Business ideas are easy to come by; however, it's their execution that matters. Human resources play a key role in driving the vision of small business owners because people are at the center of every successful business.

Whether you're just starting your company or your business is ready to hire employees, this article will walk you through how small businesses can approach the subject of human resource management.

What Is Human Resources?

Human resources (HR) can refer to the people within an organization or the function/department responsible for managing the people within an organization. As a result, HR is often used interchangeably with human resource management (HRM).

For the purposes of this article, HR is defined as the aspect of a business responsible for finding, screening, hiring, onboarding/training new employees, and managing employee benefits.

The Importance of Small Business HR

Some startups may ignore the subject of HR — they feel having an HR department can wait — until their businesses begin to grow. However, this can be a big mistake, as businesses may interact with people from the first day of their founding. How these relationships are managed from the onset can either propel or forestall the growth of a business.

Among other factors, the success of a business depends on how effectively it manages the people within and outside of the organization. Consequently, HR management is a very essential business need.

Human resource management is very important for small businesses for the following reasons:

  • Hiring: The process of hiring an employee involves a lot of activities — writing a clear and detailed job description, getting the word out, conducting interviews, preparing employment offers, and onboarding — and the efficiency of a company's workforce depends on how thorough these activities are executed. A lot is at stake, so this process must be handled by a human resource professional.
  • Hiring efficiency and retention: Hiring efficiency and retention depend on a lot of factors. However, they also depend on the effectiveness of HR. If the process of recruiting and onboarding new hires is done well, the company won't just hire top talent — they'll also spend less time looking for the right people. Furthermore, HR managers can be responsible for background checks, workflow management, time tracking, performance reviews, and creating a safe and healthy work environment — one that caters to the needs and concerns of employees. With this in place, an organization will likely retain its top performers.
  • Documentation: There's a lot of bookkeeping — hiring documents, payroll, work eligibility forms, queries, and responses — involved in people operations. Updating and safekeeping of these documents are core HR functions. Keeping proper records can ensure your business is protected in case of a dispute.
  • Labor law compliance: There are labor laws that your business must adhere to. Human resources ensure that your business is in compliance with relevant labor laws, thereby keeping your business out of trouble.
  • Sustainable growth: Scaling and building a sustainable business requires the effective functioning of every part of an organization. However, people are the most important resources a business can leverage for growth.

Small companies have the option of having an in-house HR team, using HR software to simplify HR tasks, or outsourcing to freelance HR professionals. The choice of HR solutions will depend on the HR needs and financial situation of your business. HR outsourcing can be a cost-effective way to go about HR processes.

HR Best Practices for Small Businesses

Just having an HR department or professional isn't enough to ensure your business's success, though. You need to make effective use of human resources. Here are some best practices:

  • Build a company culture. Company culture can be just as important as the goods or services your business offers. It's often a combination of the values and ethics that a business upholds. When a company's culture is clear enough, it helps employees make the right decisions.
  • Invest in employee development. Human resources should encourage employees to take courses and professional programs to advance their careers. HR should also create in-house training opportunities for employees to improve their skills and on-the-job proficiency. This holds mutual benefits for both your business and your employees — it can increase their output while adding value to their lives.
  • Improve employee engagement. Employee engagement is the extent to which employees feel valued by their organization. One factor that inspires employee engagement is how safe and healthy a work environment is. If employees feel safe, well-treated, and appreciated, they'll likely be passionate and committed to their jobs.
  • Develop a systems and processes document. Create a detailed document of the systems and processes involved in the day-to-day running of your business. This will help facilitate the orientation and training of employees (new and old). It's also useful for performance management and reviews.
  • Have an employee handbook. An employee handbook contains the terms and conditions binding the relationship between a business and its employees. It explains expectations of the employer to the employee — and vice versa — and the policies guiding breach of agreement or misunderstandings.
  • Create employee files. There are occasions when you may need certain information about an employee. A smart human resource approach is to create files — whether hard copy or digital — for individual employees.
  • Comply with labor laws. Businesses have certain labor laws they must comply with depending on where they're located. Ignoring these laws can lead to legal actions or even bigger problems. Ensure that your business is compliant with these laws. Always check the U.S. Department of Labor's Employment Law Guide and stay updated on these laws.

Regulatory Compliance for Small Business

To stay out of trouble regarding labor laws and other possible workplace litigations, small businesses must comply with labor and employment laws and regulations, such as:

  • Payroll: Employers must adhere to the statutes of the Fair Labor Standards Acts (FLSA). The act regulates minimum wage, overtime, recordkeeping, and child labor standards. Taxes must also be duly reported.
  • Employee benefits: There are two types of employee benefits: those mandated by the law and ones volunteered by the business. While complying with the latter is at your discretion, the former is mandatory and non-compliance can lead to a lawsuit. Some of the benefits required by law are FICA, unemployment insurance, and family and medical leave.
  • Employee policy: Having a clear and well-written employee policy puts your company in good legal standing. Some policies small businesses need to comply with include use of technology, remote working arrangements, gender equality issues, medical leave, rules of conduct, drugs and alcohol, social media use, weapons or workplace violence, antidiscrimination/harassment, family leave, and so on. Be sure to put your policies in writing — with consequences/disciplinary action for violating them clearly stated — and ensure that every employee has a copy of it.
  • Health and workplace safety: Certain small businesses must have health insurance programs and promote activities that support a healthier workplace. This must be done in compliance with occupational safety and employee health care laws.

It's not only important for small companies to engage human resources but it's equally important that HR managers comply with relevant labor and employment laws. As a small business owner, creating an effective human resource management plan is essential in the execution of your idea, vision, and growth goals.

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Payroll accuracy and recordkeeping is a key aspect of payroll compliance. Skynova's accounting software can help you manage your payroll efficiently by helping you keep accurate records and manage tax deductions.

We also offer a variety of software products and industry-tailored templates that can help streamline and make your business more organized.

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Notice to the Reader

The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with an HR, legal, or accounting professional to ensure that you're meeting relevant standards.