Common Challenges in Human Resource Management for Small Companies

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Human resources are one of the most important components of every small business. However, the responsibility often lies with the owner or a manager, as many small businesses do not have the capacity for a specific human resources department or a full-time employee. Managing these HR functions internally often presents many challenges.

Challenges for small businesses

If you spend so much time growing your business and improving your products and services, how do you plan to allocate resources to human resources management? From recruitment and retention to payroll and benefits, it's important that the HR department in a small business doesn't fall by the wayside. Deficits in any of these areas could be the result:

  • Fines for non-compliance
  • Lack of talented employees
  • Inefficiencies that slow down your production cycle

Below we have identified some of the most common HR challenges facing small businesses and how you can overcome them.

Hiring Process

Hiring new employees is a big time and financial burden for a small company. If job advertisements and interviews are handled improperly, the hiring process can quickly become a time-consuming headache.

First, according to Glassdoor, it takes an average of 23 days to find the right candidate, which takes time away from other important projects. For more technical positions it can take much longer. In addition, poor job descriptions can attract unqualified candidates, which takes even more time to manually go through each resume.

A rushed interview or failure to ask the right questions can then lead to poor hiring, which can cost nearly $15,000, according to CareerBuilder. While many small companies rely on referrals for hiring, interviews must be consistent and conducted in a way that attracts quality talent and provides a clear path to a job offer.

Employee training and security

Once employees are hired, having HR resources available during training can be a great advantage in preventing costly mistakes and even injuries. However, many small companies simply do not have the time to properly train new hires, which could affect workplace safety.

According to the National Safety Council, every 7 seconds an employee is injured in the workplace, with 25 percent of these injuries being caused by contact with objects and equipment. Proper training can help prevent workplace injuries such as sprains, strains, cuts, lacerations and punctures, as well as boost morale and stamina.

Employee Handbook

Besides poor training, new employees can use the employee handbook to gain a better understanding of the work environment and work expectations. When was the last time you updated your manual? An outdated employee handbook can lead to misunderstandings and even legal problems in a small company. Employee handbooks should be updated at least once a year to reflect the ever-changing work laws and regulations.


For small businesses, managing payroll and filing taxes can be a time consuming and demanding task. According to PricewaterhouseCoopers, small and medium-sized companies spend an average of $2,000 per employee per year on payroll processing. While proper accounting and tax filing may be a nuisance, they play a vital role in the success of your business when it comes to avoiding compliance issues. The IRS found that 40 percent of small businesses are fined an average of $845 per year, which can be a huge financial burden.

Time recording

Depending on where you live, you must comply with local, state and federal laws regarding vacation, paid leave, breaks and overtime for your employees. Without a solid timekeeping system, it can be difficult to ensure that your employees are fairly paid. Using an online platform can help both small business owners and their employees save time and energy.

Services for employees

In order to attract and retain top talent, it is important for small companies to include high-quality benefits in their employees' compensation packages. Employees want comprehensive benefits that include everything from health insurance and pension plans to supplementary insurance. However, many small businesses find that compared to the purchasing power of group benefits, it can be very expensive and time-consuming to purchase and manage these benefits themselves.


Small businesses must comply with federal regulations, and non-compliance is common and costly. Perhaps the most common compliance problem for small businesses is the misclassification of employees. According to the U.S. Department of Labor (DOL), up to 30 percent of companies audited had misclassified employees. Many misclassify employees as contractors, so it is important to know the difference. While the consequences vary depending on whether the Department of Labor and the IRS consider the misclassification to be intentional or unintentional, it can be a costly mistake.

Other laws include the Fair Labor Standards Act (FLSA), the Equal Pay Act and the Americans with Disabilities Act (ADA), to name a few. It is important to be informed about these federal regulations so that they can be complied with.

Conflict Resolution

When a company grows, there is a potential for conflict in the workplace, and ignoring it can cost time and money. A study by the vocational training and coaching company CPP, Inc. found that 85 percent of employees experience conflict in the workplace. Conflicts in the workplace waste nearly three hours a week and cost billions in paid hours. If HR resources are not available for proper conflict resolution, it will only cost more time and money, as well as impact morale and retention.

Employee Retention

If human resource management issues are not handled properly, small businesses can find it difficult to retain qualified employees. According to the Society for Human Resource Management (SHRM), employee retention is a growing problem for many, with an average turnover rate of an unhealthy 18 percent. This ranges from poor hiring to poor performance to conflict, and employees are less likely to stay with companies that do not take initiative in human resource management.

Your HR solution

Between recruiting and retaining employees and managing employee performance, there are many challenges that small businesses face when it comes to human resource management responsibilities. Outsourcing HR management through an automated human resource management system such as IceHrm can help small businesses save time and money while allowing you to focus on growing your business.

Looking for an automated Payroll Management system, we suggest you IceHrm which is one of the best HRIS systems which has so many HR functions automated into one system.

IceHrm is a Human resource management system for small and medium-sized organizations. This HRM software centralizes employee data and allows only one authorized person to access it, providing a high level of security. The presence module monitors employee time based on information about insertion and perforation. It covers all the basic HRM needs of a company such as Time Management, Attendance Management, Expense management, leave management, Recruitment management and handling employee information.

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