HR for Small Business: The Ultimate Guide

Human resources means different things to different people.

To job seekers, human resources (HR) is the recruiter and gatekeeper, deciding whether or not their application will progress. To the new hire, HR is an ally and coach, helping them learn their role and understand the organization. Tenured employees view HR as being responsible for their continued development, motivation, safety, and wellness. And for you, a small business owner, HR is necessary to ensure your business can hire and retain top talent while being compliant with the law.

In this guide, we are going to dive deep into the world of human resources for small business to help you understand its importance and show you how you can implement strong HR practices. If you’ve had trouble with employee retention, recruitment, management, or workplace culture (and who hasn’t?), this comprehensive guide is for you.

First, let’s get our definitions straight. The Small Business Association (SBA) defines human resources in two ways:

• “The people who work for a company or organization.”
• “The department of a company that is responsible for managing those resources.”

We are going to focus on the latter definition, which is also known as human resources management (HRM). The SBA puts the following responsibilities under HRM:

• Recruitment and hiring
• Training and development
• Payroll and benefits
• Employee retention
• Creating a safe, healthy, and productive environment
• Communication across the organization

Your HR needs to do all of these things while striking a balance between what best serves the needs of your employees and what serves the market-driven needs of your small business while remaining compliant with the laws and regulations of the states you operate in and the U.S. government.

No small feat.

Let’s take a closer look at each of these human resources responsibilities so you can understand how they can contribute to your broader business goals.

If HR is doing its job, employee performance, commitment, and loyalty will increase, which in turn should help your business achieve its objectives and accomplish its mission. There are myriad statistics that support the importance of good HR for small business. Here are just a few:

• Organizations that invest in a strong candidate experience increase their quality of hires by 70%.^[1]
• 75% of employees would stay longer at an organization that listens to and addresses their concerns.^[2]
• Disengaged employees are almost twice as likely as engaged employees to seek new jobs.^[3]

With these stats in mind, here are some human resources needs for a small business.

Human resources are the bookkeepers of your workforce, maintaining all the paperwork that ensures your business is compliant with labor laws and protected in the event of a dispute. In particular, all small businesses should have the following paperwork on every employee:

• I-9 form: This ensures an employee is eligible to work in the US.
• Medical file: Including disability information.
• Employee file: Including a resume, reviews, training verifications, payroll details, W-4 forms, and anything else that documents an employee’s tenure with your business.

Aside from these standard forms, all businesses should have an employee handbook. A  handbook lets employees know what is expected of them while employed by your organization, and establishes protocols for how to deal with issues that may arise in the workplace. Among the things your employee handbook can include are:

• Organization mission, values, and objectives
• Code of conduct
• Anti-discrimination policy
• Non-disclosure agreement (if needed)
• Safety and security policies
• Job descriptions
• Organizational chart/ hierarchy
• Compensation and benefits descriptions
• Schedule, vacation, sick time, and leave policy
• Recruitment and hiring policy
• Discipline policy

These documents form the foundation of your business from a workforce perspective and provide HR with a mandate to do its job. Your handbook must be updated to reflect organizational changes as they arise. If you need help starting your employee handbook, the Society for Human Resources Management (SHRM) offers a few templates.

Documentation goes hand-in-hand with compliance. There are a plethora of labor laws and workplace rules and regulations. If you’re dealing with HR, you should be familiar with the following laws:

• Anti-discrimination laws: Including Title VII, Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA).
• Wage and hour laws: Specifically, the Fair Labor Standards Act (FLSA), as well as individual state laws pertaining to minimum wage.
• Leave laws: Particularly the Family and Medical Leave Act (FMLA), as well as state laws.
• Immigration laws: Including the Immigration and Nationality Act (INA), Immigration Reform and Control Act (IRCA), and the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA).
• Benefits laws: There are various required benefits employers must provide, although these vary based on the size of your business and the state you do business in. Common required benefits include social security and workers’ compensation.
• Safety laws: You will want to make sure your business is compliant with the Occupational Safety and Health Administration (OSHA).
• Union laws: Even if your business’s workplace isn’t unionized, you should comply with the National Labor Relations Act (NLRA).

In addition, the Department of Labor (DOL) requires that certain labor law posters be posted in the workplace. You can download your workplace posters directly on the DOL website.

We get it, this is a lot to remember. Plus, many of these laws change somewhat frequently. Compliance issues are a common reason businesses outsource their HR to a third-party provider (more on that later). It’s hard enough to run a business without having to worry about labor laws.

There is a lot that goes in to recruitment and hiring, including writing a compelling job description, sharing it in places where your desired candidates can find it, conducting a thorough interview (while simultaneously selling your business to the candidate), and preparing a competitive offer. There are also regulations you must adhere to during the hiring process, such as Equal Employment Opportunity (EEO) laws.

