Running a small business is no small feat. From managing day-to-day operations to growing revenue, the focus is often on immediate concerns, leaving human resources (HR) management on the backburner. However, neglecting HR practices can lead to costly mistakes that can derail even the most promising businesses. If you’re a small business owner, it’s important to recognize how good HR management can positively impact your company.
Here are the top 5 HR mistakes small businesses make—and more importantly, how to avoid them.
One of the most common and potentially harmful mistakes small businesses make is failing to keep proper HR documentation. Whether it's disciplinary actions, performance reviews, or even hiring records, documentation is key to staying organized and legally compliant.
Why This Matters:
When issues like poor performance, conflicts, or even legal disputes arise, inadequate documentation can leave you vulnerable. For example, if you need to terminate an employee due to ongoing performance issues but have no written records to back up your decision, you could face a wrongful termination lawsuit.
How to Avoid It:
Create a culture of documentation. Whether you're conducting performance reviews, issuing warnings, or holding important meetings, make sure you record all relevant details. Use templates for consistency and keep records organized, either in a paper filing system or, preferably, a digital HR management system. Remember, if it’s not documented, it didn’t happen—so document everything!
Another common pitfall for small businesses is neglecting to create clear, detailed job descriptions. Without them, employees may not understand their role fully, leading to frustration and underperformance.
Why This Matters:
Vague or incomplete job descriptions create confusion and misaligned expectations between employers and employees. This can lead to hiring the wrong person for the job, or having employees who don’t fully understand their responsibilities. Moreover, job descriptions can be critical in ensuring compliance with the Americans with Disabilities Act (ADA), as they outline the essential functions of the job.
How to Avoid It:
Make sure your job descriptions are up-to-date, specific, and clearly define the role's requirements—both physical and mental. For instance, if your role requires certain physical abilities (e.g., lifting heavy objects), state this clearly in the description. Also, include a statement noting that the employee must be able to perform these duties "with or without reasonable accommodation." During the interview process, reemphasize these job requirements to avoid misunderstandings later on.
Federal, state, and local labor laws are complex and ever-evolving. Many small businesses either fail to keep up with the changes or misunderstand the laws they’re required to follow. This includes wage and hour regulations, overtime rules, and anti-discrimination laws, to name a few.
Why This Matters:
Non-compliance can be a serious and costly mistake for small businesses. Penalties for labor law violations can range from fines to lawsuits. Even a simple oversight—like misclassifying an employee as exempt from overtime—can lead to significant financial consequences.
How to Avoid It:
Stay informed about changes in labor laws by subscribing to updates from reliable sources or using HR technology that tracks compliance for you. You may also want to partner with an HR consultant or service to ensure you’re meeting all your legal obligations. Regularly review your employment policies, pay practices, and worker classifications to ensure they comply with current laws.
A solid onboarding process sets the tone for an employee's entire tenure with your company. Unfortunately, many small businesses either skip formal onboarding or treat it as an afterthought. Likewise, ongoing training is often overlooked, leaving employees ill-prepared for their roles.
Why This Matters:
A poorly executed or inconsistent onboarding experience can leave new hires feeling lost or disengaged. In fact, studies show that organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. If employees don’t receive proper training upfront, they’re more likely to make mistakes, feel dissatisfied, and ultimately leave.
How to Avoid It:
Develop a structured onboarding program that covers the basics—company culture, policies, and role-specific training. Make sure new hires understand their responsibilities and provide them with the tools they need to succeed. Consider offering ongoing training opportunities to ensure your team is continually developing the skills necessary to perform their jobs well.
Small businesses often overlook the importance of employee feedback and engagement. With so many other pressing priorities, leaders may unintentionally ignore the signs of low morale or disengagement. Yet, failing to address these issues can lead to high turnover, low productivity, and a negative workplace culture.
Why This Matters:
When employees don’t feel heard or appreciated, they’re more likely to disengage from their work. This can lead to increased absenteeism, low productivity, and high turnover—all of which can negatively impact your business’s bottom line. Moreover, disengaged employees may also hurt company culture, which can make it harder to retain top talent.
How to Avoid It:
Create a feedback loop within your organization. Whether through regular one-on-one check-ins, employee surveys, or suggestion boxes, give your team opportunities to voice their opinions. Most importantly, take action on the feedback you receive. Employees will appreciate seeing changes made based on their input, which can improve morale and engagement. Make sure to recognize good performance and offer praise when it’s due to keep motivation high.
While HR may not always be top of mind for small business owners, getting it right is crucial to your company's success. By avoiding these five common HR mistakes—inadequate documentation, unclear job descriptions, non-compliance, inconsistent onboarding, and ignoring employee engagement—you’ll set a solid foundation for growth and sustainability. Prioritizing effective HR practices can not only keep you legally compliant but also help you build a more motivated, productive, and satisfied workforce.
If you’re unsure where to start or need help fine-tuning your HR processes, don’t hesitate to seek professional assistance. A well-managed HR system is one of the best investments you can make for the long-term success of your business.
CONNOR BOLEWARE, SHRM-CP
HR Advisor, HR Services
Connor is an HR professional with a passion for creating solutions that benefit people as well as business. He brings to Crescent and empact hr a wealth of experience in the healthcare / hospital space, where he managed recruiting and vetting, onboarding, compensation, FMLA, discipline, reengineered and systematized a performance management program for a 200-person organization, the employee life cycle, HR systems, and more.
He is a learner; he focuses daily on broadening his experience and expertise so he can have greater impact on his clients. His interests range from reading, researching health and nutrition, learning more about nature and sustainability, cooking, exercise, and connecting with people.