The Complete Guide to Human Resources for Small Businesses in 2021

Business Management
Rea Regan May 10, 2020 17 min read
Photo by Christina @ on Unsplash

Quick Guide

    54% of small businesses handle employment matters themselves, research shows. And that’s because far too many small business owners consider HR to be a time-consuming task so it’s an easier step to neglect. Until it blows up in their face. 

    In fact, less than 50% of small business owners are confident in how their company handles HR matters and that’s because they pass on HR responsibilities to employees with little to no training in the field. If this sounds exactly how you’re handing your own human resources for small business then know you’re not alone. Like we said, over half of small businesses do everything on their own. Why hire a professional or use top solutions to make this an easier process? Ahh, but that’s where the real trouble begins. 

    You just can’t underestimate the importance of HR for small businesses.

    In this guide, we dive into human resources for small business to highlight its importance and share key tips to implement a strong HR department. We want to offer the tools and practices to boost employee retention, heighten employee engagement, enhance your company culture, broaden your company benefits, and so much more. 

    Many of our small business HR managers have reached out to us asking for a comprehensive guide on how to best manage their employees. So we created this insightful guide to human resources for small businesses is one we’re sure you’ll turn to time and time again. 

    What is Human Resource Management?

    Human Resource Management (HRM) is the formal system businesses use to manage people within the organization. The three main responsibilities of a human resource manager are staffing, employee compensation and benefits, and defining work. Ultimately the role of human resource management is to maximize productivity by optimizing employee effectiveness.

    HR Management 101 Infographic

    HR is often responsible for, among other things, the following: 

    • Recruitment and hiring
    • Performance management and reviews
    • Employee retention
    • Employee development and training
    • Safety and wellness
    • Benefits and payroll
    • Effective communication and engagement 

    Edward Gubman wrote in the Journal of Business Strategy, “the basic mission of human resources will always be to acquire, develop, and retain talent; align the workforce with the business; and be an excellent contributor to the business. Those three challenges will never change.”

    HR has a direct impact and effect on the company culture and workplace environment, sets the tone for internal communication, helps to settle disputes, and much more. 

    Why is HR for Small Businesses Necessary?

    Without efficient human resources for small businesses, employee performance, retention and loyalty, and commitment to their job role will only lead to your business struggling to achieve its goals and objectives. Still not convinced? There are dozens of statistics to back up how important HR for small businesses really is.

    • Businesses invested in a strong candidate experience will increase their hire quality by 70%.
    • Almost 80% of workers say that they prefer new or additional benefits over a pay increase. 
    • 75% of employees will stay longer at a company that proactively listens to and addresses their issues and concerns.
    • Disengaged employees are nearly twice as likely as engaged employees to look for new jobs.
    • 71% of Millennials are more likely to leave their employer because they’re unhappy with how their leadership skills are being developed.
    • 79% of workers said that company culture is an important job satisfaction factor.
    • Just 25% of employees who quit their jobs said that money was the main reason they chose to leave. 
    • Employees said that if their company provides equal opportunities, they’re about four times more likely to be proud to work for that company.

    These statistics, and there are so many more, prove that human resources for small businesses is necessary and then some. Now you might be thinking, this sounds like a lot of work, and you just don’t have the time. Plus, you aren’t sure it’s necessary to hire someone to take care of this for you. That’s why so many business owners are turning to employee management apps so it’s a more efficient and streamlined process. 

    By using the right employee management software, you easily build professional skills, streamline onboarding, boost engagement and morale, provide exceptional customer service, and more. As the small business manager, you’re expected to wear a dozen hats and then some, however, the right technology makes this burden a bit easier.

    Human Resources Basics – Mistakes to Avoid

    By understanding what the common HR mistakes are, you can really nail HR 101 (i.e. human resources basics) to best avoid any critical mistakes. 

