Employees are the primary resource of companies, and for this reason, the main task for enterprises is to use them most efficiently. In order for workers to act according to the organization’s goals, productive human resource management (HRM) system is required. Small businesses are widespread in America, and the number of new ones that appear annually is more than half a million (Dessler, 2020). Given the prevalence of companies of this type, most college graduates will be employed in small businesses (Dessler, 2020). HRM in small businesses differs significantly from large organizations since their activities have their features.
Small business, despite their name, offers a large number of jobs. The characteristics of such organizations affect HRM, and it is essential to take them into account to understand potential challenges better. Moreover, understanding the characteristics of small enterprises will allow HR specialists to use their advantages. Notably, the main distinguishing characteristics of small businesses are “size, priorities, informality, and the nature of the entrepreneur” (Dessler, 2020, p. 592). These features have the following effects:
- Size. Usually, less than two hundred people are employed in such organizations (Dessler, 2020). At the same time, professional HR managers are not present in all of them, but mainly when the number of employees reaches nearly 100 employees. For this reason, in some small businesses, the duties of HR, for instance, finding and hiring employees, fall on the owner and his assistants. This situation can create obstacles to success since additional responsibilities take time, and the lack of professional knowledge on HRM may worsen the results.
- Priorities. Despite the importance of HRM, small businesses usually have other tasks, more critical for them. Resource search, workflow management, time, and finance are generally of paramount importance. Moreover, small businesses typically operate in conditions of instability and great competition, which means they need for flexibility and adaptability.
- Informality. With other priorities and constant changes to adapt to market requirements, HRM becomes informal. For example, new staff can be trained with the help of their senior colleagues. Moreover, flexibility also affects payment, promotions, work schedules, and other work aspects.
- The entrepreneur. Entrepreneurs are the ones who start a business and also usually manage it. In the circumstances of continuously changing trends, they constantly take risks and work in rather stressful conditions. Business is critical to them, and they invest a lot of personal effort and resources in its operation. As a result, entrepreneurs tend to control all aspects of work, employees, and their activities, contributing to both informality and pressure. Owners usually want to impose their vision of personnel management and control communications, solving all problems or similar issues. In this case, the personal compatibility of the entrepreneur with employees has a significant influence.
Besides the already mentioned consequences of each of the distinctive features of small businesses, they create additional HRM challenges in their combination. Firstly, neglecting good HRM practices can lead to problems with the law since it is not easy to consider all aspects without training. Dessler (2020) cites the example of Outback Steakhouse, which due to the absence of HR departments, missed the problem and received a lawsuit from the Equal Employment Opportunity Commission (EEOC) for gender discrimination. The HR department, in turn, controls the necessary legal aspects such as vacation time, insurance, diversity, and similar issues.
Considering small businesses in the context of gender division, it is noted that men organize the majority of the enterprises. However, Dessler (2020) notes that every year about a hundred million women from 59 countries creates their own businesses. At the same time, researchers observe a trend that more women entrepreneurs operate in Latin America and sub-Saharan Africa. The most likely reason for this separation is that women have numerous opportunities to build careers in countries with more advanced economies. In less developed countries, on the contrary, must create such opportunities themselves.
Given the problems small businesses may face, it is also important to note that HR responsibilities usually include selecting staff best suited to the organization’s objectives. In the absence of HR specialists, these tasks are distributed among other employees. They may not determine with accuracy requirements for each job and whether the candidate meets these demands. As a result, the work and decision-making processes slow down, and their quality deteriorates, which leads to the failure of the entire company.
The HR department is also responsible for human resource information systems. Without these systems, working with documentation is much more difficult. Companies store much of employee data in various forms, and the information in them is repeated. Without installed information systems, there is a greater chance of errors in data entry, and their repetition in various documents takes a long time. Finally, although small businesses have different priorities in their activities, the work of the HR department will, in any case, become a competitive advantage. Those companies whose activities will be negatively affected by the shortcomings of the lack of an HR department will lose to their competitors.
