A small business owner’s guide to HR management

Your employees are your organization’s most valuable asset. Your approach to protecting, developing and engaging them – otherwise known as HR management – impacts company performance.

Getting that right is how you’ll attract and retain top talent, create a peaceful work environment and avoid costly legal penalties.

In this article, we’ll explain the role of HR management in running a small business and show you what goes into a successful HR management strategy.

What is HR management?

Human resources management is the practice of recruiting, developing and managing employees to help the organization achieve its goals.

Also called HR management (or HRM), it involves a range of activities like:

• Hiring and onboarding

• Employee training and development

• Employee relations

• Documenting company policies

• Managing employee performance

• Ensuring compliance with employment laws

Many companies have HR managers who lead this function, and larger organizations have entire teams dedicated to it.

Small business owners are more likely to take on the responsibility themselves or outsource it to a third party. We’ll discuss the differences between these options (and the value of getting support) later.

Regardless of business size, HR management’s goals are fostering a safe and comfortable working environment, optimizing employee performance and supporting the overall business strategy.

The benefits of effective HR management

You’ll improve productivity, employee satisfaction and overall efficiency by aligning HR management practices with business goals.,

Those benefits are especially valuable early in your business journey since they aid faster, more sustainable growth.

Here are the key outcomes of effective HR management in more detail.

Supports employee development

HR management includes identifying employee training needs, building development programs and facilitating career advancement.

These activities are key to running a small or growing business since they make the workforce more effective. However, managing development without a dedicated HR function can be challenging as your team expands.

Building regular performance reviews into your small business HR management strategy will identify competencies and areas for improvement.

Arranging relevant training sessions, workshops or education can boost sales skills and knowledge, strengthen your organization and facilitate growth.

Employees also have more job satisfaction when companies invest in their development.

In one LinkedIn study, seven in 10 respondents said learning makes them feel more connected to their organization, and eight in 10 said it adds purpose to their work. It means you’ll retain talent longer, which reduces hiring costs.

Fosters a healthy organizational culture

Establishing HR management policies that promote respect, empathy and inclusion early in your growth journey will help you build a small business that customers want to buy from and employees want to work for.

Capgemini found that 77% of consumers are concerned about the fair treatment of workers. Meanwhile, Boston Consulting Group reports that employees who work in inclusive cultures are significantly happier than those who don’t feel included.

The extra business you’ll win and the top talent you’ll attract will ultimately help your company’s long-term success as you expand.

For example, McKinsey found that businesses with the most gender- and ethnicity-diverse executive teams (i.e., those with inclusive HR management policies) are 39% more likely to experience above-average profitability than their less-diverse peers.

Regular team-building activities and open communication channels also contribute to a cohesive and motivated workforce. Both are typically the responsibility of an HR manager or HR department.

Aids the recruitment (and retaining) of top talent

Well-refined HR management streamlines recruitment activities, from creating compelling job descriptions to conducting thorough interviews.

YouGov found that “increasing staffing” is the fourth biggest priority for small business owners. Optimizing this critical process will help you achieve goals faster.

Key priorities for small businesses in 2024 include expanding/remodeling, investing in new technologies and increasing marketing spend and staffing

Which, if any, are your top priorities for your business in the next year (from January 2024 onward)? Please select all that may apply (% of small business owners)

Applicant tracking software (ATS) is key to speeding up hiring processes. It centralizes recruitment data and automates repetitive tasks, freeing time for other important business and HR functions.

HR managers can also develop competitive compensation packages and employee benefits to attract quality candidates. PageExecutives found salary to be job-seekers’ biggest motivator, ahead of flexibility.

Talent Attraction Index (Top 10)

Relative strength of motivators that attract the best talent

Protects the business

HR management involves ensuring compliance with employment laws and regulations, which can be difficult for a busy small business owner to manage.

Work in this area includes maintaining accurate employee records, adhering to labor laws and managing workplace safety. These are vital activities, given that the U.S. Department of Labor (DOL) issues penalties worth thousands of dollars for non-compliance.

For example, an HR manager or team can implement policies that comply with health and safety regulations, minimizing the risk of workplace accidents, protecting staff and avoiding DOL penalties of more than $70,000.

Standardizing handling employee grievances and disputes can also prevent lawsuits that halt your growth. It might involve offering mediation services or implementing formal complaint procedures.

When is the right time for a small business to invest in HR management?

Even if you only employ a few people and can currently handle basic HR activities on your own, the many responsibilities (legal and otherwise) can overwhelm even the most organized of small business owners.

