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The Biggest HR Challenges For Small Businesses

As a small business owner, human resources issues are one of the toughest challenges you will experience. While you have to work under the same rules and regulations of the more prominent companies in your industry, the simple fact is that you don’t have the budget to match. Many small businesses just can’t afford to hire an HR team, and their owners often deal with it all themselves.

It’s vital that you take your responsibilities seriously. The result of failing to address HR issues appropriately could signal the end of your business. With this in mind, here is a heads up on some of the many issues you might experience as a small business owner – and the impacts they could have.

The Biggest HR Problems Faced By Small Businesses


Let’s start with something that you might not even think about – hiring employees. Sure, you are likely to have good ideas on the best people for the job. But without an HR specialist on board, it can be tricky and time-consuming to create the kind of job description that helps you find the right person. It’s vital that you understand the applicant’s legal rights throughout the hiring process, and there are a whole bunch of laws that you must follow. Failure to do so could result in a nasty financial penalty – or worse.


Once you have started hiring employees, your responsibilities go through the roof. Ultimately, workers safety is entirely down to you, and if you don’t provide a safe environment and rigorous training, you run the risk of being sued. As any workers compensation attorney will tell you, there are somewhere in the region of 8,000 accidents in American workplaces every day – and 13 deaths. If you don’t have the right HR processes to run training sessions and guard against injuries, you could end up in seriously hot water.


Sadly, plenty of discrimination goes on in the workplace these days – and it’s vital you don’t allow it to go on in your business. If one of your workers complains of something like sexual harassment, racial discrimination, disability discrimination or any other harassment issue, it’s going to end in tears unless you are equipped to deal with it. Prevention is key, particularly for small businesses that can ill afford the cost of going to a trial or the impact on your reputation that such a case can bring about.

Employee arguments and conflict

Conflicts occur in all kinds of businesses, but the very nature of a small company means the impact can be huge. When people don’t get on in a large organization, it’s easy to avoid each other, but when everyone is working nearby, it’s a different story. Large corporations have an HR department to help sort out the issues and act as a mediator. When you are running things yourself, you have to be exceptionally careful that you remain neutral, professional, and don’t take any sides. If you make the wrong decision, or someone feels you have taken sides, you run the risk of legal action being taken against you.


For small businesses, managing payroll and filing taxes can be a time-consuming and challenging task. Small and mid-sized companies spend an average of $2,000 per employee each year to handle payroll. Proper bookkeeping and tax filing may be a hassle, but they play an integral role in the success of your business when it comes to avoiding compliance issues. The IRS found that 40 percent of small businesses incur an average of $845 in penalties each year, which can be a huge financial burden.


Favoritism is a real problem for small businesses. It’s easy to see why. After all, there could be a group of people working for you that have been there since day one – and you might be tempted to reward these loyal people with promotions or pay rises, while forgetting about the newer members of the team. However, this can cause untold problems. Not only does it create unnecessary tensions and encourage the development of cliques, but it can also damage your business. For example, you might promote someone based on loyal service, but they may not be equipped to manage people properly. You end up with an ineffective manager, and also lose a highly skilled worker in another area of your business. Be careful about favoritism, as it’s one of the things that could result in serious damage to your company’s reputation in more ways than you might think.


As a small business owner, the likelihood is that you won’t be able to match the paychecks of your larger, rival competitors. Your ability to remain competitive, then, will often rely on the benefits you provide employees, rather than the salary. There’s health insurance, life insurance, remote working opportunities and all kinds of other things that you could offer – but don’t forget, you also have to manage them. Without an HR representative, you’ll find that things can quickly get unruly, and it’s very difficult to keep everything under control. Confusion is more common than you might think, especially when your time would be better spent making money for your business.

Employee Benefits


When you have an HR team to rely on, the onboarding of new employees is a piece of cake. But when you are growing as a small business, it’s difficult to find the time to spend with newcomers without losing time in other areas of your business. In fact, many small business owners are happy to leave new workers with more experienced employees and just let them learn the ropes that way – but this can be counterproductive. All new workers need a lot of support and training when they start a new job, and it’s not much of a surprise to hear that over 40% of new employees leave within a year if they have had poor training. It’s vital that you lay out a proper plan for bringing new people on board, and also refine and update it over time.

Record keeping

If you are anything like the average small business owner, the chances are that your office is overrun with paperwork, files, and necessary documents. But when it comes to things like employee contracts, payment details and tax forms, it’s not really good enough to work in such chaotic conditions. Ultimately, you will pay the price for your mess and carelessness, and could even end up in dangerous hot water with the IRS or a court of law. Let’s face it, none of this stuff is super exciting, but it’s also incredibly important. The benefits of hiring an HR professional for your business are pretty clear when it comes to organizing your business issues.

Time Tracking

Depending on where you live, you’ll need to comply with local, state, and federal laws regarding vacation, paid leave, breaks, and overtime for your employees. Without a solid time tracking system in place, it can be difficult to ensure your employees are being paid fairly. Utilizing an online platform can help save time and energy for both small business owners and their employees.

Your Solution

There’s a lot to think about, and it’s also a big decision to bring in a professional into your business or outsource to a third party Payroll provider; especially when your margins are small. If you can manage it yourself, you will save money – but you have to keep those processes watertight and under control. Utilizing affordable Payroll and HR software can streamline processes, mitigate risk, and keep you compliant.

PayNortheast can help. PayNortheast offers simple and affordable Payroll, robust Timekeeping, and easy to use HR tools. Pay as little as you would like by only using the services you need. With PayNortheast, you get the best customer service coupled with industry leading human capital management (HCM) solutions, for less than you are already paying.



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