Seven HR Best Practices for Small Business Owners

Eric Mochnacz
August 1, 2023

As a small business owner, you are responsible for managing every aspect of your business.  As you scale and grow your workforce, building a strong human resources foundation is critical to success.  Not only do you need HR to manage human resources administration, but having a strategic HR partner who contributes to the ongoing growth of your business is critical to your small business’s success.  Committing to developing HR best practices is a significant investment of time and resources, but it yields positive results related to employee satisfaction, legal compliance, productivity, and business success.  Your ability to establish strong, strategic HR best practices early on supports sustainable growth and competitiveness in your industry.  

1. Streamline Hiring and Recruitment

In a competitive job market, your ability to move quickly to hire top talent is critical to workforce growth.  Savvy job seekers only have a certain level of patience when it comes to clunky or disorganized recruitment practices.  If your small business doesn’t have a streamlined hiring process, you may be missing out on your next great hire.  

For any business, but especially for your small business, recruiting best practice is moving quickly and efficiently through the different levels of the interview process.  Start with a clear, accurate, well-written job description outlining exactly what the person will be doing.  This attracts people with the right knowledge, skills, and experience to apply.  As salary transparency laws gain traction across the country, post the salary range in the job so as to not waste anyone’s time.  Once you’ve found people whose skills match the job needs through initial resume triage, you have a responsibility to keep them engaged in the hiring process so you don’t lose them.  Set clear timelines and expectations to enhance the candidate experience.  We recommend no more than three interviews, with people who will be working directly with the candidate, and using behavioral interview questions to evaluate candidates against objective, job-specific criteria and competencies.  A structured, data-driven and time-efficient recruitment process leads to better hires and a more productive workforce.  

2. Consider Diversity, Equity, and Inclusion

Committing to diversity, equity, and inclusion (DEI) efforts as a small business demonstrates the value you put towards a workplace where all feel welcomed, included, and empowered to contribute their best.  A commitment to DEI translates to developing a company culture that respects the uniqueness of each individual, within the context of their background, race, ethnicity, gender, gender identity, sexual identity, age, disability, or any other characteristic which makes them distinctive from the majority population.  

Diversity is the presence of individuals from different backgrounds.  HR best practices support implementing different strategies in your employee lifecycle processes to attract and retain a diverse workforce.  Equity is the promotion of fairness and impartiality in providing employees equal access to opportunities and resources throughout the organization while recognizing and taking action against systemic inequities through your policies and employee programs.  Finally, inclusion is the actions your company takes to make employees feel valued, respected, and heard.  An inclusive environment is one where employees can be their authentic selves without fear of reprisal, prejudice or discrimination.  

A genuine commitment to further DEI efforts benefits a small business in a number of ways.  By committing to diversity best practices in recruiting, you widen your talent pool.  A diverse workforce is conducive to greater innovation because you welcome diverse viewpoints which contribute to greater creativity.  Employees are more engaged and productive in inclusive workplaces where they feel valued, respected, and heard. DEI is currently a buzzword, but if you’re a company who is making a serious investment in your DEI efforts, you enhance your reputation in the industry, making you an employer of choice, with a strong employer brand.  

3. Proactively Plan Employee Retention Programs

When employees feel supported by the people processes at their organization, they feel connected and engaged at work, which increases employee satisfaction.  Satisfied employees are more likely to stay with your company.  As a small business, your HR efforts should not only focus on building your workforce but also on keeping them.  A best practice is developing recruitment and retention strategies and programs in tandem so they complement each other and are consistent for the duration of the employment relationship.  

Businesses actualize their employee retention programs differently.  Employers tend to cultivate strong company culture as an incentive for their employees to stay.  Company culture is how your employees feel about reporting to work every morning.  If employees have a positive outlook about the work they do for your company, they are more likely to stay.  Small businesses build a strong culture by implementing programs that contribute to employee career growth.  They invest in employees because employees invest their time into the business. 

Retention programs may be realized as a retention bonus where the company pays employees when they reach a certain tenure milestone.  Some companies reward tenure by adding additional days to employee PTO packages at specific anniversaries.  Career pathing and promotion opportunities are other effective retention programs.  Outside of long-term retention strategy programs, employers can strive to create a positive working environment and partner with HR to build comprehensive, innovative employee lifecycle programs that support employee satisfaction and keep employees connected and engaged with their work and in your business.

