9 HR Basics for Any Small Business

9 HR basics for small businesses

It can be difficult to find time to develop comprehensive HR policies, but you’ll be able to sleep better at night knowing you’re protecting your business with these practices. Here are nine HR basics for small businesses.

1. Legal compliance

First things first, you have to know your federal and state labor laws concerning wages, hours worked, overtime, recordkeeping and required postings (you know, those fun posters you hang in the employee break room). Some of the most common HR compliance challenges involve employee recruitment, workplace harassment and discrimination, worker classification and compensation, payroll and timekeeping and medical coverage requirements.

The time and money you invest in HR will pay dividends for years to come. While you may not currently be required to comply with laws that larger employers are subject to, it’s a best practice to embed these HR basics into your culture from the start.

2. Workers’ compensation insurance

It’s mandatory to provide workers’ compensation insurance for every employee. The insurance rate is based on the occupation and pay rate of each individual team member. The first time someone gets injured on the job, you will be so glad that you set up this policy that you won’t even mind the paperwork you’ll likely have to fill out for the employee to get their workers’ comp benefits.

3. Employee handbook

A well-written employee handbook is an important tool in preventing employee disputes or claims before they start. This is also where you can communicate the at-will employment relationship, discrimination policies, harassment policies, equal opportunity policy, leave of absence policies and any information surrounding your specific work environment, such as health benefits and paid time off (PTO).

Drafting an employee handbook can seem daunting. Fortunately, there are tons of online resources, such as the Society for Human Resource Management, which allow you to download a sample handbook that can serve as the template for building your company’s own handbook. It’s always recommended to have a legal advisor review your handbook before distributing it to employees. When you do share it, remember to obtain a signed acknowledgment form from employees after they are given time to review the document.

4. Recruiting and onboarding

Recruiting can be a full-time job in itself. The best way to keep a constant stream of qualified candidates in the pipeline is through networking and getting involved in your industry’s local community. You can also set up an employee referral program and reward employees for any candidate who is hired. Business-to-business social media sites like LinkedIn are also valuable tools to help recruit candidates in multiple industries.

Be sure to always follow equal employment opportunity practices when hiring new staff. Don’t ask candidates if they are married or have children, what their ethnicity is or similar questions. That information is entirely irrelevant to the position and a candidate could claim an adverse employment action based on their response and if they’re not hired.

5. Employee compensation and benefits 

Comprehensive employee compensation and benefits plans can be great recruiting and retention tools. Use strategic salary benchmarking to create fair and competitive compensation plans for each position in your organization. Be sure to review these wages annually to adjust for inflation or raises.

Your employee benefits package will also be critical for attracting and retaining employees. The most popular employee benefits fall into five categories: health and wellness; financial well-being; work-life balance; professional development; and diversity, equity, and inclusion.

While there is no legal mandate to provide paid time off to employees, there are some regulations around policies if you do provide the benefit. Because PTO is considered earned wages, be sure to familiarize yourself with your state’s PTO regulations.

6. Payroll

Processing payroll is at the core of what HR does, but it can be a complex process. There are many complicated tax deductions and withholdings that have to be executed precisely each time you process payroll. You can save yourself a few gray hairs by leaving payroll processing to experts and outsourcing your payroll to a highly rated payroll processing service.

7. Performance management

Performance management is another natural function of HR that businesses should do. When you track employee performance, you can identify easily how each employee is progressing in their role. Use this data to reward top performers and give assistance to those who are struggling to meet their goals. It can also be beneficial to offer professional development opportunities and solid career paths.           

8. Terminations

Terminations are never a fun part of any employment relationship, but they are inevitable. Whether the termination is a voluntary resignation or with cause, there are some steps you need to take to ensure legal compliance and avoid wrongful termination claims. In most states, there are regulations on how soon you must pay a terminated employee their final wages. However, a best practice is to give an employee their final paycheck on their last day of work. This final check should include any unused PTO, unless you have a policy that states employees are not compensated for unused PTO.

9. HR reporting

HR data and analytics can be compiled into digestible HR reports and used to optimize your HR functions. Common report types include recruiting reports, performance management reports, HR administrative reports and compensation reports. HR reporting is important for strategy development, data transparency, accountability and optimization.

Defining HR management

Before you effectively master these basic HR functions for your small business, it can be helpful to understand HR management. Successful HR management is the practice of managing human capital in a way that increases employee performance and the employee experience. HR management is an essential business function for any organization with workers, such as full- and part-time employees and contractors.

How to manage HR functions

There are multiple HR solutions for managing HR. You can keep your HR in-house or outsource it to a third-party HR service provider. 

Hire in-house HR professionals

Many businesses find it beneficial to hire internal HR staff to manage their HR functions. With this staffing arrangement, you can hire one singular HR professional or an entire internal HR department. In-house HR professionals often rely on top HR software solutions to digitally manage HR functions. 

Complete in-house HR gives you more control over your employee data and operations, but depending on your company’s size, it can be costly to hire enough internal employees for these functions. 

Outsource to an HRO

While outsourcing can be more cost-effective for small organizations, it may limit your control. If you want to outsource your HR, you can choose from top-rated HR outsourcing (HRO) services. Since HROs tend to offer a la carte HR services, you can choose to rely on them for one or many of your HR functions. 

If you only use an HRO for a few HR functions, you may still want to hire an in-house HR professional to take care of certain HR functions like managing company culture. Either way, it’s crucial to have a plan in place to cover your HR basics so you are assured that you’ve set up fair, consistent and legal employment practices that protect you and your business.

Outsource to a professional employer organization (PEO)

Another outsourcing option is to outsource all your HR functions to a highly rated PEO. A PEO is similar to an HRO, although it tends to be more all-inclusive in its HR offering and it requires a co-employment agreement. This is a great option for small businesses that don’t have the time or resources to manage their HR functions on their own.

Skye Schooley contributed to this article.