13 HR Challenges Small Businesses Face and How to Solve Them

Small business owners wear many hats and can often push HR issues aside while juggling other responsibilities. 

But ignoring HR challenges can have serious consequences.

However, ignoring HR challenges can have serious consequences, including high turnover, legal penalties, and low morale. 

This article will highlight small businesses' most common HR challenges and offer actionable solutions to help you overcome them. 

From attracting and retaining top talent to complying with complex HR regulations, we'll provide expert advice to help you keep your small business running smoothly and successfully. 

Whether you're a seasoned small business owner or just starting, this guide will help you confidently tackle HR challenges.

• 🧲 Attracting talent and finding the right people for the right jobs
• 👩‍💼 Retaining skilled employees   
• 🌱 Offering development opportunities  
• 💪 Implementing effective training initiatives    
• 🚍 Lack of automation    
• ⚖️ Implementing a fair performance review process    
• 🏝️ Keeping up with employee benefits trends   
• 🔐 Data privacy and security    
• 💼 Enabling managers to act as coaches    
• 🏢 Change management (and change leadership)    
• 🌈 Building a diverse and inclusive culture for a hybrid workforce    
• 🧘 Focus on well-being and wellness    
• 🤹 Managing remote & flex work

🤝 HR processes in small business

Most human resource challenges are a result of six key facts.

Lack of solid culture and processes 

Small businesses are often younger, so solid processes are often absent. This gap could lead to bad hires, higher turnover rates, and a lack of onboarding workflows.

Reliance on manual processes 

Many SMBs still use 100% manual or paper-based processes, so they rely on spreadsheets, PDFs, etc.

Interestingly enough, from all participants in a UKG survey, 14% of organizations have all HR processes automated in a single system. In comparison, 15% use all manual processes.

"HR departments in SMBs need to recognize that the path to strategic impact runs through automation. Without automation, HR will forever be mired in low value-added administrative tasks." UKG, The State of the HR Function in Small to Mid-sized Businesses. 

Lean or no dedicated HR team 

When you outsource your HR processes to non-HR staff or when a single HR specialist has to manage operations across the entire employee lifecycle, it can lead to burnout, bad hiring decisions, and inadequate human resource management. 

Lack of or improper utilization of people data 

The same UKG survey revealed that 29% of HR specialists are reactive rather than proactive towards people-related data. Meanwhile, 25% fail to use any people data at all.  

Low budget 

The lean budget that SMBs have also limit how much they can invest in their HR team and processes.

Fast-paced and fluid organizations

Most SMBs are fast-paced, requiring employees to take on multiple roles. This accelerated rhythm could increase employee frustrations and decrease productivity and turnover rate.

🤯 13 HR challenges small business face

We discuss 13 HR challenges small businesses face and their solutions.

🧲 Attracting talent and finding the right people for the right jobs

The pandemic-led remote work frenzy is a pain to organizations globally. The desire to work from home and in a flexible workplace has businesses of all sizes competing for talented employees, with small companies suffering the most.

Ernest Bogore, founder of NerdyJoe, shares: "One of the biggest concerns for small business owners like me is filling our vacancies with the right people. As you know, small business means limited resources, especially if you are bootstrapped.

You want to build a team of high performers who take ownership and understand the impact of their decisions on the business. Yet, it's hard to find people like that."

Reflecting on the reasons why attracting talent is challenging for small businesses, he singles out four major factors:

"- Posting a job on LinkedIn only brings in misfit candidates: The consequence is that you end up with a ton of applications that you don't know how to process and end up making biased decisions.

- A resume is not a good indicator of a person's cultural fit: Some candidates are A's on paper and misfits in practice. They may even pass any test but fail miserably when you hire them.

- Budget is also an issue. Most candidates want a FAANG salary: the consequence is that you end up hiring beginners because that's what the budget allows.

- As a first-time business owner, it is difficult to set up the proper interview and skills testing process to vet candidates: as a result, you end up hiring the wrong candidate."

Here are some solutions to overcome this challenge

Branding: While branding helps companies drive sales and repeat business, it also helps to attract and retain top talents. New talents are naturally drawn to companies with positive employer branding. After all, one's employer can give them a sense of belonging and pride. Therefore, small businesses should invest in branding from day one. 