For example, you may be able to track when two employees are taking vacation time, but the more people you hire, the harder it will be. You’ll have contractual and legal obligations to meet, especially if you employ people in countries with laws governing personal time off (PTO).

Even if you’ve been managing on your own up until now, there are signs you need expert support:

• Company growth. Rapid expansion can overwhelm your current HR capabilities, especially when you’re preoccupied with day-to-day operations, causing you to miss compliance issues and cut corners on essential tasks.

• Increasing employee numbers. Hiring more people, a crucial part of small business growth, means an increased workload and more sophisticated HR processes.

• Complex people management issues. Dealing with workplace conflicts, grievances and legal compliance can be time-consuming and mentally draining for one person, especially in a small business where the owner works closely with their employees.

When one or more of these is apparent, it’s time to revisit your HR management strategy.

HR management for SMBs: in-house vs outsourcing

When you’re ready to invest more in HR management for your small business, you have two options: hiring an in-house HR professional or outsourcing to an HR management services provider like HiBob or BambooHR.

The right route for you will depend on your budget and circumstances. To help you decide, here are the key benefits of each option:

For further inspiration, ask your peers about their human resource management approaches. More established small business owners can explain what’s worked for them and what they’ve learned along the way.

Building an HRM strategy: what to consider

Your vision and understanding of the company’s unique needs make you the best person to steer HR initiatives, regardless of whether you’re leading your human resources department or outsourcing to a third party.

You’ll want to cover all these when planning your HR management strategy.

Talent acquisition

Even if an HR manager or partner will take charge of creating and distributing job ads, they still need to know how you see the company structure and what you expect from each position.

Start by defining clear responsibilities for all roles, including any new ones you’d like to create within the next 12 months.

For example, if you’re planning to hire a new marketing manager, list specific duties like building strategies, managing social media campaigns and analyzing market trends.

Here’s how those duties could look in a job ad:

Next, specify essential skills, like proficiency in digital marketing tools, excellent communication and project management experience.

Lastly, to cover all roles, describe the company culture, growth opportunities and any unique benefits your company offers.

In the end, you’ll have a series of comprehensive profiles to help you or the HR manager find candidates who fit your company perfectly.

Employee professional development

With each role defined, you can plan for development for current and future employees. Highlight the skills and qualities most valuable to each position and list relevant training opportunities.

For example, knowing that project management is a crucial skill set for your marketing manager, you could find courses and certificate programs you want to make available to new hires.

It means anyone considering the role can see the potential ahead of them, making them more likely to apply. After all, career progression was the third-biggest motivator among candidates questioned in the PageExecutives survey.

For non-managerial roles, give employees and candidates a preview of their potential career path with your company. A junior graphic designer, for example, will likely want to know which positions they could work toward and what kind of training program will help them get there.

Performance management

Effective performance management ensures employees fulfill their responsibilities and contribute to business success.

When building your HR management strategy, you’ll want to answer two questions for each position in the company:

• What does good performance look like?

• How will you measure performance?

Knowing the answers to both will help you set realistic expectations for your staff, plan meaningful sales goals to aid growth and establish clear accountability across the business.

For example, good performance for a sales rep at your business could mean generating 10 new leads per month, closing two sales and maintaining active relationships with customers through follow-up emails. Those key performance indicators (KPIs) are measurable through metrics like conversion rate and customer lifetime value (CLTV).

Also, determine how you’ll source the necessary data. For instance, you’ll likely need a sales customer relationship management (CRM) system to track conversion rates and CLTV. For lead generation, you can track click-through rates on a newsletter using email marketing software.

Compensation and benefits

A competitive compensation and benefits package is essential to attract and retain top talent, so research industry standards and determine what you can offer for each role.

Salary is important but not everything. Additional benefits can sweeten the deal for prospective new employees and keep existing staff engaged.

Alex Alonso, Ph.D., chief knowledge officer at SHRM (The Society for Human Resource Management), said in a press release:

According to a Forbes Advisor study, the five most desirable employment benefits are:

1. Employer-covered healthcare

2. Life insurance

3. Pension and retirement plans

4. Mandatory paid time off

5. Mental health assistance

Other less traditional benefits can also be attractive, especially those that enhance workers’ personal lives. Remote working policies, four-day work weeks and personal development allowances are all popular, for example.

Once you’ve built your packages, review and adjust them regularly to reflect market changes and business growth. It’ll keep staff happy and engaged, increasing retention.

