Small business HR – everything you need to know

HR starts the moment you hire your first employee. There are plenty of resources and organisations out to help run your HR systems smoothly. But you should see HR as an opportunity, not a burden

What is HR?

Human resources (HR) in its literal sense means the workforce of an organisation. Its responsibilities, however, are wide ranging.

As your business becomes more established and your team grows, HR will involve managing recruitment, onboarding, developing workplace culture, managing benefits, managing employee relations, and training. The main aims of the department is to ensure the business is compliant with laws, support productivity and improve or maintain employee satisfaction.

Taking on your first employee

The turning point for any small business is taking on your first member of staff, which is where HR first enters your business life.

Even if you’ve only got one staff member, you need to be mindful of HR protocols and procedures – otherwise you could find yourself in front of an employment tribunal defending yourself against one aggrieved employee.

At its most basic, HR involves telling your employee what’s expected of them, hours to be worked and where, holiday entitlement, payment procedure and sickness policy. That could either be written down in an employment contract or a staff handbook.

The truth is that many business owners are frightened by hiring because of the potential risks but done right employing staff will take your business from surviving to thriving.

Top 10 HR tips

HR specialist Donna Obstfeld has written exclusively for SmallBusiness about the top 10 things to be aware of successfully managing employees in your business.

Top 10 HR tips

How to decide on an HR policy for your small business

Having an HR policy for a microbusiness may sound grandiose but writing down your HR policy gives you an opportunity to articulate the very purpose of your business – enthusing staff, even if it’s just a handful of people, about the vision for your business. What’s the journey you’re on?

An HR policy sits alongside your marketing strategy and financial policy when it comes to day-to-day operations. But it’s so much more than just a set of rules and regulations, it’s a document which defines who you are, your core values.

How to decide on an HR policy for your small business

A guide to outsourcing HR

Outsourcing HR makes sense for businesses that are too small to have their own inhouse manager. Businesses with fewer than 50 employees rarely have an HR team. Instead, a senior manager who may have had some HR experience in the dim-and-distant past may have been seconded to the role. Not only does this leave your small business vulnerable to legal challenges when HR procedures have not been rigidly followed, doubling up like this takes away time from his or her day job.

Or, if you yourself are handling HR, it takes time away from running your business and eats into your own productivity – one of the biggest challenges facing any small business.

With the ongoing cost-of-living crisis, rising inflation and spiraling wage bills, companies will be looking to save money where they can.

Outsourcing HR v inhouse HR management

Outsourcing whole or parts of the HR function can be a cost-effective way of reducing overheads, while benefitting from expert skills.

However, you need to be clear about what you need when approaching an outsourced HR company from the outset to avoid a one-size-fits-all approach.

Whether that’s achieved through an in-house team or outsourcing depends on your business’s priorities.

Outsourcing HR v inhouse HR management

How to choose an outsourcing HR provider

Start with their experience (and which sectors their clients are in). You’ll know you’re on to a winner if they’ve had numerous previous clients in your industry, with extra points if they’re larger and better-known.

Similarly, having proof of qualifications reassures you of their competence and what they can offer you.

Think about how their services align with your business growth strategies and growth forecast over the next year.

Next up, hunt for any hidden fees. Do they charge extra or impose financial penalties for leaving the contract early? The firm may seem cheaper upfront but, like the worst budget airlines, they can really give you a swift kick with those sneaky charges.

While you’re there, check the clarity of the payment and contract terms. Flexible payment should be available (paying as a one-off or on a retainer). It’s all the better if they can offer you a free trial – working on a smaller project, for instance.

Even though they’re not known as the money maker, you need to have a return on investment from your HR. It won’t necessarily be in monetary terms either – think increased productivity, lower turnover and decreased absence. Ask what ambitions your HR supplier has and how long a timespan they need to establish these.

It’s even more important that they understand your company culture. If they don’t, they run the risk of making the wrong decisions on your behalf. Or worse, they hire the wrong staff, causing you all manner of long-term problems. Again, a free trial option is beneficial here.

7 of the best HR consultancy companies in the UK

Want to outsource your HR but don’t know who to go to? We’ve got a round-up of some of the best HR consultancy companies in the UK.

It’s all well deciding that you need to outsource your HR, but which consultancy should you plump for?

With such a wide range of companies offering largely similar products, it can be difficult to know exactly which one to choose.

We’ve profiled 7 of the best HR consultancy companies in the UK to inform your decision, listing the key features of each provider.

citrus HR
Workplace HR
HR Solutions
Adviser Plus

7 of the best HR consultancy companies in the UK

Lastly, remember to take professional references from your chosen supplier – two or three is ideal. Once you’ve agreed to work together, be clear about what’s included in your deal and that it can be changed at a later stage to suit the needs of your business.

6 HR software tools you can use for small business

It may be that you don’t want to outsource your HR but take a more do-it-yourself approach using online HR software.

The case for HR software tools has grown as more businesses shift towards a hybrid or remote working model.

Plus having HR software in place can help to increase productivity, provide working insights, more benefits for employees.

An HR tool – also known as HR management tool – can mean a whole platform or it can be one component such as recruitment or absence management software.

Every small business has differing needs. We’ve listed some of the best HR software tools below, giving you a run-down of key features and integrations which can work with your existing software.

6 HR software tools you can use for small business

HR is an opportunity for your small business

Remember, HR starts for any small business the moment you take on your first employee. Whether you set out your statutory obligations in an employment contract or take the time to write a staff handbook is down to you.

As you grow, you may think the most cost-effective solution will be to outsource your HR to an external provider, as opposed to hiring a fulltime HR director.

Or you could take a hybrid approach and do most of the small business HR paperwork yourself but use HR software to ease the workload.

Whichever way you go, think of HR as helping you define the purpose of your small business, not just a burden, and one of the planks which execute your strategy alongside finance and marketing.

This article was originally written in May 2022 by Tim Adler.

More on small business HR

A guide to outsourcing HROutsourcing HR makes sense for businesses that are too small to have their own inhouse manager. However, you need to be clear about what you need from the outset to avoid a one-size-fits-all approach

Dom Walbanke

Dom Walbanke

Dom Walbanke is a feature writer for Growth Business and Small Business, focused on matters concerning start-ups and scale-ups. He has also been published in the Independent, FourFourTwo magazine and various...

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