    Hiring the Wrong Person

    When you’re looking to fill an open position, you may be tempted to fill it as fast as possible. This means that you could easily hire the wrong person, someone who doesn’t fit the company culture and this only leads to problems in the workplace, to the point where you will need to replace them and start the process all over again.

    Some small business owners just don’t have the money or the time to do an extensive background check. But it’s a step that can’t be avoided.

    We recommend asking behavioral questions during the interview to best gauge the candidate and setting clear and focused job descriptions – more on that below.

    Not Setting Job Descriptions

    Setting “open-ended” job descriptions may seem like an easy win, but you are much better off telling your employees exactly what is expected. You can never hire the right person if you don’t know what specific role and responsibilities are in their lap.

    Poor Onboarding

    When you hire the right person for the job and to fit the company culture, you want to keep them around for a long period of time. That’s the goal. And the only way to truly achieve that is through an efficient onboarding process. After all, 15% of employees said that an ineffective onboarding program was why they left the company.

    You must have the following questions answered if your onboarding is to be successful: When will onboarding start and how long will it last? What is the end goal? What impression will the new employee walk away with on their first day? What should they know about the company culture? What goals do you have for them? What process will you use to gain feedback and measure their onboarding success? Who is involved in onboarding?

    Have their onboarding mapped out for the first day, first week, first month, first three months, and the first year.

    “Some say HR is the most important element in building a successful business, and I agree. Apart from hiring new staff, a successful HR team will also be good at retaining it. A well-designed onboarding program will help employees adapt to a new role and duties.” – Kuba Koziej, Co-founder at Zety

    Performance Isn’t Documented

    HR managers must record and document all performance reviews, meetings, and issues. If any problems arise, from job performance to attitude, then you need to discuss it one-on-one with the employee to create a plan of action. And everything, from the time the problem was noted to your first meeting with the employee, must be documented. You need this information if you need to let the employee go, otherwise you’re open to legal action.

    On the other hand, performance reviews also show an employee’s progression so that they can receive a raise, a promotion, new responsibilities, etc.

    Poorly Kept Employee Handbook

    HR managers must keep a current employee handbook so that it accurately reflects company policies and procedures. In addition, it should include discrimination policy, harassment policy, vacation requests, drug and alcohol policy, and background checks that must reflect the most current federal and state laws.

    The employee handbook is also only relevant if every single employee has access to it at any time or has a physical copy. You must also have signed acknowledgment of receipt and understanding forms for every single employee.

    Review your handbook annually for any changes in your company, as well as keeping it up to date at the state and/or federal level.

    Download our free employee handbook template here.

    Ignoring Employment Laws

    It goes without saying, but the HR department, and especially the company, are responsible for following the employment laws where your business is located. If you ignore or purposefully disregard the law then you are not protected from legal action or other problems that may come up.

    Improper Classification of Employees

    You must classify your employees properly: regular vs. temporary; full-time vs. part-time; and, exempt vs. non-exempt. And maybe you have contract employees as well.

    Be sure to include the rules in your employee handbook as the IRS has strict guidelines that you must follow.

    With all of the above outlined, we now outline what your human resources manual for small businesses should replicate. Please note that this is a guide and we recommend having legal counsel go through everything to keep you compliant. 

    Human Resources Manual for Small Business

    1. HR Software for Small Businesses

    The biggest tip we can give human resources for small businesses is using software to streamline and automate your daily tasks. From hiring, benefits, employee handbook, onboarding, performance reviews, time tracking, and compliance, this can all be done with the right solution

    While in the past, most small businesses have relied on “ancient” methods to manage their employees, like excel spreadsheets, bulletin boards, WhatsApp, and organizational portals, we can see that in the last few years (especially in 2021) that there is a massive shift to using the easiest, most affordable, and most efficient solution – an employee app.

    Each month, hundreds of small businesses choose Connecteam as their all-in-one employee management app. As an app that was built and customized especially for small businesses, we created an app that takes only 5 minutes to set up, including all the features needed for best managing your employees, and it costs only $39/month. 

