HR for Small Business – The Ultimate Guide on HR Basics

Small businesses face unique challenges when it comes to managing their HR processes. They don’t have the resources to hire HR teams, and they may not even be able to afford a full-time HR professional. This guide was designed to help small businesses understand where to start and how to tackle the challenges involved with HR.
HR for Small Business - The Ultimate Guide on HR Basics
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If you’re running a small business, we know that there is no shortage of responsibilities that you attend to. You have to be on top of everything–operations, finances, accounting, strategy, and so much more. Of course, a huge part of your job is also spent managing the people who work for you and setting them up for success. In this article, we want to discuss how small business owners are handling the key tasks and responsibilities of effective people management, as well as the importance of HR in a small business setting.

Defining HR - What do we mean when we talk about Human Resources?

There are probably a lot of definitions that could be copied and pasted into this paragraph, but for the sake of this article and in the context of small business, we want to define Human Resources as, “anything related to the management and organization of the people within your company.”

So what does that mean in context?

Basically, if it falls under any of the following responsibilities, we’re going to categorize it as an HR task:

  • Hiring new employees
  • Onboarding new hires
  • Training and development
  • Employee engagement and experience
  • Compensation (includes payroll, wages, and compensation)
  • Communication
  • Regulatory compliance
  • Tracking time worked
  • Tracking time off (PTO)
  • Employee documents

Looking at that list can feel a bit overwhelming. HR is no small task, even in a small business. But each item is important to the success of your business, and if you give it the proper care and attention, you’ll set yourself up for long term success.

How soon should I think about HR for my small business?

The short answer? Immediately.

There are certain things that you must do to stay compliant with state and federal regulations that just cannot wait. Things like having employees sign I-9 and W4 forms, or ensuring your compensating employees at or above your state’s minimum wage, or tracking hours worked so you know if you have to pay employees overtime.

Some aspects of HR simply cannot be ignored, not even when your business is small.

There are other things that you’ll add gradually over time.

"Some aspects of HR simply cannot be ignored, not even when your business is small."

Do not make the mistake of thinking that you’ll get to HR “down the road.” With a little bit of effort now, you can set yourself up for success in the future.

We’ve gone ahead and broken the rest of this article into two sections: (1) Things you should do now (if you’re not doing them already) and (2) Things you should you start doing once you have all the basics covered.

Let’s dive in.

HR for Small Business - The Must-Haves for Every Business

Essential Paperwork

Regardless of company size or stature, if you’re running a small business in the United States there are a few documents that you absolutely must keep track of.

I-9 Form. The US government requires that every employee complete an I-9 form to prove that they’re legally eligible to work in the United States. This document must be collected for each one of your employees. You, as the business owner, are also required to maintain a copy of this document throughout the duration of each employee’s employment tenure, and continue to store the document for three years after the employee’s hire date, or one year after the date of termination, whichever is later.

W-4 Form. The next document you’ll need to issue to your employees is their tax document. For most employees, this will be the W-4 form. A W-4 form should be issued to each employee at the company so that the proper amount of tax withholdings is deducted from their paychecks throughout the year. 

Direct Deposit Form. A third document you’ll want employees to complete is a direct deposit form. Unless you’re paying people with written checks, your employees will expect their compensation to be deposited directly into their bank accounts after each pay period. A direct deposit form allows employees to specify which bank to route their money to, and how much money should be deposited in each account.

Employee Information. This is not so much a document as it is a compilation of important information you should collect for each employee. Things like their legal name, their date of birth, their phone number, social security number, email address, home address, emergency contact information, and more. This information is obviously sensitive and needs to be securely and privately stored.

Need help storing your company’s sensitive documents and information? We’ve got just what you’re looking for.

Near-Essential Paperwork

Employee Handbook. Ok, so this isn’t required by law or anything, so we won’t call it “essential.” But it’s pretty close. Every company would be smart to have at least a basic version of an employee handbook that all their employees agree to. The employee handbook lists out your expectations, values, and protocols for your company. We’ve previously written an extensive piece on creating an employee handbook, but here are some bullet points that you’ll want to make sure you cover:

  • Company values, mission statement, vision statement, etc.
  • Employment information and employment agreements
  • Company code of conduct
  • Company policies
  • Compensation and benefits
  • Discipline and termination
  • Safety protocols and procedures

Basic Regulatory Compliance

Safety Practices: Depending on your industry and the state in which your business operates, you’ll likely have to practice certain safety procedures to comply with mandatory regulations. The most common of these is governed by OSHA, which stands for the Occupational Safety and Health Administration. You can visit OSHA’s website to learn more about regulatory safety standards in the workplace.