Legal compliance

Ensuring legal compliance means following labor laws, maintaining accurate employee records and ensuring workplace safety. All three will help you protect staff while avoiding government penalties. If you’re hiring an HR manager or outsourcing to a third party, they’ll help you understand the relevant systems and stay compliant.

However, as a business owner, you must ensure that the right infrastructure is in place, including suitable software and record-keeping systems.

For example, a reliable CRM system will be invaluable. Having somewhere to store and protect all your employee data means you can handle audits easily and make talent management decisions quickly.

Choose software with robust security features like two-factor authentication (2FA) and access permissions. Otherwise, you put your company at risk of data breaches that will damage your reputation before you’ve had a chance to grow.

Internal conflicts

Handling internal grievances well is crucial for creating a positive workplace environment and minimizing legal risks.

Building conflict resolution into your HR management strategy means clarifying what constitutes a grievance and how you’ll address or resolve those issues.

Answering these questions will help you create a fair and transparent process to address issues promptly and appropriately.

For example, grievances can include complaints about:

• Bullying

• Workplace harassment

• Unfair treatment

• Discrimination

• Hazardous conditions

You could introduce a dedicated form for raising problems or encourage employees to schedule meetings with their managers, who can document and act on complaints using an HR tool.

In some locations, mechanisms for reporting such issues are a necessity.

For example, the Fair Employment and Housing Act (FEHA) requires California businesses to have formal procedures for handling complaints about discrimination, harassment and other workplace issues. New York’s Human Rights Law mandates something similar.

Software for HR management: 3 tools for support

Incorporating the right software into your HR management strategy can streamline processes, increase productivity and help you achieve goals faster.

Choosing from a busy tech market can be daunting, especially on a small business budget, so here are three essential HR management tools you’ll need to invest in first:

1. CRM software

CRM software typically manages customer interactions and sales processes, but a system with the right features can also be valuable in HR management.

A versatile CRM tool can track employee performance, manage internal interactions (which are critical to strong labor relations) and store important data securely.

Pipedrive’s intuitive and customizable dashboards help you easily track your employees’ activities and performance. For example, here’s what you could see when monitoring the sales team:

CRMs like Pipedrive can also help with recruitment, allowing you to store resumes with contacts, group candidates by interview stage and more.

What to look for in a CRM for HR management

You’ll want a CRM that can act as a central reference point for customer data, report on employee performance and automate routine tasks.

Some CRMs can even help with other parts of your business besides HR, like email marketing or project management.

Choose a CRM that integrates well with other tools in your tech stack like:

• Accounting software (e.g., Xero or QuickBooks)

• Communication tools (e.g., Teams or Zoom)

• Project management platforms (e.g., Asana or Trello)

Your chosen application should also offer robust security measures to protect sensitive employee information.

Along with the two-factor authentication and access controls mentioned above, look for recognized security certificates like SOC 2, SOC 3 and EU-US Data Privacy Framework compliance.

2. Human resource management software

Human resource management software (HRMS) and human resource information systems (HRIS) are applications designed to handle HR tasks.

Employee management software platforms like Workday provide simple solutions to manage employee records, payroll, benefits administration and compliance.

Here’s what Workday’s “People Analytics” feature looks like:

Like a CRM, HRMS tools can automate business administration to free time for strategic planning. They also offer analytics and reporting features that help you gain insights into workforce trends, employee turnover and other key metrics, allowing better decision-making.

What to look for in a dedicated HR management system

Ensure your chosen tool can support the entire employee lifecycle, from recruitment to retirement. You’ll need intuitive data management capabilities, compliance tracking, payroll integrations and benefits administration.

3. ATS systems

ATS is essential to streamline staffing processes. You or your HR manager can use tools like Greenhouse, Lever and Jobvite to manage hiring workflow, from posting job openings to onboarding new hires.

Lever, for example, maps the process in a pipeline view – much like a sales pipeline:

By helping you track candidate progress, schedule interviews and communicate with applicants efficiently, ATS will get new staff relationships off on the right foot and set strong foundations for long-term employee engagement.

What to look for in applicant tracking software

Prioritize features that streamline the recruitment process, like automated job posting, resume parsing and candidate scoring.

Ensure the software you’re considering integrates with job boards and social media channels like LinkedIn. Sharing candidate data across platforms increases efficiency.

Final thoughts

Investing in effective HR management is crucial for any small business owner targeting growth.

By understanding HR fundamentals, building a thoughtful HRM strategy and leveraging the right HR management software, you can create a supportive work environment that allows your team to thrive.

The results? Easier recruitment, increased productivity and sustainable success.