Companies like Eventbrite, Chipotle, and PetSmart have used branding to attract quality talent.

Diversify your recruitment process: Invest in tools that help source talents from different backgrounds, like Vervoe. 

Tip: Avoid personal or corporate bias from your recruiting process.

Ensure team fit:  Include culture-fit questions in your recruitment process and look for positive employee attitudes. It's easy to train people, but ensuring someone aligns with the values of a team or fits into your organization's goals is hard to influence.

Invest in a career page: Create a page that showcases your objectives, events, and culture to encourage talents to work with you. 

🌟 For example, we really like Shopify's career page.

🧲 Discover remarkable recruitment strategies with our additional article on eight recruitment strategies with real examples.

👩‍💼 Retaining skilled employees

Small businesses traditionally offer lower compensation compared to larger organizations. 

Also, employees in small businesses often have to juggle more workloads and burdens, which can cause burnout and encourage the employee to look out for better positions. 

25% of Achiever Workforce Institute survey respondents say they'll explore new organizations that offer better work-life balance.

Here are some solutions to overcome this challenge.

Support team members

Natasha Maddock, co-founder of Events Made Simple, shares how they retain employees. She says, "Ben, our co-founder and Event Director, will work alongside the rest of the team, hauling the equipment and setting up events, so there is a sense of comradery among our team."

Offer perks to existing employees‍

Giving gifts can make employees feel valued and cherished. They'll be more inclined to work with you (and invite their friends to join the company). They'll also leave good reviews about your company, which can help attract the right talent.

For example, Scott Kimberly, owner of a five-person law firm, gives his team members custom suits yearly.

Recognize good work‍

Employee engagement is an essential factor for retention.

More than 20% of employees in the Achievers report say under-appreciation of the contribution of their work is affecting their engagement.

Other recommendations

Improve company culture, create employee handbooks, offer a better compensation plan, and listen to employees' concerns and address them.

🏆 Discover 25 employee retention best practices for keeping your best talents.

🌱 Offering development opportunities

Employees want more than a monthly training stipend. 

A significant investment in employee development can help drive business growth. 

If a person isn't developing or climbing the ladder towards career growth, they will find another job.

But career progression might not be as easy in smaller companies unless they are in their growing phase. 

However, even if career progression is not possible, there is still room for competence development. 

Here are some solutions to overcome this challenge:

• Webinars and online training sessions: Webinars reduce training expenses, such as travel, venue, and accommodations. Keep the webinar interactive—include polls, share surveys, and allow employees to ask questions and provide answers.
• Enable mentorships: Pair new hires with senior executives. Executives should provide professional guidance and offer hard-earned insights to help new employees perform better.
• Embed learning and skill-building into employees' day-to-day experience: 85% of L&D experts expect to see more on-the-job learning through projects and gigs in the coming years.

🌱 Discover a collection of tips and methods to improve people's development at your company.

💪 Implementing effective training initiatives

According to SHRM, 48% of employees say training opportunities are important when choosing where to work. 

But, small businesses have lean budget allocation and resources, translating into limited training offerings. 

Here are some possible solutions to overcome this challenge:

• Go for quality but cheaper ready-made courses on essential topics such as cybersecurity, communication, and goal setting. Coursera and EdX are good places to start.
• Gather input from employees, find out what interests them, and find low-cost quality courses or mentorship for them.

🚍 Lack of automation

Small business owners and managers juggle multiple tasks, so automation often takes the backseat. 

In addition, because of the resources available, small businesses often have a one-person HR department. (Sometimes, they don't have any HR specialists at all.)  

This team handles various HR tasks, from payroll to recruitment and training, which results in burnout, low employee engagement, and discontent.

Here are some possible solutions to overcome this challenge:

• Identify the most consuming HR tasks—e.g., scouting for outstanding talents, onboarding, or recruitment—and start with that.
• Organize all documents in one place — this can save you headaches in the future.
• Choose the right solution: Choose software that solves your problems with the available budget. Ensure it's simple to use and has the potential to grow with your business.

Studies indicate that automation can decrease administrative costs by 30% for HR professionals and 49% for employers. 