Anti-Discrimination Practices: Title VII of the Civil Rights Act of 1964 makes it illegal to discriminate against an employee or potential employee on the basis of the individual’s race, religion, sex, national origin, or color. In 2020, this law was supplemented to add that employers cannot discriminate based on sexual orientation or gender identity.

Family and Medical Leave Act: In 1993, President Bill Clinton signed FMLA into law. This gives certain employees up to 12-weeks of job-protected, unpaid leave. For many small businesses, they won’t immediately have to worry about FMLA as it currently applies to companies with 50 employees or more. But as your business grows and you reach the 50 employee threshold, you’ll have to be aware of this law.

Mandatory Workplace Posters: It may seem silly, but the Department of Labor requires that specific information be posted and made visible in your workplace. Unfortunately, the DOL doesn’t make it super easy to figure out which posters are required for your business. You can visit this site and walk through a series of questions to determine what you’ll need.

Payroll & Benefits

Payroll System. One of the fundamental responsibilities of a business owner is to pay your employees. Every pay period you must pay them what they earned, and pay them on time. Payroll can be incredibly complicated because of all the laws, regulations, taxes, and compliance issues that are involved. If you’re not a payroll expert, we recommend getting some help! You can hire someone to process your payroll (this is often referred to as “outsourced payroll”) or you can use software that makes it easy to do it yourself. We recommend looking at any of the following software products:

Payroll Withholdings. Part of the payroll system is understanding the different withholdings that are deducted from each paycheck. You have to consider the various taxes such as social security, income, medicare, unemployment, and more. These taxes must then be sent to the IRS on a regular basis. Failure to pay these taxes can result in a significant penalty. Again, great payroll software or an outsourced payroll consultant can help you with all of this if you’re not comfortable with it yourself.

End-of-Year Tax Forms. When you hire an employee, you have them complete a W-4 form. At the end of each year, you’ll work with your payroll provider to supply every employee with a W-2 form. The W-2 form is what helps employees file their tax returns.

Workers’ Compensation. This is a kind of insurance that helps protect both businesses and employees from financial loss if an employee is injured on the job. Almost every state in the nation has some form of mandated workers’ compensation insurance to cover injured employees.

Employee Benefits. Most small businesses are not required to provide additional compensation for employees in the form of benefits, but we recommend it if you can afford it. Offering benefits to employees such as health and dental insurance can save them both money and stress. There are also many fringe benefits that you may choose to offer that can help make your business more appealing to would-be employees. Recruiting great talent is a challenge. Offering amazing benefits definitely eases the burden.

HR for Small Business - The Next Steps

Alright, we’ve covered all the basic “must-haves” for any small business. If your company is missing any of the things covered in the previous section, then stop reading and go take care of it! This next section is all about improving upon the firm foundation you’ve already built. But if you don’t have the foundation, everything will fall apart.

With that said, let’s dive into a few HR-related tasks and processes that aren’t “required” but will help you build a better business.

Hiring

Great businesses are built by great people. Hiring talented individuals to help you grow your company will be critical to your success. Here are some tips and trips that will help you consistently hire top candidates. If you want to read more, we’ve written extensively about hiring here.

"Great businesses are built by great people. Hiring talented individuals to help you grow your company will be critical to your success."

Forecast growth. The first step to hiring is understanding when you need to hire. A common mistake in startups and in small businesses is that a company hires too soon and ultimately is not making enough money to maintain their employees. The first thing you need to ask yourself when deciding whether or not to hire someone is, “can I financially afford this person?” The next question to ask yourself is, “do I absolutely need this person?” If you can afford someone and you’re in desperate need of their skills/services, then you know it is time to hire.

Create an accurate job description. Before making a hire, it’s important that you understand the job you’re hiring for. If you’re unable to articulate what you need an employee to do, then you’ll be disappointed when they show up and fail to meet your expectations. Writing a clear, discrete job description will help you understand what role you’re hiring for, and will help job seekers understand if they have the skills and qualifications necessary to perform the job.