Importance of Studying HRM for Small Business
While HR departments in companies have similar goals, their activities differ depending on the type of organization. Differences affect all work processes and policies in the enterprise. As a result, the HR manager must understand all these features and how they affect their duties. This knowledge will help specialists not only expand their professional outlook but also determine which area is of greater interest to them and where they want to build their careers. Knowledge and skills that can be applied in companies of various types give beginner specialists more opportunities for choice.
HR managers are responsible for making effective decisions and planning the work of employees in order for the company to achieve its goals. Accordingly, if small business owners want to implement their objectives, they need to hire an HR manager or study HRM in detail on their own. Moreover, the work of HR specialists prevents the problems mentioned earlier – confusion with employee data or legal issues. There is great competition among small businesses, and the use of HRM is an advantage. There is a positive correlation between the use of HRM practices and the company’s development, and its financial success (Dessler, 2020). Moreover, since most entrepreneurs are aware of their employees’ importance, HRM becomes not just an advantage but a necessity for working at the same level with companies that devote time and effort to this aspect.
HRM specialists also maintain their company’s competitiveness, helping to shape its strategy, values, mission, and goals. They ensure that the interests of employees are respected in official policies and are also implemented in life. Moreover, HRM contributes to implementing the mission and vision through the selection and support of people in the company. At the same time, in these aspects, a specialist must understand the features of the small businesses’ functioning since they must be considered in strategic planning.
As noted, small businesses operate in conditions of intense competition and must adapt quickly, which affects companies’ priorities. This feature is also manifested in the maintenance of documentation, compliance with critical legal standards of work, and similar aspects. Unable to focus on these issues, entrepreneurs miss them, and the company can get problems. For example, HR managers control a significant part of administrative work with documents, ensuring law enforcement and an efficient working environment. Their competence includes monitoring compliance with laws, for example, employee safety, non-discrimination on any grounds, and compliance with regulations of various levels – federal, and state. Moreover, employment is a labor-intensive process since specialists are responsible for documentation, insurance, compensation, and benefits. A department is dedicated to these tasks in large companies, and small businesses can easily miss essential details without a competent specialist.
HRM also affects the success of the enterprise through the selection and hiring of employees. In small businesses, almost every employee is crucial and does not perform one profile task, but works in several areas, sometimes very different from each other (Johnson, 2019). For example, an employee can simultaneously be responsible for purchasing, engaging in sales, or developing customer service. In current conditions, where it is necessary to adapt quickly, study much information, and perform several roles at work, employees are under significant stress. HR specialists understand that motivated and happy workers are most effective. They strive to support their performance by listening to people’s needs, providing their adaptation at the beginning of the work, retention after some time and can prevent many problems. For example, HR specialists help employees cope with stress and impede burnout, which is one of the most common reasons for layoffs. Such efforts, as a result, also reduce staff turnover rate.
At the same time, cohesion, mutual understanding, and teamwork, trust between staff and the company’s head are essential factors for small business success. For this reason, it is critical to pay attention to training and improving staff skills, maintaining motivation, establishing competitive wages for small businesses, and supporting teamwork. Moreover, teamwork depends on team members, their knowledge, and personal qualities. HR managers choose those who both have the skills necessary to achieve the organization’s goals and cooperate with others.
Besides the company’s internal work, the operation of the HR department also supports the company’s external activities. In particular, a good attitude towards employees affects the image of the enterprise. Moreover, when finding partners, successful organizations check their potential colleagues and their compliance with HRM standards (Dessler, 2020). Ignoring HRM practices, in turn, can lead to the loss of customers and partners, and profitable contracts with them.
Thus, the importance of studying HRM for small businesses is to maintain the enterprise in a competitive environment at a high level through talented employees. The features of small businesses can potentially become weaknesses, and the HR manager’s activities in the organization significantly reduce this risk. Enterprises that ignore HRM or deal with issues related to it unprofessionally will necessarily be less successful than their competitors. The reason for this assumption is that HR specialists not only recruit staff but also deal with many administrative issues.
