Article
13 minutes
HR Challenges Small Businesses Face and How to Approach Them
Global HR
Author
Lorelei Trisca
Published
September 26, 2024
Last Update
October 09, 2024
Table of Contents
Factors leading to HR challenges in small business
HR challenges small business face
Deel Engage enables small businesses and their people
Key takeaways
- Small businesses often struggle to compete with larger companies for top talent. Learn strategies to improve recruitment and retention.
- With limited resources, small businesses can streamline HR processes using automation, clear performance reviews, and effective employee benefits.
- Foster a positive, inclusive workplace culture that supports employee well-being, development, and engagement, even in a remote environment.
Small business owners wear many hats and can often push HR issues aside while juggling other responsibilities. However, ignoring HR challenges can have serious consequences, including high turnover, legal penalties, and low morale. This article will highlight small businesses' most common HR challenges and offer actionable solutions to help you overcome them.
From attracting and retaining top talent to complying with complex HR regulations, we'll provide expert advice to help you keep your small business running smoothly and successfully.
Whether you're a seasoned small business owner or just starting, this guide will help you confidently tackle HR challenges.
- Attracting talent and finding the right people for the right jobs
- Retaining skilled employees
- Offering development opportunities
- Implementing effective training initiatives
- Lack of automation
- Implementing a fair performance review process
- Keeping up with employee benefits trends
- Data privacy and security
- Enabling managers to act as coaches
- Change management (and change leadership)
- Building a diverse and inclusive culture for a hybrid workforce
- Focus on well-being and wellness
- Managing remote & flex work
Factors leading to HR challenges in small business
Most human resource challenges are a result of six key facts.
Lack of solid culture and processes
Small businesses are often younger, so solid processes are often absent. This gap could lead to bad hires, higher turnover rates, and a lack of onboarding workflows.
Reliance on manual processes
Many SMBs still use 100% manual or paper-based processes, so they rely on spreadsheets, PDFs, etc.
Interestingly enough, from all participants in a UKG survey, 14% of organizations have all HR processes automated in a single system. In comparison, 15% use all manual processes.
Lean or no dedicated HR team
When you outsource your HR processes to non-HR staff or when a single HR specialist has to manage operations across the entire employee lifecycle, it can lead to burnout, bad hiring decisions, and inadequate human resource management.
Lack of or improper utilization of people data
The same UKG survey revealed that 29% of HR specialists are reactive rather than proactive towards people-related data. Meanwhile, 25% fail to use any people data at all.
Low budget
The lean budget that SMBs have also limit how much they can invest in their HR team and processes.
Fast-paced and fluid organizations
Most SMBs are fast-paced, requiring employees to take on multiple roles. This accelerated rhythm could increase employee frustrations and decrease productivity and turnover rate.
Career Management
HR challenges small business face
Attracting talent and finding the right people for the right jobs
The pandemic-led remote work frenzy is a pain to organizations globally. The desire to work from home and in a flexible workplace has businesses of all sizes competing for talented employees, with small companies suffering the most.
While branding helps companies drive sales and repeat business, it also helps to attract and retain top talents. New talents are naturally drawn to companies with positive employer branding. After all, one's employer can give them a sense of belonging and pride. Therefore, small businesses should invest in branding from day one.
Companies like Eventbrite, Chipotle, and PetSmart have used branding to attract quality talent. Diversify your recruitment process: Invest in tools that help source talents from different backgrounds, like Vervoe.
Tip: Avoid personal or corporate bias from your recruiting process.
Ensure team fit: Include culture-fit questions in your recruitment process and look for positive employee attitudes. It's easy to train people, but ensuring someone aligns with the values of a team or fits into your organization's goals is hard to influence.
Invest in a career page: Create a page that showcases your objectives, events, and culture to encourage talents to work with you. For example, we really like Shopify's career page.
Retaining skilled employees
Small businesses traditionally offer lower compensation compared to larger organizations.
Also, employees in small businesses often have to juggle more workloads and burdens, which can cause burnout and encourage the employee to look out for better positions.
25% of Achiever Workforce Institute survey respondents say they'll explore new organizations that offer better work-life balance.
Natasha Maddock, co-founder of Events Made Simple, shares how they retain employees. She says, "Ben, our co-founder and Event Director, will work alongside the rest of the team, hauling the equipment and setting up events, so there is a sense of comradery among our team."
Offer perks to existing employees. Giving gifts can make employees feel valued and cherished. They'll be more inclined to work with you (and invite their friends to join the company). They'll also leave good reviews about your company, which can help attract the right talent.
For example, Scott Kimberly, owner of a five-person law firm, gives his team members custom suits yearly.
- Recognize good work
- Employee engagement is an essential factor for retention.
More than 20% of employees in the Achievers report say under-appreciation of the contribution of their work is affecting their engagement. Other recommendations:
- Improve company culture
- Create employee handbooks
- Offer a better compensation plan
- Listen to employees' concerns and address them.
Discover employee retention best practices for keeping your best talents.