Distribute your job post. Once you know you need to hire and you’ve created a job description, it’s now time to get the word out. You’ll want to distribute your job post broadly so as to attract a wide pool of qualified candidates. We recommend posting on job boards such as Indeed or Glassdoor, as well as sharing your job post on social media sites like Facebook and LinkedIn.

Manage the application process. This step can be particularly tricky, especially if you receive a lot of applications. It can be hard to remember which candidates you’ve already looked at, who you’ve responded to, who you’ve scheduled an interview with, and which candidates simply don’t meet your qualifications. Managing all of this from an email inbox is particularly stressful. We recommend using an Applicant Tracking System (ATS) to help you with the process. Here are a few ATS options that you might consider:

Extend an offer. After going through the interview process with your most qualified candidates, you’ll want to extend an official job offer. This is typically done through an offer letter. An offer letter will typically include information about the job, the salary, and benefits being offered to the candidate, the preferred start date, information about preliminary background checks, and more.

Onboarding

After a job candidate accepts an offer to work at your company, you’ll begin the onboarding process. Much of the onboarding process involves completing the required paperwork that we covered previously. Beyond that, there are things you can and should do to create a great experience for your employees. The onboarding process is a critical part of long-term employee retention, especially in a small business setting.

Have the new hire complete the required paperwork. Before starting the job, your newly hired employee needs to complete all the paperwork to ensure that they’re legally eligible to work for your business. This includes the I-9 and W-4 forms as well as the other documents we outlined at the beginning of this article.

Background check. A background check isn’t required for every business or industry (although it is for some), but it’s something you might consider doing. Having new employees submit to a background check allows you to understand if your new hire has a criminal record or has been involved in fraudulent activity in the past.

Prep the workspace. Before your new employee arrives, make sure that you’ve prepped their workspace and prepared all the tools, technology, or materials they’ll need to start their job. There is nothing more discouraging for a new employee than to walk into work on the first day of a new job and see that the company hasn’t prepared for them to be there. This immediately makes the employee feel unvalued and unwanted.

New employee orientation. On your new hire’s first day of work, we recommend walking them through an employee orientation program. Help them to learn more about your company by explaining why your business exists, the goals you’re trying to achieve, the values you attempt to uphold, and the vision you have for the future.

Job training. You cannot expect a new hire, even someone with vast experience, to come in and know what to do right away. They’ll need to be trained and given performance expectations. They’ll need help understanding your business, understanding your customer, and understanding how they fit into the broader organization. Do not neglect this step! Job training is so critical for the success of an employee. It should be an ongoing activity over the first week or even the first month of the job. Prioritize this so that your employees have the best chance to excel.

Creating a successful onboarding program can be tough. We give you the tools to make it easy!

Engagement

After successfully hiring and onboarding new employees, your ongoing tasks will be to continue to engage and develop them. The cost of employee turnover can be crippling for a small business, so it’s important to create an environment that encourages employees to stay. Here are some suggestions for how to do this right.

"The cost of employee turnover can be crippling for a small business, so it’s important to create an environment that encourages employees to stay."

Surveys. Once a month, consider surveying your employees and asking them how they’re feeling. Get an idea of how engaged they are, how excited they are to be working for your business, and also ask them for ideas on how to improve the company. We suggest making the surveys anonymous in order to encourage employees to share their thoughts and feelings freely. You can read more on how to create effective employee engagement surveys here.

Ongoing training. To help employees stay engaged, it is important to continue to invest in their progress and development. It’s human nature to want to learn new skills and participate in new challenges. Train your employees so that they can level up and do more for the business. This is much more affordable than hiring additional employees to augment the talent gaps in your company.

One-on-one performance reviews. Employees want to feel valued at work, and the best way to help them feel this way is by consistently giving them feedback. When an employee is given feedback on their work, they understand that you care about what they’re doing. They understand that you’ll help them find ways to improve. Regular and consistent feedback done through one-on-one performance reviews will strengthen your bond with employees while also enhancing their on-the-job performance. Many companies fail in this area because they see one-on-one reviews as wasted time. They do an annual or semi-annual review but don’t give much feedback beyond that. This is a simple behavior to correct, and one that will pay enormous dividends. We cannot stress enough how important it is that each of your employees gets weekly (or at least monthly) feedback in the form of a one-on-one performance review.