4. Invest in Learning and Development

Aligned with retention, employees want to know their employer is willing to contribute to their long-term growth.  Small businesses do that by opting to build their talent rather than buy it.  By investing in learning and development, you are saying to your workforce you want to help them learn and avail themselves of career growth opportunities.  By growing talent internally, you don’t need to go to market every time a job becomes available, but rather, you can pull from your current workforce and contribute directly to their career progression.  This goes a long way in employee retention and building an employee base who is committed to the long-term success of your small business.  

5. Implement Employee Evaluations with a Focus on Performance Management

Employees want to know their employer is committed to continuous performance management.  As a small business, you have the opportunity to provide direct, tailored feedback to your employees because your workforce is still small enough to do so.  As a company scales, establishing what “good looks like” in the early stages ensures the same behavioral expectations are cascaded throughout the organization.  As a small business founder, introducing performance management and clear expectations early on means as the organization scales, and you move further and further away from the day-to-day, the same high-performance expectations are upheld.  You have a unique opportunity to demonstrate and expect excellence from your first employees, and as they grow in the organization, they continue that tradition of excellence when they have teams to manage.  

Performance Management isn’t effective when it is a once-a-year event, where an employee fills out a form with arbitrary number scales that gets filed away by HR.  Rather, you want to cultivate a workplace culture where feedback between employees and managers is encouraged, and it’s all done with a focus on continuous improvement.  Although there may be quarterly, bi-annual or annual formal performance discussions, those meetings shouldn’t be the only time managers give feedback to their direct reports.  Institute HR best practices that contribute to an environment where employees regularly know where they stand and are provided opportunities to further develop their strengths and overcome any obstacles to success.  

6. Be Deliberate About Compensation and Benefits

Compensation influences behavior.  The behavior you acknowledge through compensation is the behavior you will get.  As you build your small business, understanding your pay philosophy and having a data-driven compensation structure, based on benchmarking and internal equity, sets a deliberate foundation for how you will pay your people now and in the future.  Making arbitrary pay decisions may seem like an effective way to get people on board, especially if you are throwing gobs of money at them, but pay practices like that aren’t sustainable.  Clearly outlining how you pay people and how employees can grow in the organization, thus increasing their annual salary, is critical to building a sustainable business that isn’t bogged down by overinflated salary costs.

Having clear guidelines for base pay is one way small businesses are deliberate about pay, but you also want to consider incentive compensation.  Incentive compensation is pay that falls outside of standard base pay and is often associated with meeting goals or specific behavior.  The most common are end-of-year bonuses.  If you’re in a position to offer end-of-year bonuses, clearly understand how you’re funding the bonus pool and clearly articulate to your workforce the reasons behind the bonus, so they don’t expect the same amount (or more) year over year.  The whole idea of incentive compensation is that it isn’t guaranteed and the company will only distribute it if certain criteria are met.  Incentive compensation programs allow you to compensate employees for certain business-aligned behaviors but don’t tie you to it should business conditions change.  

7. Create an Employee Handbook

It’s easy for small businesses to grow rapidly and develop policies and their approach to employee challenges or questions on an ad hoc basis because they just don’t have time to sit down and conceptualize how they want to approach persistent employee problems.  This leads to inconsistent and inequitable application of company policy to individual employees.  Not a best practice, but depending on the situation, this could open up the company to significant legal risk as well.  The best way to avoid this is by articulating company policy and practice in an employee handbook.  An employee handbook outlines the rights and responsibilities of the employee while affirming the company’s approach to common employee problems and questions.  An employee handbook serves as a guide for how employees perform and what they can expect from their employer.  

Invest in Human Resources for Your Small Business

As a small business, you may not be in a position to hire a full-time HR resource.  We get it.  A number of our clients are small businesses, and they come to us because they know they need HR, but they need to hire other critical resources first.  That’s how our outsourced HR support works.  We provide direct HR support to small businesses, and serve as a member of their leadership team, to drive the HR function forward.  And generally, we can do it at less of the cost of hiring a full-time HR professional.  We know investing in HR may not be a priority, but we also know that setting up your people policies and practices sooner than later provides an infrastructure for scale, especially as every business decision you make most likely affects your people.  If you’re ready to work with an HR firm with proven success in implementing HR best practices while still being innovative in our approach to people operations, send us an email.  

Photo Credit – Photo by Daria Nepriakhina 🇺🇦 on Unsplash

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