    Connecteam offers the full package so HR professionals and small business owners can easily manage all their employees from one place. From the second an employee begins onboarding to direct internal communication to time tracking, and compliance, Connecteam has it all. This helps keep your team productive and engaged while you have full visibility of what is going on.

    • An employee time clock to track work hours and comply with labor law so payroll processes are faster and more efficient
    • Automate daily tasks with checklists and forms to keep workflows and procedures online and ensure compliance
    • Keep your team connected: customized group chat, one-on-one people-centric chat, share videos, GIFs, documents, images, etc. 
    • Boost engagement: real-time updates with or without comments and likes, employee feedback surveys, a suggestion box, and live polls
    • Offer an intuitive learning experience with easy access to files, any media type, searchable online libraries, professional courses, quizzes, and web-services

    Use Connecteam for Small Businesses for Free

    Connecteam believes that small businesses deserve the best employee management solution without spending a fortune. This way, you can manage all your employees from one place, easily, effectively, and all for a great price.

    Start for free

    2. Employee Documentation

    Human resources maintain all the paperwork necessary which ensures that your company is compliant with labor laws and is protected if a future dispute should come up. All small businesses should have the following documentation on every single employee:

    • I-9 File: The United States government refers to the I-9 in order to identify and verify that your employees are, in fact, eligible to work in the United States. You must keep all employee I-9 files together, in one file, instead of individually. 
    • Employee General File: Create this file for your own benefit as it contains additional documentation associated with that employee. From their resumes, performance reviews, disciplinary action, 360 performance reviews, training verification, W-4 forms, payroll details, etc. 
    • Employee Medical File: A medical file contains notes from doctors, disability information, and any other medical information that you have on an employee. 

    3. Employee Handbook

    An employee handbook offers your employees with the information and knowledge of what’s expected of them while employed by your business and helps establish company protocols on dealing with any issues that may arise in the workplace.

    The Small Business Administration recommends your handbook includes: 

    • NDNA: Depending on the industry, employees should sign non-disclosure agreements, especially if you have trade secrets to protect.
    • Anti-Discrimination Policies: If your company is located in the United States, then you need to know how you’ll comply with the Americans With Disabilities Act, among other employment discrimination laws.
    • Safety and Security: Ensuring that your employees are both physically and mentally safe is a top priority and businesses in the United States must be in compliance with OSHA. In addition, have your own policies regarding bad weather situations, video surveillance, crisis management, and so on. 
    • Compensation and Benefits: As a company, you need to outline what benefits you will provide your employees, including the ones required by law and others that fit your company strategy and culture. 
      • Social Security taxes: Employers are required to pay Social Security taxes at the same rate as their employees
      • Workers’ Compensation: You are required to offer this through a commercial carrier, self-insured basis, or state Workers’ Compensation Program
      • Disability Insurance: Disability pay is required in California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico
      • Leave benefits: While leave benefits are optional, you do need to Family and Medical Leave Act (FMLA)
      • Unemployment insurance: Depending on what state your business is in, you will need to register with your state workforce agency
    • State-mandated retirement plans: Some states may be required to offer their employees retirement benefits
    • Union laws: Even if your company isn’t unionized, you should still be in compliance with the National Labor Relations Act (NLRA)
    • Work Schedules, Vacation, and Leave: Your employees should be clear on what your policy is on schedules, absences, lateness, vacation, sick leave, absenteeism, paid time off, special requests, etc. If you have a “flexible” work schedule then be clear on the expectations. 
    • Standards of Conduct: Be clear on your company’s dress code, code of conduct, harassment, mobile phone, and computer use during work hours, ethics, legal aspects, etc. Make it clear what the repercussions are if an employee breaks the standard of conduct.
    • General Employment Information: If your company has its own policies and procedures that differ from what the law requires, then you need to fully define that as well. Such as promotions, referrals, employee records, and more.

