If you operate a small business with few employees and a modest budget, then you may question the necessity of a human resources department and the role of HR in a small business.

While there is no legal requirement for businesses of any size to establish an HR department, the reality is that numerous HR-related responsibilities are inherent to running any business. These duties, ranging from payroll to recruitment and conflict resolution, must be addressed, regardless of whether you have an HR department.

As your business grows, the complexity and volume of HR tasks will naturally increase. A point will eventually be reached where managing your business’s HR demands without a formal HR structure or dedicated personnel is no longer sustainable.

If you run a small business, it’s important to remember that an HR department is not an all-or-nothing proposition. Even if you can’t justify a full HR staff, you might consider hiring a part-time HR professional, contracting an HR consultant, or outsourcing your HR needs to a third-party provider of HR services, like the team here at People Based Solutions.

Why is HR important in small businesses?

In the early stages, HR duties can often be managed by the business owner or shared among a small team. However, it’s important to recognise the potential benefits of investing in HR, even in a small business setting.

HR plays a vital role in the smooth and successful running of companies of all sizes, including small ones.


So, what does HR do in a small business?

Some duties that are usually carried out by HR include:

  • Recruitment
  • Employee performance management
  • Payroll
  • Company policies
  • Employee training and development
  • Attendance management
  • Creating a safe work environment
  • Managing employee relations
  • Handling disciplinary actions
  • Ensuring compliance with laws and regulations
  • Employee retention
  • Employee benefits

Many of the duties carried out by HR are important for helping small businesses to succeed and grow. For example, a business is only as good as the people it employs, so attracting and retaining great employees is essential to your success. HR can also create a positive workplace culture, enhancing employee engagement and driving business growth.

HR is also responsible for ensuring that your business complies with all relevant laws and regulations and drawing up important policies and procedures. Even the smallest businesses must comply with regulations, or they could face legal issues.

Without a dedicated HR department, these duties may fall on the shoulders of the business owner or other employees, detracting from their primary responsibilities. However, this arrangement can lead to inefficiencies, as time and resources are diverted from core business functions.


How is HR in small businesses different from large companies?

HR can be quite different in small businesses compared to large businesses, primarily due to the size of the department and the budget and resources available.

Size – Because HR is all about people management and small businesses usually have fewer employees than large businesses, HR departments within small businesses are usually significantly smaller. Within small start ups, HR duties are often managed by the business owner/s. Within small businesses that employ 10 or fewer people, HR duties may be carried out by one person or outsourced.

Budget and resources – HR departments within small businesses usually operate on tighter budgets and have fewer resources than those within larger businesses. This means they may not have access to the same level of technology or software, which can decrease efficiency. The employee training and development offered by HR within small businesses may also be more limited due to budget constraints.

Responsibilities – Within a larger organisation, the HR team will usually comprise a team of people who each specialise in different areas like recruitment, training and development, employee benefits, and legal compliance. In comparison, within a small business, one person, or a small team, usually juggles multiple roles and duties.


HR basics for small businesses

HR covers a wide range of different functions and tasks, from employment law to employee training. As a start up or small business owner with limited resources and budget, it can be difficult to know which areas to focus your efforts on.

If your business doesn’t yet have a large number of employees, then it probably doesn’t need a dedicated HR department.

Instead, business owners can begin by putting in place the HR basics required by a small business; these may include:

HR policies – HR policies cover a wide range of workplace topics, including working hours, annual leave, code of conduct, health and safety, and equal opportunities policies. Establishing clear HR policies is essential for small businesses as it helps to ensure fair treatment of all employees and protects the business by reducing the risk of legal issues.

Compliance with employment laws – Regardless of size, all businesses must comply with relevant employment laws. This can include ensuring compliance with wage and working hours laws, equal opportunities laws, and health and safety standards.

The recruitment process – Ensuring a fair and effective recruitment process is crucial for helping small businesses to attract and retain talented employees. Small businesses need to establish a recruitment process, including how they will advertise vacancies, screen and interview candidates, and make hiring decisions.

Performance management – Small businesses must establish a system for tracking and evaluating employee performance. This might include setting goals, providing regular feedback, conducting performance reviews, and implementing performance improvement plans. This will help to motivate employees, improve their skills, and contribute to the business’s overall success.

Payroll – Even small businesses will need payroll systems and processes in place to efficiently and accurately manage the payment of employee salaries, wages, bonuses, taxes, and deductions.

For further help with outsourcing your small business’s HR needs, read more about the range of HR services for small businesses we offer here at People Based Solutions or call 01925 202 217.

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