For some entrepreneurs and small business owners, nothing can be more headache-inducing than human resources issues. However, a lot of personnel problems can be avoided if time is invested upfront in establishing policies and practices that prevent HR-related claims from arising. Whether you're outsourcing your HR functions or handling them on your own, there are nine basic human resources functions that must be covered for your company.
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.
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.
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.
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 clearly 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, like the Society for Human Resource Management, that 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.
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. B2B 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, their ethnicity, etc. 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.
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.
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.
Performance management
Performance management is another natural function of HR that businesses should do. When you track employee performance, you can easily identify 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 career pathing.
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.
You should also provide the employee with a "Notice of Change in Relationship" (also known as a termination of employment letter) as well as a "Final Pay Acknowledgment" and seek a signature on the form at the time of termination. If you offer health insurance, you will also need to make sure you provide COBRA insurance (health insurance continuation) notices as well.
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 (full- and part-time employees, contractors, etc.).
How to manage HR functions
There are multiple HR solutions you can turn to for managing human resources. If you want to keep HR functions in-house, you can hire an HR professional or an entire internal HR department. In-house HR professionals often rely on top HR software solutions to digitally manage HR functions. If you want to outsource your HR, you can choose from top-rated HR outsourcing services or the best professional employer organizations.
Fully in-house HR gives you more control over your employee data and operations, but it can be costly to hire enough internal employees for these functions, depending on the size of your company. Outsourcing, on the other hand, can be more cost-effective for small organizations but can limit your control. You may consider starting with one management type and then switching to another as your company expands. Either way, it's crucial to have a plan in place to cover these HR basics so you can rest easy knowing you've set up fair, consistent, and legal employment practices that protect you and your business.
Skye Schooley contributed to the writing and research in this article.