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Avoid These 5 Small-Business HR Mistakes Not heeding these warnings can lead to costly mistakes, such as litigation and employee turnover.

By Andre Lavoie

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

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To be a successful small-business owner, you must master the art of juggling. Owning and managing a small business means having to take on multiple roles, from accounting to marketing to human resources. Unfortunately, having to juggle the tasks of various roles increases the likelihood of making mistakes.

It's easy for small-business owners to sometimes ignore the human resources side of business when things are running smoothly. However, doing so can lead to costly mistakes (think litigation and employee turnover) -- mistakes that could have serious consequences for small businesses.

Related: In Praise of the Stealth Leader: The Oft-Unsung Hero of the Office

How can small-business owners keep from dropping the ball when it comes to HR? Here are five of the most common HR management pitfalls small businesses face today (and how to avoid them):

1. The hiring process is overly hasty.

When it comes to hiring workers for a small business, mistakes are all too common. From poor job descriptions that attract less-than-stellar candidates to a hurried interview process that results in hiring "warm bodies," hiring mistakes can be detrimental to business. In fact, 27 percent of more than 6,000 HR professionals reported a single bad hire costing more than $50,000, according to a 2013 CareerBuilder survey.

These hiring faux pas often stem from having an overly hasty hiring process. The solution? Create a consistent interview process and stick with it. Start with an accurate, clear job description that aims to attract quality talent. Including the right information (must-have/bonus qualifications, job duties, company info, etc.), in a conversational tone is the key to weeding out unqualified candidates from the get-go.

One thing employers tend to overlook when hiring is interviewing for cultural fit. Ensuring a candidate will be a good addition to the company culture is just as important as having the right skills for the job -- especially for small businesses. Additionally, get more people involved in the interview process. The best hiring decisions are made as a team.

2. Employees are misclassified.

The Internal Revenue Service (IRS) has been known to target small businesses in an effort to find employers who misclassify employees as "contractors." To avoid the penalties that result from misclassifying employees for tax reasons, get familiar with what differentiates an employee from a contractor. In general, a person is only considered an independent contractor if they fit the following categories:

  • Behavioral: The company does not have control or the right to control what the worker does or how they do their job.
  • Financial: The company does not control the financial aspects of the worker's job, such as how the worker is paid, whether expenses are reimbursed, who provides work materials, etc.
  • Relationship: The company doesn't have written contracts describing the business relationship between both parties, does not provide the worker with employee benefits, etc.

Related: 5 Companies Tell Us How They Retain Their Best Talent

3. Employee handbook is outdated (or nonexistent).

To reduce employee violations, employers must have, update and communicate work-related policies. Businesses of all sizes need to have some form of an employee handbook. Not having company policies in writing is just asking for trouble.

Having an employee handbook isn't enough, however. The policies outlined in the handbook need to be updated on a regular basis and communicated often. What's more, employees should sign an acknowledgment form stating that they have read and understand everything in the handbook.

4. Employee training takes a backseat.

When employers invest in their employees, they in turn invest in the company. This investment is most clearly demonstrated by providing various training opportunities for employees. These opportunities should begin with a thorough onboarding process for new hires and continue with professional development programs and events for current staff.

By providing new hires with the tools they need to hit the ground running and current employees with opportunities to grow, employers can rest assured that employees at all stages are performing at peak performance.

5. Performance issues aren't documented.

Messy fires can lead to unwanted lawsuits. While no termination is a positive one, it can be easier when properly prepared for. That preparation starts by addressing and documenting performance-related issues. When performance problems arise, aim to nip them in the bud by addressing them during performance check-ins. This gives employees an opportunity to correct the issue.

What happens when that feedback doesn't solve the problem? Sometimes terminations are unavoidable, but going about them the right way can avoid any unwanted issues. The key is to thoroughly document employee performance problems. It may seem time-consuming, but it can serve as valuable evidence should a termination be necessary.

Related: Creating a Company Culture Where Employees Never Leave

Andre Lavoie

Entrepreneur; CEO and Co-Founder, ClearCompany

Andre Lavoie is the CEO of ClearCompany, the talent-management solution that helps companies identify, hire and retain more A players. You can connect with him and the ClearCompany team on Facebook LinkedIn and Twitter.


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