Offering development opportunities
Employees want more than a monthly training stipend. A significant investment in employee development can help drive business growth. If a person isn't developing or climbing the ladder towards career growth, they will find another job. But career progression might not be as easy in smaller companies unless they are in their growing phase.
Even if career progression is not possible, there is still room for competence development. Here are some solutions to overcome this challenge:
- Webinars and online training sessions: Webinars reduce training expenses, such as travel, venue, and accommodations. Keep the webinar interactive—include polls, share surveys, and allow employees to ask questions and provide answers.
- Enable mentorships: Pair new hires with senior executives. Executives should provide professional guidance and offer hard-earned insights to help new employees perform better.
- Embed learning and skill-building into employees' day-to-day experience: 85% of L&D experts expect to see more on-the-job learning through projects and gigs in the coming years.
Discover a collection of tips and methods to improve people's development at your company.
Implementing effective training initiatives
According to SHRM, 48% of employees say training opportunities are important when choosing where to work. But, small businesses have lean budget allocation and resources, translating into limited training offerings.
Here are some possible solutions to overcome this challenge:
- Go for quality but cheaper ready-made courses on essential topics such as cybersecurity, communication, and goal setting. Coursera and EdX are good places to start.
- Gather input from employees, find out what interests them, and find low-cost quality courses or mentorship for them.
Lack of automation
Small business owners and managers juggle multiple tasks, so automation often takes the backseat. In addition, because of the resources available, small businesses often have a one-person HR department. (Sometimes, they don't have any HR specialists at all.) This team handles various HR tasks, from payroll to recruitment and training, which results in burnout, low employee engagement, and discontent.
Here are some possible solutions to overcome this challenge:
- Identify the most consuming HR tasks—e.g., scouting for outstanding talents, onboarding, or recruitment—and start with that.
- Organize all documents in one place — this can save you headaches in the future.
- Choose the right solution: Choose software that solves your problems with the available budget. Ensure it's simple to use and has the potential to grow with your business.
Studies indicate that automation can decrease administrative costs by 30% for HR professionals and 49% for employers. Examples of HR automation include payroll management, attendance management, and benefits enrollment.
Implementing a fair performance review process
Performance reviews help to analyze employee performance. It also helps to justify promotions and rewards. But if your small business employs just a handful of staff, it can be challenging to create and follow complex bureaucratic procedures to appraise employees.
But performance management systems create the potential to be more efficient, structured, and purposeful, with far-reaching benefits. And that is something that your small business will definitely benefit from. Another challenge is that managers in small businesses may lack the training to provide empathy-driven reviews to employees.
Here are some possible solutions to overcome this complex challenge.
- Create an internal document with best practices for leaders and managers who give reviews. Giving an effective appraisal requires both management and communication skills to leave a positive experience for both parties.
Some tips you can include are:
#1 Managers should prepare well before the meeting.
#2 Make sure your company has a documented performance review process. Get clear on intentions, desired outcomes, and key areas you want to evaluate the employee on.
#3 Your managers should be empathetic from the get-go. They should show your people where they've done well and in which areas they are lagging behind.
- Discuss the corporate goals and allow employees to set developmental goals for themselves.
- If you issue a performance improvement plan, for example, clearly define areas that need improvement and provide resources to support the employee.
- Build a culture of open communication and feedback as a two-way conversation.
If performance management is entirely new to your people and leaders, everyone must be on the same page supporting your new approach. Deel Engage simplifies this alignment by offering training journeys.
Learning Management
Keeping up with employee benefits trends
MetLife shows that 55% of small business owners see their employee benefits as more important post-pandemic. But small business owners operate with a lean budget. As a result, they often neglect benefits packages. They're also less likely to give time off to employees because of their limited staff.
Here are some possible solutions to overcome this challenge:
- Create a benefits survey. Get creative and have your employee identify what they want. Offer benefits like meals at work, health insurance, flexible work hours, and paid time off. Ask them how you can be a great employer on low-stress days.
- Set clear standards: let them know when they may not be eligible for certain benefits. For instance, part-time members may not be eligible to paid-time-off.
Are you interested in discovering the latest employee benefits trends? Then, we have the resource for you, where we covered 12 trends in employee benefits.
Data privacy and security
Many small business owners think they are not attractive to cybercriminals. Hence they assign only a portion of their budget to data privacy and security.
Unfortunately, this misplaced priority makes them vulnerable to hackers and causes compliance issues.
Verizon's Data Breach Investigation Report finds that 46% of all data breaches impacted companies with fewer than 1000 employees.
Here are some possible solutions to overcome this challenge:
- Have employees install basic security software—antivirus applications. Also, install encryption and data backup systems (such as VMware backup software from NAKIVO). Ensure apps are updated regularly.
- Implement a Multifactor Application Program (MFA)—that allows users to enter a unique code when they want to log in.
- Educate employees on the hackers' access points to company information and how to shield themselves against them. Let them understand basic cyber attacks like DDos, APT, Phishing, Password attacks, and Ransomware.