Usage of the Best HRM Practices by Small Business
Many tools help support HRM practices, and small businesses can use them effectively. In particular, at the moment, many online resources are developing, including free ones developed with government support (Dessler, 2020). For example, as mentioned earlier, legal issues and their judgment can become a severe difficulty for entrepreneurs. The price of their resolution can be high, and as a result, small businesses will suffer from severe damage. For this reason, entrepreneurs and their HR managers need to focus on different tools that will benefit their activities.
Laws covering labor relations may seem confusing, and to facilitate orientation in them, the US Department of Labor (DOL) created laws for Advisors. During a visit to the site, the entrepreneurs answer several questions so that the system can determine the type of the company (Dessler, 2020). Once the details are clarified, the website issues a list of laws that apply to the organization, and the entrepreneurs can find out from them the information they need. For example, labor laws include the Fair Labor Standards Act (FLSA), Occupation Safety and Health Act, and similar documents. DOL’s Occupation Safety and Health Administration (OSHA) site also provides guidance for small businesses, particularly for emergencies.
The Equal Employment Opportunity Commission (EEOC) administers several essential laws designed to ensure equality in the labor market. Although their activities are aimed at all types of organizations, the commission notes that the tool they created will be more beneficial to small businesses (Dessler, 2020). They have also established a website designed to help employers answer essential questions about how EEOC regulations affect various organizations.
Various online tools also help to fulfill other duties of HR managers. For example, O*NET helps compile accurate job descriptions, which is necessary not only to attract candidates but also for job analysis and assigning a salary (Dessler, 2020). At the same time, recruiting is also much more effective using online tools – such as LinkedIn.com or Careerbuilder.com. In particular, LinkedIn is one of the social networks which play an increasing role in all aspects of the business – from advertising to finding employees. Nevertheless, it is worth noting that social networks and recruiting with their help have their own risks, as they disclose a lot of personal information about candidates. Personal qualities or characteristics may give rise to bias and affect employment.
Besides recruiting, online tools can help HR managers choose which candidates are most suitable. In particular, there are tests to evaluate the personal characteristics which influence the person’s work, for example, Predictive Index. Personal qualities are essential for teamwork, and since in small businesses, each employee’s role is critical, managers should consider them very carefully. Another test, the Wonderlic Personnel Test, evaluates a person’s mental abilities, and its result may suggest whether the candidates will cope with the position that they claim. Moreover, providers of similar tests often propose other tools for analyzing jobs and potential candidates.
Many new tools that help managers can confuse, so it is crucial to maintain balance and caution. For example, in some cases, specialists do not need to complicate the process and use many resources but can apply more traditional methods – physical announcing or recommendations from colleagues (Dessler, 2020). It is also important to give specific requirements and limitations. For example, if candidates should be from a particular city, the manager should note this demand in the announcement.
There are also different methods and tools that small businesses can use to train their employees. HR specialists should be aware of the various online platforms that help in this task. For Examples, the National Association of Manufacturers (NAM) or private vendors as PureSafety, more of which can be found on the Association for Talent Development website (Dessler, 2020). Online tools can also be helpful for employees’ appraisals and calculating compensation. They help track progress toward goals, monitor performance, and provide feedback to employees.
While small businesses have some disadvantages compared to large corporations, their features can be exploited. Dessler (2020) notes that small businesses can be flexible and informal in HRM practices, closer to employees. For example, in case of lack of time, the manager can conduct a streamlined interview that focuses on such fundamental aspects as motivation, knowledge and experience, personality, and intellectual capacity. Another part of the work, training, can be more informal and constantly accompany employees’ daily activities. For instance, conversations over coffee or lunch can also be an occasion for discussing goals or sharing experiences.
Small businesses often also have advantages that are not available in large organizations. In particular, closer communication with staff contributes to a better understanding of their needs and interests. In a small company, employees are more likely to be offered a flexible schedule if they need to take care of the children. Moreover, close relationships help managers see and recognize employees’ achievements, which supports motivation. Finally, small businesses, with adequate management, have more dedicated employees and facilitate communication and discussion. Thus, managers need to know small businesses’ features to apply HRM practices in the best way.
Dessler, G. (2020). Human resource management (16th ed.). Pearson.
Johnson, A. (2019). How is HR in small businesses different from large companies? Study.com. Web.