The ten most common HR challenges for small businesses

Here, we look at the top ten most common small business HR challenges, and what you can do to overcome them

For significant business success, you generally can’t go it alone. You need advisors, mentors, customers, suppliers and often, staff. However, a lot of business owners are terrified of taking on employees because of the additional challenges which they bring.

At the end of the day, there is nothing which stops an employee bringing an employment tribunal against you, so you have to approach life as an employer with the view that you will always do the right thing and give yourself the best possible chance of winning in an employment tribunal should you be unfortunate enough to end up in one.

However, by doing the right thing – and looking after the needs of you, your business and your staff – you will end up with a more successful business.

So, what exactly are the HR challenges keeping employers up at night at the moment?

#1 Recruitment

Attracting and hiring the right people has always been difficult, but since Brexit and Covid, many businesses are finding this even more of a struggle. As a small business owner, you often need to compete with larger companies for top talent, so you need to think differently. There are several approaches you can take but one which many companies are now using is to hire for attitude and train in the skills you need. As long as you don’t need specific qualifications from day one, find the people who buy into what it is you do and have the ability to learn and train them up.

#2 Retention

Once great employees are onboarded, retaining them is your next challenge. People need good salaries which they can afford to live on. Beyond that, how you treat them, manage them, recognise them and reward them is what will make them chose to stay. Get this right and your retention will significantly increase. People don’t leave bad companies; they leave bad bosses.

#3 Compliance with employment laws

Small business owners often lack the time or expertise to fully understand complex employment laws and regulations. This can lead to costly mistakes or legal issues.

Making sure you have good quality HR advice which is specific to your company is essential. Off-the-shelf documentation, policies and procedures are never going to be right for your business because they won’t reflect your goals, values and culture. They will give you the minimum legal requirements. To enable you to recruit and retain the right people, you need your policies and procedures to support you.

To ensure you become and remain compliant with the ever-changing employment legislation, case law and best practice, make sure you have the best possible HR advisor supporting you and your business and let them do the heavy lifting on this one.

4. Employee development

Small businesses may struggle to provide their employees with development opportunities and career progression paths, which can impact employee satisfaction and retention.

There are a few ways you can combat this:

  • The first is to actively engage with your employees about what they want and continue to stretch them within the business
  • Plan your business growth in advance and ensure that if someone leaves, there is someone internally you can promote and develop – don’t block career paths
  • Offer external training courses and opportunities and ensure that you enable them to bring those skills back into the business

#5 Managing employee performance

Small businesses often lack formal processes for managing and improving employee performance. Business owners and employees can get frustrated if the employee is not delivering, but the business owner has not set expectations.

While an annual appraisal process may be too big and clunky, you should create time on a monthly or quarterly basis to step off the rat wheel and discuss goals, objectives, issues and opportunities. Try to keep away from going through the ‘to do’ list. Focus on the bigger items which will really move the business forward.

#6 Equality, diversity and inclusion

Promoting a diverse and inclusive workplace can be challenging for small businesses, especially if they lack the resources to implement robust diversity initiatives or they have such small numbers of employees.

Being able to embed a philosophy of EDI in your workplace may be just what your business needs to tap into an additional pool of talent for recruitment purposes, to ensure loyalty for retention purposes and give you opportunities to develop staff to their maximum potential.

Don’t be scared of EDI. How can you fully embrace it and make it work for you, your business and your staff?

#7 Employee engagement

Employee engagement is different from motivation. It is defined as the extent to which employees invest their cognitive, emotional and behavioral energies toward positive organisational outcomes. An employee may be motivated to come to work for pay, but to actually be engaged they need to be truly invested in the business.

Maintaining high levels of employee engagement can be difficult, particularly when resources are stretched thin. However, being small also gives you opportunities to increase employee engagement if you do the right thing by your staff and take them on your business journey with you.

#8 Adapting to remote/flexible/hybrid working

The Covid-19 pandemic has led many businesses to adopt remote work, which can present a range of HR challenges, from maintaining productivity and communication to supporting employee wellbeing.

For some businesses the change was permanent, but for others it was only ever temporary. However, many business owners are now struggling to get their staff back into the workplace. As a business owner you need to take an objective look at what your business needs and how it can be achieved. Would flexible or hybrid working be effective? Would it enable you to recruit and retain the right people? Would it increase employee engagement and thus productivity? For some the answer is no, but for some, the answer may be yes.

If you are changing working conditions such as place of work, remember this is a contractual change and needs to be discussed, agreed and documented.

#9 Health and safety

Ensuring the health and safety of employees is a crucial concern for small businesses.

Employers of all sizes have a legal duty to ensure a healthy and safe working environment. This is both physical and psychological health and safety. This also extends to any time the employee is taking part in an activity because of their employment. This could be an external training course, a fundraising event, a networking event or a drink down the pub after work.

The duties on employers extend beyond the normal working week in the office and now include the prevention of harassment and specifically sexual harassment.
Employers must ensure that they take all reasonable measures to protect their employees, and this can be done through appropriate policies, procedures, training and communication.

#10 Balancing HR and business needs

As small businesses grow, the demand for HR-related tasks increases, but there may not be sufficient resources to hire a dedicated HR professional. This can lead to the owner or other employees being stretched thin trying to manage HR tasks on top of their regular duties.

An HR system is a great place to start. There are hundreds of systems around today and some of them are easy to use, affordable and very time efficient, enabling you to comply with your legal obligations as well as manage your staff effectively.

Another option is to use an HR consultant as and when you need them. Just like engaging with any other supplier for your business, make sure they are experienced, qualified and really get you and your business. Set clear expectations and manage them as you would the rest of your employees. They are there to enable you and make your business go faster. They should never say “No”, or just “Let’s do it this way”. Your approach to risk will be important too and make sure you are working with someone who understands that.

Further reading on HR

  • The Small Business guide to HR – To be ready for any HR surprises the business world throws your way, keep the advice in this guide within easy reach
  • A guide to outsourcing HR – Outsourcing HR makes sense for businesses that are too small to have their own in-house manager. However, you need to be clear about what you need from the outset to avoid a one-size-fits-all approach
  • Small business managers consumed by HR functions – Business decision makers within SMEs are spending up to ten hours a week on hiring and related activities, on top of the demands of their own job role, research finds

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Donna Obstfeld

Donna is Managing Director of D O H R Ltd., an HR specialist and business coach.

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Small Business HR

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