- Enroll them in data security training covering key topics like
Enabling managers to act as coaches
In a small organization where everyone handles multiple tasks, it's also essential to have managers who can act as coaches because it boosts productivity and engagement. According to Gallup, great managers can boost employee engagement by 70%.
Thus, to become successful leaders, managers must master the art of motivating their team and acting as coaches.
Here are some possible solutions to overcome this challenge:
- Ensure that your senior leaders support new managers. Be invested in their personal development because it affects business growth.
- Regularly review company goals and ensure compliance.
- Set clear expectations for employees and offer constructive feedback.
- Learn to identify each employee's unique talents and strengths and build on their weaknesses.
We designed a micro-coaching program where managers can regularly learn about leadership techniques. You can try it for free.
Change management (and change leadership)
Most small business owners have a poor understanding of change management.
Here are some possible solutions to overcome this challenge:
- Invest in managers' change management education—change starts from the top.
- Get employees' buy-in on change—building a new culture, and adopting new skills, will not be successful without the people's side of change.
- Communicate the change to employees—show them the purpose and benefits of change, prepare a plan or action, and how they can participate in the process. Use apps to share status and progress on a daily or weekly basis.
Building a diverse and inclusive culture for a hybrid workforce
In addition to insufficient funds and resources, small business struggle with implementing DEI (diversity, equity, and inclusion) due to their structure. Small businesses often lack the know-how on where to start with implementing a diverse or inclusive workplace. They also don't have the budget to hire a chief diversity officer.
Here are some possible solutions to overcome this challenge:
- Provide managers with ongoing support—offer DEI training and education to enable them to perform at their peak and implement successful DEI initiatives across the organization.
- Create concrete policies that allow DEI to be pushed into daily conversations. Policies can include staffing routine practices, leadership, appointing managers, etc.
- Address bias hindering inclusiveness and take meaningful steps to ensure employees from diverse backgrounds and gender are treated fairly.
Learn how to promote workplace diversity, equity, and inclusion.
Focus on well-being and wellness
In small businesses, the workload is high on each employee, mostly leading to burnout. And because of the small startup workforce, unpredictable working hours affect employees' mental health or lead to burnout.
When Gallup asked employees what they would prioritize when working with another organization, pay and well-being took the top spot. 61% crave work-life balance—they want to choose when, where, and how to perform their jobs.
Here are some solutions to overcome this challenge.
- Instead of offering health insurance, build a culture of total health—avoid allowing employees to work for unreasonable hours and give sick leave and parental leave.
- Leaders should live by example—don't send work messages to employees by 4:00 am asking for unreasonable due dates, and tell them to go home to families at the appropriate times.
- Build an environment that supports healthy living—implement laws against smoking or drinking beer at the workplace, and curate healthy food supplements at lunch.
- Build a healthy culture by:
-> Checking in on employees regularly.
-> Encouraging employees to take breaks when they are feeling tired.
-> Providing opportunities to bond with colleagues outside of work.
-> Looking out for poor health practices and warning against them.
Managing remote & flex work
Offering employee benefits is an issue for small businesses hiring remote teams because the employee's location determines the workplace policy. Also, onboarding employees to apps can take several weeks for smaller businesses than larger companies with a better workflow.
Then, getting new hires up to speed is often difficult. For instance, shipping the company's physical tools like laptops to new hires is always a big challenge for HR and IT teams, especially when the new hire is in another country.
Here are some possible solutions to overcome this challenge:
- Use good management apps to streamline your remote onboarding experience.
- Provide flexible working hours. Be open to adjusting workflow as long as employees complete the task at hand in the required quality.
Learn how to be a great remote leader, overcome challenges and inspire your team.
Deel Engage
Deel Engage enables small businesses and their people
Deel Engage is a holistic HR solution for small business owners to tackle their HR challenges and enable a satisfied, engaged, and productive workforce:
- Help your people gain the skills and knowledge they need to succeed in their roles and contribute to the organization's goals with the vast external training library—you can also embed your internal training resources.
- Automate everything from preboarding and new employee training to probation period reviews and goal setting with onboarding workflows
- Set and track departmental, team, and individual goals, aligned to the larger organizational goals.
- Create recurring feedback cycles to ensure your people meet the expectations of their roles and work towards the organizational goals
- Create and communicate career pathways for everyone transparently so that everyone knows how they can grow as the company scales
- Define individual development plans—take advantage of the AI assistant that suggests action items based on the worker's career path, competency model, and past feedback
- Continuously measure well-being, remote engagement, and more with automated surveys
In addition, Deel HR, our truly global HRIS solution, is always included for free. Use it to compliantly manage your workforce, regardless of worker type and location.
Grow your people and your business with Deel. Get started with a free demo and consultation with our team.
About the author
Lorelei Trisca is a content marketing manager passionate about everything AI and the future of work. She is always on the hunt for the latest HR trends, fresh statistics, and academic and real-life best practices. She aims to spread the word about creating better employee experiences and helping others grow in their careers.