    “Sell the perks that larger companies can’t compete with. I’m talking things like no bureaucracy, work from home options, casual dress code, and six-hour workdays. Use your unique position as leverage for attracting top talent without having to shell out top dollars.” — Elizabeth Bradshaw, owner, Canvas Art Boutique

    Be sure your employee has received a copy, reads it, and signs a statement acknowledging that they received, read, and understand the employee handbook. Put that statement in their file. Make a copy of the handbook, either digital or paper, readily available to all employees for reference when they need it.

    4. Display Required Posters

    The Department of Labor (DOL) also requires that some labor law posters are posted in the workplace. You can download your workplace posters directly on the DOL website.

    5. Payroll Management

    Another human resource basic we need to address is payroll processing, which refers to the money an employee is paid by the company. There are many complicated tax deductions and withholdings that must be executed accurately every single time pay is distributed.

    If you need some help with processing payroll, these are two solutions you can turn to make your life easier: Gusto Payroll or QuickBooks Payroll. Both have great small business plans. 

    Get the full list of payroll processing solutions for small businesses here. 

    6. Benefits

    There are two kinds of benefits, those required by law and those that are not. We have already alluded to the required benefits, but this is the full list again: 

    • Social security tax
    • Workers’ compensation
    • Unemployment insurance
    • COBRA insurance
    • Family & medical leave

    Note that there are exceptions to providing these benefits based on the size of your business and the state you are based in.

    Here are a few more benefits that are not required by law but are common:

    • Health insurance
    • Dental and vision insurance
    • Retirement plans
    • Wellness programs
    • Commuter benefits
    • Paid time off
    • Paid holidays
    • Work from home offering
    • 401(k) plans
    • Employee discounts
    • Employee assistance programs
    • Low-value perks like free coffee

    7. Employee Performance 

    When it comes to employee performance, that’s a human resource basic that applies to the retention aspect of the role. A few examples of this include: 

    • Overseeing growth and development of employees
    • Issuing performance reviews
    • Resolving workplace disputes
    • Handling discipline and termination
    • Communicating updates
    • Scheduling workplace events
    • Fostering a safe and healthy work environment
    • Promoting wellness services

    Almost all of these tasks are based on company-wide policies and procedures that management creates with HR, and they are clearly defined in the employee handbook. As far as human resources for small businesses go, this is one task that can’t be outsourced. When executed correctly, employee engagement and morale will soar. 

    “An owner or manager should schedule 10-15 minutes each day to make rounds to staff. Walk around and get to know your employees, how they really feel, and what issues they see facing the company. When staff see managers and owners going out of the way to check in on them, they learn more about each other and form a bond or connection. People are less likely to quit a job if they feel their boss cares about them.” – Doreen A. Lang, author of “How to Drive Employee Retention”. 

    8. Daily HR Resources 

    There are plenty of HR resources available so you can execute your job role to the best of your ability:

    • SHRM: The Society For Human Resource Management has many helpful articles. 
    • DOL: If your business is in the United States then refer to the Department of Labor website for research and to easily find answers to questions of compliance.
    • Society for Human Resource Management: A professional HR society that represents more than 300,000 members in 165 countries.
    • Offers free HR educational tools and resources.
    • An online guide to the world of HR.

    One Final Thought on HR for Small Businesses

    On a regular basis, people are quitting their jobs. Most of the reasons for the exit boils down to how their company’s HR executed its job role and more often than not, it wasn’t executed properly – from little to no communication, poor opportunities for growth, a lacking company culture, or bad benefits. With great human resources, you will increase your company’s chance at success by creating a workplace environment that keeps your employees coming to work each day, and happily so. 

    Connecteam was made for small businesses

    Connecteam is your tool to manage employee engagement, development, and relationship. You can streamline communication, give your employees a platform to be heard, boost engagement, strengthen the company culture, align employees with company policies, streamline daily operations, build professional skills and so much more.

    Start for free
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