The Top HR Challenges Small Businesses Face Today

Human capital management is one of the most important components of any small business. However, the responsibilities of HCM often falls down to the owner themselves. As many small businesses don’t have the capacity for a designated HR department or full-time employee who can actually make the most out of a business’s HCM strategy. Often times, this results in somebody in charge of being a CHRO, CMO, CFO, and VP of Sales, all at once. The bad news is, you can’t do this all at once, so managing these HR functions in house, when you have other things on your plate, creates many challenges. 


Small Business Challenges

When you devote so much time to growing your business, improving your products and services, and gaining brand awareness, how are you supposed to find the resources to manage your human capital? From recruiting, onboarding, developing, and retaining, it’s important that HR doesn’t fall by the wayside in small business. Deficiencies in any of these areas could result in:

  • Bad hires
  • Poorly-trained candidates
  • High turnover
  • Non-compliance fines
  • Inefficiencies that slow down your production cycle

And a list of other concerns…

Here is a small sample of some of the many challenges small businesses face when it comes to their human capital.

Hiring process

Hiring new employees is a major time and financial commitment for any small business. When job ads and interviews are improperly handled, the recruitment process can quickly become a time-consuming headache. Lack of qualified candidates show up, or ill-equipped ones are hired because you become desperate, and can’t afford things like background checks.

According to Glassdoor, it takes an average of 23 days to find the right candidate. This takes tremendous time away from other important projects that could improve the bottom-line. For more skilled positions, this range can actually be much longer. On top of that, poor job descriptions can attract non-qualified applicants, eating away even more time to manually sift through each resume.


But how do you actually know what a good job description is? One that is legally compliant within the requirements of the role, and one that makes sure you actually get the right skills you need for the variance of this exact position?


Failing to ask the right questions results in bad hires, which costs around $15,000 on average for small businesses according to CareerBuilder. While many small businesses rely on referrals when it comes to hiring, interviews need to be consistent and conducted in a way that attracts quality talent and provides a clear path toward making a job offer.

Employee training and safety

Once employees are hired, having reliable HR tools & resources can be a great asset during the training phase to prevent costly errors and even injuries from occurring. However, many small businesses simply don’t have the time to properly train new hires, which can effect everything from workplace safety, to how your new hires serve your customers.

According to the National Safety Council, a worker is injured on the job every 7 seconds, with 25 percent of these injuries caused by contact with objects and equipment. Proper training practices can help prevent workplace injuries like this, as well as promote morale and retention for top talent.

Employee handbook

Along with poor training, new employees may look to the employee handbook to gain a better understanding of the work environment and job expectations. Surprisingly, I’ve consulted with a lot of companies who couldn’t even remember when they last legally updated their handbook – some never did or didn’t have a handbook (names withheld for obvious reasons). An outdated employee handbook can cause miscommunication and even legal issues for a small business. Employee handbooks should be updated at least annually to reflect the ever-changing employment laws and regulations. It’s something that we don’t think about until it’s too late, but at that point… you could potentially get your business shut down.


For small businesses, processing payroll & filing taxes can be very time-consuming and challenging. Small and mid-sized companies spend an average of $2,000 per employee each year to handle payroll, according to Big Four account firm, PwC. Proper bookkeeping and tax filing may be a hassle, but they play an integral role in the success of your business when it comes to avoiding compliance issues. The IRS has identified that as much as 40 percent of small businesses incur an average of $845 in penalties each year, which can be a huge financial burden.

Time tracking

Depending on where you live, you’ll need to comply with local, state, and federal laws regarding vacation, paid leave, breaks, and overtime for your employees. Without a solid timekeeping system in place, it can be difficult to ensure your employees are being paid fairly. Utilizing an online platform can help save time and energy for both small business owners and their employees, as well as prevent any potential time theft.

Employee benefits

In order to attract and retain top talent, it’s important for small businesses to include quality benefits in their employees’ compensation packages. Employees want comprehensive benefits that include everything from health insurance, retirement plans, to supplemental insurance. In fact, 80% of these employees said they would prefer this over a pay increase. However, many small businesses find that it can be very expensive and time-consuming to purchase and manage these benefits on their own, compared to the buying power of group benefits.


Small businesses must adhere to Federal Regulations, and failure to comply is both common and costly. Perhaps the most common compliance issue for small businesses is employee misclassification. According to the U.S. Department of Labor (DOL), up to 30 percent of audited businesses had misclassified employees. Many misclassify workers as contractors in error, so it’s important to know the difference. It might sound simple, but sometimes identifying these things accurately can be a very time-consuming task, especially when you have multiple employees, while also looking to grow and expand.

While the consequences vary depending on whether the DOL and IRS deem the misclassification intentional or unintentional, it can be a costly mistake.

Other laws include the Fair Labor Standards Act (FLSA), Equal Pay Act, and Americans with Disabilities Act (ADA), to name a few. It’s important to stay educated on these federal regulations in order to stay compliant.

Conflict resolution

When growing a business, there is a potential for conflict in the workplace, and ignoring it can cost time and money. A study by professional training and coaching company CPP, Inc. found that 85% of employees experience conflict in the workplace. Workplace conflict wastes nearly three hours per week, costing billions in paid hours. Not having an HR resource to properly handle conflict will only take up more time and money in addition to dampening employee morale and retention rates.

Employee retention

When HR management issues aren’t handled properly, it can be difficult for small businesses to retain top talent. According to the Society for Human Resource Management (SHRM), retention is a growing problem for many, with the average turnover rate sitting at an unhealthy 18 percent. When you have disengaged employees do to neglecting the all other aspects of the employee lifecycle Running the gamut from bad hires to insufficient benefits to conflict issues, employees are less likely to stay with companies that don’t take initiative when it comes to HR management.

Your human capital management solution

Between recruiting & retaining top talent, and developing this talent there are many challenges small businesses face when it comes to the responsibilities of HR management. Outsourcing things like HR, payroll, and using integrative HCM software can help small businesses save HOURS of time, save money & allow better cashflow, as well as help you grow your revenue and achieve your key business goals.

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