Introduction to Small Business Human Resources (HR)

Small Business Human Resources Success | Wilmington NCSmall business human resources is one of the most challenging aspects for small business owners. Often, the intricacies in hiring the right people, working with them and retaining them go unnoticed. Small business human resources mistakes can inhibit small business growth/profitability and lead to a significant percentage of small business failures. Although your small business may not justify a full time HR professional, it is essential that your business have someone who is responsible and accountable for this extremely important small business human resources function. Also read  6 Small Business HR Issues to Address Today.

Human Resources Definition/Description

Human Resources is the business function that deals with finding and retaining the employees that your small business needs to be successful. Essentially, it is about creating, developing and nurturing healthy employer-employee relationships. Furthermore, Small Business Human Resources Management deals with creating a work climate where your employees are happy, motivated and committed towards the success of your business. In addition, Small Business Human Resources also make sure that your workers are safe, and that your small business complies with applicable labor laws.

Why Human Resources is Important for Small Businesses

Human Resources is important for small businesses to the avoid the costs and problems related to hiring the “wrong people” and not retaining the “right people”. Considering that employee salaries and benefits make up a large portion of your operating expenses this is critical. Furthermore, HR helps small business owners to stay out of trouble by avoiding employee related lawsuits and noncompliance with labor related laws.

Small Business Human Resources Outsourcing

Most small business human resources administrative functions can be cost-effectively outsourced to professional payroll, benefits and human resource service providers. There are many outsourcings options available to small business owners, including HR Software, HR Service Provider, onsite HR Consultant, HR Consulting Company and Professional Employer Organization (PEO). A professional employer organization hires your employees and leases them back you at a monthly rate. The PEO than handles all HR management functions including recruitment, training/development, employee benefits, payroll, workers’ compensation and risk/safety management in close liaison with the small business. In this co-employment arrangement the professional employer organization is the employer of record for tax and insurance purposes.

Employee Planning and Recruitment

Small Business Employee Planning

Manpower Planning: Manpower planning or human resource planning is estimating the number and type of employees required over time, based on projected workloads/requirements and replacing outgoing employees. Small business owners often face changes in business environment, unforeseen events/issues and a shortage of funds. This makes small business human resources planning difficult and, in some cases, contract labor might be a good option.

Succession Planning: Succession planning is critical for small business owners and involves identifying people to replace key positions in advance. Furthermore, small businesses should continuously develop employees with the potential to fill key business technical/leadership positions. Failing to do succession planning, could result in your small business being unprepared for key employees that depart unexpectedly, retire or die. In addition, it could lead to power struggles, nepotism, replacement with incompetent family members, etc.

Small Business Employee Recruitment

Employee Recruitment and Selection: Employee recruitment and selection is the process of searching, attracting, screening, interviewing and selecting qualified candidates for specific positions. The goal is to put the right person in the right job, based on the job requirements and the suitability, qualifications and skills of the applicant. To achieve this, small business owners need clear job descriptions for each position in the manpower plan. Job descriptions define the roles, tasks/duties/responsibilities, special demands, skills, qualifications and experience for the positions. Proper employee recruitment and selection can have a significant impact on employee morale, productivity, absenteeism, labor turnover, image and the reputation of the small business.

Employee Orientation: Employee orientation is the process of welcoming new employees and helping them transitioning into the new small business culture. During employee orientation the small business owner shares the mission, vision, values, business nature and policies with the employees. In addition, the employees need to understand where they fit into the small business and what is expected of them. What’s more, they need to understand the relationships of their positions with other positions in the company. If Employee Orientation is not done properly, it leads to employee frustrations and business inefficiencies.

A concise employee handbook is a good tool for documenting your small business human resources policies and practices. This, together with a detailed job description, as mentioned above, are effective ways for small business owners to communicate to new and existing employees.

Employee Remuneration and Development

Small Business Employee Remuneration

Employee remuneration is one of the biggest expenses for small businesses and can eliminate profits very quickly. Therefore, it is critical for small business owners to balance employee remuneration with employee value. Remuneration need to be carefully monitored and controlled to prevent it from spiraling out of control. However, for the employee, remuneration is a motivational factor that affects the employee’s productivity, longevity and standard of living. These competing forces are problematic to balance in small businesses.

Employee Compensation: Employee compensation refers to all monetary payments given to employees in your small business. It includes both money paid in exchange for work performed and recompense to employees that suffered a losses or injuries at work. The latter is usually handled through workers’ compensation and other insurances. Monetary benefits to employees for work performed include wages, salaries, overtime pay, vacation pay, bonuses (performance-related payments), commissions, allowances and deferred compensation.

Employee Remuneration: Employee remuneration is the total reward an employee receives for employment in your small business. Employee remuneration is a broader concept that includes both compensation (monetary) and non-monetary benefits. In other words, remuneration is the total package an employee receives during employment in your small business. Non-monetary payments to employees include benefits such as pension or retirement schemes, medical and/or hospital insurances, life insurance, company car, subscriptions, housing assistance, wellness plans, food, family support schemes, child care and any other benefits.