Facilitate communication. This has become more important than ever as many businesses are shifting to some form of remote work. As remote work becomes more and more mainstream, businesses will need to find easy ways to stay in contact with their employees. As a small business owner, we recommend investing in communication software that helps you easily chat and connect with your workforce. Here are some free options to consider:

  • Zoom (for video conferencing)
  • Slack (for messaging)
  • Asana (for project management)

Discipline and Termination

One of the more challenging aspects of HR is the disciplinary actions you’ll be forced to take with certain employees. These conversations are never fun, but there are things you can do to ensure that things go smoothly. Here are a few ideas.

Set clear expectations. We mentioned the importance of an employee handbook earlier, and we want to reiterate how crucial that document can be. Your employee handbook can and should contain a list of policies and behaviors your company promotes, as well as the punishment or disciplinary actions that will be taken if those policies are not followed.

If you have these things in writing, it’s easy to point to them when an employee makes a mistake. Your employee will understand that they broke the rules and that there are consequences to their actions. However, you don’t have anything written down, it’ll be hard to hold employees accountable.

Write things down. If an employee breaks a rule or deviates from expected behavior, write this down. If you have a conversation with an employee about poor performance, extensive tardiness, unexcused absences, or other related issues, then write these down.

Document everything. This way, if you ultimately need to fire an employee because of these issues, you’ll have evidence to defend your decision. If an employee tries to sue you for wrongful termination, you’ll be able to point to the documents you’ve kept that detail the process and explain why you fired them.

Be proactive with your feedback. If you’re firing an employee because of performance, there is a way to handle the situation that will make things easier for you and the employee. First, be proactive in telling the employee that you’re beginning to see a slip in performance. Be upfront and direct. Let them know that you need them to pick things up.

If the employee does not respond to this encouragement after a week or two, then tell them again. Warn them that their job is in jeopardy if they can’t turn things around. Wait another week or two to see how they respond. If they still haven’t picked things up, then it will not be a surprise to them when you tell them you’re terminating their employment. They’ll expect it. The worst thing you can do is sit back and let an employee fail, and not say anything.

"The worst thing you can do is sit back and let an employee fail, and not say anything."

Have a witness. When you terminate someone, don’t do it alone. Always have another person in the room with you to act as a witness to the conversation. This way, if the employee ends up suing you and says you told them something when terminating them that was discriminatory or otherwise unlawful, your witness will be able to testify on your behalf. Your witness may also take notes during the termination meeting so as to record the events accurately.

A Few HR Tools to Help You Out

There are a lot of things you need to do to make sure your HR processes are running smoothly. We know that with all the work involved in building and growing a small business, it’s incredibly difficult to manage all of this without some help. Luckily, there some great tools out there to help small businesses manage their HR processes.

HR software (HRIS). We’ve mentioned variations of HR software throughout this article, but we want to focus briefly on what’s called a Human Resources Information System, or HRIS. An HRIS is a software tool that helps businesses manage all their HR processes. From hiring to firing and everything in between, a good HRIS will do most of the heavy lifting when it comes to HR management. Here are some HRIS software products you might consider:

Outsource the work to a PEO. Some small business owners would rather not think about HR at all, and they choose to outsource all of their work to a PEO. PEO stands for Professional Employment Organization. It’s a service that will take care of all HR-related matters for your company. They can also help you secure discounted rates for health insurance and other related benefits. PEOs can be incredibly helpful but they charge a lot of money for their services.

Conclusion

Well, this article wasn’t short. There’s certainly a long list of HR tasks and responsibilities to think about, and it’s hard to take it all in as a small business owner. Remember, start with the things that are absolutely critical. Get your paperwork right, get your people paid correctly, and make sure you’re staying compliant with state and federal laws and regulations. That’s step one.

Once you feel like you’ve got the basics down, you can begin to think about things like improving your hiring process, creating a memorable onboarding experience, and keeping your employees engaged. All of these things will help your business grow.

HR for small business is hard work. But it’s important work. You’ve got this!

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