As a small business owner, intelligent resource allocation is essential to the long-term health and success of your company. Unlike larger entities who may have disposable funds, you need to distribute finances correctly and every penny counts.
It can be tempting to cut corners and skimp on certain areas like HR, especially when you only have a small workforce. In reality, a business is seldom too small for human resources — and slacking in this department poses some significant problems.
Lack of Formal Policies
Developing standardized polices for your business serves three main purposes:
- It sets clear expectations of employee behavior and performance.
- It holds all employees to the same standards.
- It regulates your workplace and minimizes disruptions.
Without some sort of HR department, you’re probably less likely to establish formal polices and create materials like an employee handbook, manuals and so on. In turn, this is just inviting chaos, complications and headaches.
Maintaining a paper trail on employees and documenting things like finances, employee performance and behavioral issues is incredibly important. Otherwise, you can quickly find yourself in a jam if you are unable to produce key information.
For example, if an employee needs to be terminated, you need to be able to provide documentation that includes specific examples of poor performance and problem behavior. Without adequate documentation, you could be accused of wrongful termination with legal consequences. An HR department ensures you have a specific termination procedure in place.
Human Resources typically takes care of classifying employees when they are hired. It’s important to understand the differences between traditional employees and independent contractors to ensure your yearly reports to the IRS are accurate. Sometimes positions are filled with urgency, businesses want to minimize tax obligations, or managers just don’t understand how to classify employees correctly. If the IRS catches wind of this, it can lead to ugly penalties. A dedicated HR professional reduces your odds of employee misclassification because they’ll understand the ins and outs of the process.
Increased Litigation Risk
Lawsuits have become increasingly common in recent years. Startling information on the Huffington Post’s website reports that “Over 40 percent of all business lawsuits are filed against smaller employers — and the median compensatory award for employment practices liability insurance cases is $218,000.”
If you’re not taking HR seriously, your odds of facing a lawsuit at some point are raised considerably. In the event that you are actually sued, it can wreck your business financially and take a major toll on your reputation.
When you break it all down, HR isn’t just for megalithic corporations with thousands of employees. It’s for everyone — even small businesses with only a handful of workers. If you think your business is too small for human resources, consider investing the necessary time and energy into establishing a system that works for your business.
Fortunately, we’re living in a day and age where you can have a professional handle the bulk of HR administrative tasks for a reasonable cost.