A CareerBuilder survey found that the average cost of a bad hire is $17,000 annually in lost productivity, time, and cost of hiring and training a replacement.^[4] Furthermore, these are the people you are going to have to work with every day, so you want to make sure they are a good culture fit.

With so much at stake, it is important you have a good strategy around hiring and recruitment. Here are some tips from fellow small business owners:

“Focus on company culture. I would much rather hire a hard worker that is a cultural fit than a highly skilled person with no cultural fit. It boils down to being able to work well with others in a team environment. If you’re unable to collaborate, the chance of innovation and new opportunities are diminished.” — Brandon Chopp, hiring manager, iHeartRaves.

“Be ready to hire before you need to hire. Understanding your team’s capacity and the average time it takes to fill a position is important. We’ve made poor hiring decisions in the past when we didn’t have options, and we needed someone fast, so we’re always looking to fill our bench with qualified people so we don’t have to make snap decisions.” — Kyle Varona, general manager, Fahey Pest & Lawn.

Payroll processing and benefits are another complicated responsibility that fall under the umbrella of HR. Payroll refers specifically to the money that is paid to employees by the company, and is rife with complicated tax deductions and withholdings that have to be executed accurately every time pay is distributed (payroll is another common reason businesses outsource HR).

If you need assistance with processing payroll, here are some top small business payroll service recommendations:

• Gusto Payroll
• QuickBooks Payroll
• Patriot Payroll
• Payroll4Free

Offering comprehensive benefits that address the needs of your employees is just as important as good payroll management. A Zenefits survey found that 70% of employees agree that fringe benefits are a major consideration in evaluating future job opportunities.

There are two types of benefits: Those that are required by law and those that are not. We already alluded to required benefits, but the full list includes:

• 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.

Additional benefits that are not required by law but are fairly common include:

• Health insurance (businesses with over 50 employees will have to pay a tax penalty for not offering health insurance)
• Dental and vision insurance
• Commuter benefits
• Paid time off
• Paid holidays
• Work from home flexibility
• 401(k) plans
• Employee discounts
• Employee assistance programs
• De minimis benefits (low-value perks such as free coffee)

Employees typically select their benefits during the onboarding process or open enrollment periods. The process of selecting the benefits to offer to your employees can be fairly involved, and is another reason small business owners opt to outsource their human resources.

Here are some tips related to benefits from small business owners:

“Match your vacation policy to the needs of your company and your employees, and be creative! For some companies, this can mean any combination of company-wide shutdowns during the holidays or summer Fridays, flexible vacation plans and employee-defined work hours. Also, avoid getting in an arms race for perks and benefits. Instead, figure out what is important to your employees and target hires, and focus there.” — Daniel Meyer, CEO, Pocketdoor.

“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.

A successful onboarding process integrates a new employee into your company and culture, and gives them the tools and information needed to be successful in their role. Although most people think of onboarding as a process that takes place during their first few weeks on the job, a good onboarding process can actually last up to a year, and turns an employee from a trainee into a high-performing member of your organization.

Before that can happen, there are several logistical tasks that must be handled as part of the onboarding process, including:

• Employee must complete W-4 and I-9 forms.
• Employee must provide their social security number.
• Employee must provide bank account information and a voided check (if they desire to get paid via direct deposit).
• Employee enrolls in company benefits (optional).
• Employee must provide emergency contact information.
• Employer must provide employee with equipment needed to do their job (such as a computer or phone).

On an employee’s first day, they should be given a copy of the employee handbook and an explanation of the responsibilities and expectations of their new role. During their first week they might receive comprehensive training from their manager and co-workers, as well as opportunities to get to know the people they are working with through one-on-one meetings.

As they ease into their role over the next few months, continue to provide them with constant feedback and mentorship. The type of onboarding an employee receives might vary by role, but the goal is always to make them feel like a capable member of your team who is invested in your business’s mission.

A successful onboarding strategy is important. Employees who go through a structured onboarding program are 58% more likely to be with that organization after three years, according to the SHRM.^[5]

Here are tips from small business owners on making sure your onboarding process goes smoothly:

“Small businesses who can’t invest a lot of resources into onboarding should use an engagement coordinator. This should be one of your best employees who will shepherd the new hire through their first 90 days to ensure their success.” — Doreen A. Lang, author of “How to Drive Employee Retention.”

“Automate your onboarding as much as possible. We use a people management software that automatically assigns training and exams, schedules regular reviews and inspections, and takes a lot of that manual work off our plate so we don’t have to reinvent the wheel every time our team grows. It’s a huge time saver and keeps employees accountable for training and performance.” —  Kyle Varona, general manager, Fahey Pest & Lawn.