HR Issues Faced By Small Businesses

While it is certain that all organizations face human resource challenges, the issues faced by small businesses can greatlydiffer from those faced by a larger organization. In fact, although many of the same issues exist in larger operations, smaller employers must navigate through additional barriers because they frequently lack the benefits that come with dedicated human resource staff and resources enjoyed by their bigger counterparts. Managing a small business can be quite daunting to the owners who must wear many hats as they try to deliver results on everything from business development, to cash flow and operations. When employee issues are sprinkled into the mix, it can often feel overwhelming.

As I recall my work with small business owners trying to navigate through the unfamiliar and sometimes downright uncomfortable terrain of human resources, there are some definite trends shared by each operation. Although there are countless human resource challenges, I have decided to capture four reoccurring themes shared by the group of businesses I’ve personally observed and supported through my work over the years.

  1. Shifting from a small business mindset – There are some definite perks that come along with operating and working at a small business. Perhaps the most significant advantage is the small business owner’s personalized view of their workforce. Employees of small businesses enjoy the benefit of a family-like environment where the layers of management are minimal. As an organization shifts into a larger entity, the needs of the business change which eventually forces a different perspective. The employee-employer relationship transitions from a family-like arrangement into a strategic arrangement where resources must be scrutinized through a different lens to keep up with compliance changes and business needs. If not properly nurtured or kept in balance, this can lead to damaged relationships, the loss of key talent, and increased risk exposure.
  2. Lack of a dedicated HR team – Most small businesses lack the resources to justify a team of certified and trained human resource professionals. As a result, human resource responsibilities are often limited to transactional and reactive administrative duties performed by an administrative support employee who is doing their best to figure it all out on their own. In other small operations, human resource responsibilities are offloaded onto someone as an additional focus to their primary role in another area such as finance. When this occurs, liabilities and risks to the small business greatly increase as this oftentimes self-trained individual tries to navigate the complexities of payroll, benefits, recruitment and disciplinary action. An untrained human resource representative is forced to wing it when faced with advising owners on the best course of action for complex investigations, business implications from updates to health reform laws and employee engagement. This can often lead to a destructive end result.
  3. Regulatory compliance – Perhaps most importantly, having an untrained person can cripple a business’s ability to stay up to protocol when it comes to the latest laws, rules, and regulations. Small businesses are often unaware of the numerous federal and state employment laws to which they must abide. Specifically, laws governing areas such as non-discrimination, compensation, military leave, safety and immigration can easily be misinterpreted or completely unknown. This results in mistakes, unnecessary loss of resources and in the worst case, costly legal fines. The legal world is constantly evolving, and the lack of an experienced person keeping the business in compliance is crucial to avoid a costly fine, forced closing or bad publicity over something that could have easily been avoided.
  4. Lack of a succession plan – Since many small businesses operate with a core team of key leaders who have been there from the beginning, the thought of replacing these individuals is not readily considered. In fact, a recent study by the United States Small Business Administration found that three in five small businesses lack a succession plan. As a result, the protection provided by a well thought out and annually reviewed succession plan as experienced by many larger businesses with a human resource team is rarely realized by smaller businesses with a more insular mindset. Small business owners tend to work later in life and function at a hectic pace just to remain competitive. The time it takes to develop their exit plan or replacement frequently takes a back seat to immediate and urgent priorities. The development of a succession plan is a key component to keeping the business functioning and profitable amidst any planned or unplanned changes such as the sudden disability or loss of a key leader.

Although small businesses may face even greater human resource challenges than larger businesses, there are many resources to help smaller employers navigate through their human resource obligations. Websites such as and offer countless resources for business owners. There are also many software options that charge a monthly fee for access to tools that aid in various aspects of managing human resources. For more personalized expert support, there are organizations and consultants you can hire to outsource your human resource function with a formally educated and trained professional. You don’t have to figure it out alone.

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