5 Key Reasons Why Small Businesses Need HR

For many small business owners, human resources is an afterthought. Between managing day-to-day operations, business development, finances and everything else that goes into running a company, few resources remain to invest in strategic “people management”.

However, human resources serves a crucial function for any growing organization – supporting and empowering the talent that drives growth. Even small teams need HR policies and best practices around critical areas like:

  • Recruiting and onboarding
  • Training and development
  • Compensation, payroll and benefits
  • Company culture and employee engagement
  • Adherence to employment laws and compliance

So What Exactly is Human Resources?

HR refers to the department, systems, and personnel responsible for managing all employee-related affairs in an organization. While often associated with large corporations, even small businesses need to think about finding and nurturing talent, creating a positive work culture, and staying compliant with labor regulations.

Let’s explore some key reasons why even small businesses need to focus on human resources and how technologies today make it easier than ever.

Attract and Retain Top Talent

With unemployment rates continuing to decline post-pandemic, the competition for great talent is higher than ever across every industry. This represents a particular challenge for smaller companies trying to attract candidates when competing with bigger brand names boasting generous compensation packages and elite benefits.

Luckily, today’s top candidates prioritize purpose, growth opportunities, and culture fit over pay and perks alone. This means small businesses can compete by promoting their vision, career development potential, and distinctive company values that talent finds compelling.

HR plays a lead role not only in employer branding and running recruiting campaigns but also shaping the end-to-end hiring processes and onboarding programs that attract, engage and ultimately retain the very best people.

Cultivate a Standout Company Culture

One of the best ways smaller businesses can differentiate themselves is through an authentic, vibrant company culture that connects employees to the organization’s purpose and values. HR initiatives – from mapping core values to launching employee resource groups to celebrating wins big and small–help cultivate team spirit and morale.

Highly engaged teams demonstrate more productivity, creativity, loyalty and satisfaction. A well-defined people-first culture also helps attract talent who identify with the organization’s shared beliefs and ideals. Rather than just a feel-good bonus, company culture fueled by HR becomes a key competitive advantage.

Invest in Skill-Building and Career Growth

In today’s ever-evolving business landscape, an emphasis on continual learning is non-negotiable. Workers across generations prioritize career development opportunities, hands-on training and skill-building over any other benefits.

HR not only facilitates learning programs but also helps managers set clear goals, provide regular feedback, and discuss advancement opportunities with their reports. Even if training budgets are limited, HR can provide guidance and structure for everything from mentorship initiatives to stretch project assignments.

An investment in elevating employees’ capabilities ultimately pays dividends in higher performance, readiness for added responsibilities, and tenure in their roles. This leads to reduced turnover costs and loss of critical expertise and institutional knowledge.

Maintain Compliance and Mitigate Risk

Navigating the complex patchwork of federal, state and local employment laws represents a disproportionate burden for HR departments of any size. However small growing companies with new hires also need to ensure compliance in areas like:

  • I-9 verification
  • Discrimination and harassment policies
  • Leave management
  • Pay equity
  • Overtime pay
  • Reasonable accommodations
  • Employment arrangements

Even a minor infraction can result in fines or lawsuits. Beyond legal penalties, non-compliance erodes employee trust and company culture. A focus on maintaining ethical, equitable HR practices also represents a key element in minimizing overall business risk.

Leverage Modern HR Technologies

Historically HR duties like recruiting, onboarding, payroll, compliance reporting, etc. created disproportionate overhead for smaller teams. However, today’s technologies transform HR operations with powerful self-service platforms, automation and advanced analytics.

Key innovations include:

  • Online talent platforms like Indeed, ZipRecruiter and LinkedIn streamline candidate sourcing and outreach
  • Pre-employment assessment tools analyze skills, culture fit and preferences to surface best-fit hires
  • Onboarding software like Gusto guides new hires through paperwork, company information access and equipment allocation
  • Performance management systems facilitate goal setting, regular feedback, development plans and fair reviews
  • Employee self-service payroll and benefits platforms like Zenefits, Rippling or Justworks optimize enrollment while ensuring accuracy and adherence to labor regulations
  • Pulse survey tools like Culture Amp capture employee sentiment to inform ongoing culture and engagement initiatives
  • People analytics provide retention risk insights along with metrics to diagnose productivity drivers and barriers

The bottom line? Today’s technologies eliminate administrative hassles for managers and business owners by automating essential HR capabilities, even for companies with limited headcount or budget.

In Summation

Human resources may feel like an unnecessary expenditure for bootstrapped small business owners simply trying to keep up with immediate demands. However, prioritizing HR represents much more than a compliance play or accessory capability.

Strategic people management serves a vital role in attracting and retaining the talent that drives growth; fuels financial performance through enhanced productivity, capabilities and employee experience; and mitigates overall business risk related to turnover, legal exposures and reputational damage.

Rather than an administrative sinkhole, robust HR infrastructure represents a crucial ingredient enabling small businesses to sustain rapid scaling towards their ambitious visions. The good news? Enabling technologies today make it possible to implement essential human capital management functions without exponential headcount or budget growth.