other things to do, like planning for the future of your business, implementing effective sales and marketing strategies, monitoring accounts, and more.

So it's likely that you'll need some form of HR help. This may mean hiring a person, but for a small business, you're more likely to use outsourcing services or HR software. We'll be posting a tutorial on HR software soon, and you can read the following tutorial to find out how HR outsourcing works and get profiles of some of the top providers.


In this article, you got an overview of the essential HR basics that small business owners need to understand. You should now have a clearer idea of what HR management entails.

To take action in each area of HR basics, you'll need to have practical experience. Try the IceHrm HR management software. This will help you with your HR burden. Try out their 45 days free trial and enjoy all the HR features. IceHrm is the ideal HR software for your small business.

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