Small Business Employee Development

Employee development is vital in small businesses and a critical factor in improving current and future employee performance and retaining them. Just as importantly, it helps employees grow personally and professionally, ensuring self-fulfillment. Employees feel more valued when you as small business owner invest in their training and development. This contributes to employee loyalty, increasing productivity, employee retention and facilitating inhouse promotions.

Individualized Development Plan: Each small business employee should have an individualized development plan to help the employee succeed and advance in their career. It is a collaborative process resulting in a structured plan with clearly defined development activities, objectives and targets. Individualized development plans are tailored towards the specific career goals, strengths and skillset of the employee and advancement opportunities within the small business.

Succession Planning: Succession planning in small businesses ensures that employees are identified (also recruited), developed and promoted to fill key technical and management roles. Succession Planning is very important in businesses with a small workforce since they are especially vulnerable when key employees leave, retire or die.

Employee Development: Employee development is a process where small business owners assist employees to continuously expand their skills, knowledge and abilities aimed at long-term career advancement and growth. Specifically, employee development is about preparing each employee for their next career step. Employee development has two elements Professional Development and Personal Development.

  • Employee professional development involves the learning activities aimed at career advancement. These include job training, pursuing higher education and attending meetings, seminars and workshops.
  • Employee personal development covers learning activities that enable employability and are directed at developing talents/potential and enhancing the quality of life of employees. Personal development opportunities could include work-life balance education, soft skills training (more info), health/fitness education, personal finance courses or stress relief techniques.

Employee Training: Employee Training is an essential part of Employee Development in small businesses. Training is the process of equipping employees with the knowledge and skills needed to increase their value within the small business and to do their jobs more effectively. Employee Training bridges the gap between what knowledge and skills the small business employee has and what the job demands. Employee Training can also prepare employees for future jobs with higher responsibilities. Continuous training keeps small business employees up to date with the latest trends and technologies essential to grow and/or be competitive in the marketplace.

Employee Performance Appraisal: Employee performance appraisal (also referred to as performance review or evaluation) is the regular review of an employee’s job performance and overall contribution to the value of the small business. A performance appraisal evaluates the employee’s skills, achievements and growth (or lack thereof) against pre-defined job-related criteria/standards, performance goals and business objectives. Employee performance appraisals are essential to provide performance feedback to employees and develop robust employee development plans. In addition, salary, wage, raise and promotional decisions are usually an outcome of the appraisal process. Furthermore, performance appraisals also provide small business owners with the opportunity to counsel and coach their employees in a constructive way.

Employee Work Conditions and Relations

Small Business Employee Working Conditions

It is the responsibility of small business human resources to ensure employee working conditions are fair, safe, pleasant and motivate employees to be productive and creative. Employee working conditions include the physical work environment and job-related conditions within the workplace. Physical working environment deals with equipment, lighting, amenities, cleanliness, noise levels, safety, dangers, etc. Job related working conditions include working hours, breaks, work schedules, legal rights, responsibilities, stress levels and remuneration.

The Occupational Safety and Health Act of 1970 requires small business owners to provide a safe and healthy work environment. Refer to Inadequate Workplace Safety in the blogpost 6 Small Business HR Issues to Address Today – click here.

Job related working conditions are highly regulated by several federal, state and local labor laws. Some aspects are also discussed in the blogpost, 6 Small Business HR Issues to Address Today – click here. The law regulates many small business human resources aspects such as employee file storage, leaves of absence administration, overtime payment, minimum wages, employee classification, discrimination, commercial driving regulation, breaks, immigration, and much more.

Small Business Employee Work/Labor Relations

Employee/labor relations is a crucial function of small business human resources management that impacts employee behavior, work outputs and small business success. Successful small businesses know how to manage employee relationships to ensure employee satisfaction. Employee/labor relations involves measuring and evaluating employee job satisfaction and engagement. In addition, employee/labor relations deals with employee complaints/grievances, conflict resolution, discipline, dismissals, employment contract administration, and more.

Small business owners should strive to have a healthy and balanced professional and personal relationships with employees.

Employee Work Climate

The success or failure of the small business human resources function in small businesses is echoed in the employee work climate. The employee work climate reflects the prevailing workplace atmosphere as experienced or “perceived” by small business employees. A positive employee work climate positively influences employee productivity, motivation and behavior. However, positive employee work climate can only be created in small businesses by successfully performing all the small business human resources functions as discussed above.
human resources and small business owners can more specifically improve the employee work climate by:

  • Building trust and setting the example in leadership, commitment, positiveness and professionalism.
  • Improving communication and educating employees on the mission, vision, and values of the business.
  • Being flexible and reaching compromises between employee work and private life.
  • Motivating employees by identifying specific employee motivators and institute rewards and incentives.
  • Creating a supportive team environment where employees support each other in reaching their individual and team goals.
  • Creating a challenging and meaningful work environment where work is delegated, and employees can solve problems themselves.