What Is The Function of HR in a Small Business?

The Milestone Team February 17, 2022
what does human resources do in a small business

Human resources, or HR, ensures that a business’s employees are onboarded, trained, and empowered to do their best work. Core HR services for a small business include payroll, compliance, talent acquisition, performance management, employee benefits administration, and learning and development. 

Why is HR important to a small business?

Whether you run a product or a service business, a good team and positive working environment are key to a successful business and employee engagement. Staffing issues can cause a huge business interruption for small businesses and headaches for business owners. When an employee quits, doesn’t show up to work, or isn’t properly trained, it could result in a key customer being lost or a retail location not being able to open its doors. This is especially true for full time employees, but it can also be true for part time staff. It is the function of HR to address, anticipate, and mitigate these concerns by supporting employees.

Because a founder or a small core team may run the day-to-day business functions, many small businesses don’t invest in the documentation of processes and knowledge that is needed to maintain business continuity in the event that one key employee is unavailable. However, If employees don’t feel valued or fairly compensated, they may underperform or leave to go elsewhere.

HR services are also important to keep companies in compliance with labor regulations and avoid potential lawsuits which could bankrupt a small business. Companies must comply with federal laws such as the Civil Rights Act, Equal Pay Act, and Americans with Disabilities Act, in addition to state and local employment law. Employment law often varies from state to state, so businesses will often need to remain compliant on a state-to-state basis if they have a remote workforce. Small businesses are exempted from some regulations applicable to larger businesses but still need expert guidance to make sure they are following changing laws.  

What Are HR Basics for Small Business?

According to HRMS World, even a small business must provide a few HR basics. First, a company must ensure a safe workplace for its employees, free from risk of injury, harassment, and discrimination. Second, each business must have a mechanism to manage employee job expectations and performance. Third, a company must manage payroll and benefits to ensure that its employees are paid on time and can access any provided benefits. 

Finally, HR in the small company setting must maintain employee records and any HR documents entrusted to the company.

HR Documents for Small Business

One basic HR function that every small business should do is keeping and safeguarding important employee information. Here are some HR documents that every small business should keep with a secure electronic backup with good HR software:

  1. Offer Letter or Contract. Depending on the employment type, you should keep a countersigned offer letter or contract that outlines the employment terms including compensation, benefits, and duration of employment if set.
  2. Legal Documentation. While this varies by state, some common required legal documents include an Employment Eligibility Verification (I-9), Federal Income Tax Withholding (W-4), and Request for Taxpayer Identification Number and Certification (W-9). 
  3. Health Paperwork. Documents like health insurance enrollment paperwork, employee emergency contacts, and worker’s compensation records are important to keep secure and confidential. Medical documentation that accompanies Family and Medical Leave Act Records (FMLA) and reasonable accommodation requests must also be kept confidential, and in some cases, cannot even be shared with that employee’s supervisor. 
  4. Payroll Information. Each year, your business is required to send out annual pay stubs and report income and employment taxes to the IRS.
  5. Employee Handbook. While not technically required, an employee handbook can be an invaluable resource for an employer as it lays out policies that protect the employer in an easily digestible manner. Employee handbooks for small businesses can be an invaluable resource to employees as well regardless of the size of the company. 

A note on storage requirements: not all of these documents should be stored in the employee’s personnel file. Any health information or medical records need to be kept separately and stored securely with limited access. 

There are many other recommended HR documents you may want to consider creating and maintaining such as a personnel file with compensation and employee performance reviews, organizational chart, and a business continuity plan. Documentation is a critical component of implementing and scaling good human resource management practices. 

How can HR help small businesses? 

When implemented with purpose and precision, HR services can help small businesses grow and thrive. HR is incredibly important to help avoid costly HR issues in small business, but it also takes care of the company’s most important asset: its people. Often, customers choose small companies because of the relationships that they have with the owner or staff and because of the outstanding service that they have grown to love. By investing in your people, you invest in your business . Good HR professionals in your business will foster company culture to help employees feel valued and empowered to do better work that helps the bottom line.

Let Milestone Help Your Small Business with HR Services

No matter your business size, Milestone believes you should have the expertise and resources worthy of your entrepreneurial journey. Milestone’s team of human resources and accounting experts is dedicated to helping small businesses succeed and create effective HR departments. Contact Milestone to learn how our HR managers work with small business owners and growing companies to achieve the best outsourcing results. 

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