Examples of HR automation include payroll management, attendance management, and benefits enrollment.

💬 DataGuard leverages Zavvy to automate their complex onboarding process, training, and knowledge sharing.

⚖️ Implementing a fair performance review process

Performance reviews help to analyze employee performance. It also helps to justify promotions and rewards. 

But if your small business employs just a handful of staff, it can be challenging to create and follow complex bureaucratic procedures to appraise employees. 

But performance management systems create the potential to be more efficient, structured, and purposeful, with far-reaching benefits. 

And that is something that your small business will definitely benefit from. 

Another challenge is that managers in small businesses may lack the training to provide empathy-driven reviews to employees.

Here are some possible solutions to overcome this complex challenge.

• Create an internal document with best practices for leaders and managers who give reviews. Giving an effective appraisal requires both management and communication skills to leave a positive experience for both parties.

Some tips you can include are: 

#1 Managers should prepare well before the meeting. 

#2 Make sure your company has a documented performance review process. Get clear on intentions, desired outcomes, and key areas you want to evaluate the employee on. 

#3 Your managers should be empathetic from the get-go. They should show your people where they've done well and in which areas they are lagging behind.

• Discuss the corporate goals and allow employees to set developmental goals for themselves.
• If you issue a performance improvement plan, for example, clearly define areas that need improvement and provide resources to support the employee. 
• Build a culture of open communication and feedback as a two-way conversation.

If performance management is entirely new to your people and leaders, everyone must be on the same page supporting your new approach. Zavvy simplifies this alignment by offering training journeys.

🏝️ Keeping up with employee benefits trends

MetLife shows that 55% of small business owners see their employee benefits as more important post-pandemic. 

But small business owners operate with a lean budget. As a result, they often neglect benefits packages. They're also less likely to give time off to employees because of their limited staff.

Here are some possible solutions to overcome this challenge:

• Create a benefits survey. Get creative and have your employee identify what they want. Offer benefits like meals at work, health insurance, flexible work hours, and paid time off. Ask them how you can be a great employer on low-stress days.
• Set clear standards: let them know when they may not be eligible for certain benefits. For instance, part-time members may not be eligible to paid-time-off. 

📈 Are you interested in discovering the latest employee benefits trends? Then, we have the resource for you, where we covered 12 trends in employee benefits.

🔐 Data privacy and security

Many small business owners think they are not attractive to cybercriminals. Hence they assign only a portion of their budget to data privacy and security. 

Unfortunately, this misplaced priority makes them vulnerable to hackers and causes compliance issues.

Verizon's Data Breach Investigation Report finds that 46% of all data breaches impacted companies with fewer than 1000 employees.

Here are some possible solutions to overcome this challenge:

• Have employees install basic security software—antivirus applications. Also, install encryption and data backup systems. Ensure apps are updated regularly.
• Implement a Multifactor Application Program (MFA)—that allows users to enter a unique code when they want to log in.
• Educate employees on the hackers' access points to company information and how to shield themselves against them. Let them understand basic cyber attacks like DDos, APT, Phishing, Password attacks, and Ransomware.
• Enroll them in data security training covering key topics like 

🔐 Use our free data security training template to get started.

💼 Enabling managers to act as coaches

In a small organization where everyone handles multiple tasks, it's also essential to have managers who can act as coaches because it boosts productivity and engagement. 

According to Gallup, great managers can boost employee engagement by 70%. 

Thus, to become successful leaders, managers must master the art of motivating their team and acting as coaches.

Here are some possible solutions to overcome this challenge:

• Ensure that your senior leaders support new managers. Be invested in their personal development because it affects business growth.
• Regularly review company goals and ensure compliance.
• Set clear expectations for employees and offer constructive feedback.
• Learn to identify each employee's unique talents and strengths and build on their weaknesses.

💼 We designed a micro-coaching program where managers can regularly learn about leadership techniques. You can try it for free.

🏢 Change management (and change leadership)

Most small business owners have a poor understanding of change management. 

Steven Kohnke, former training manager at Prosci, says when he asks small business owners about change management, the typical response is, "Well, it's about managing changes in business, right?"

Change management ensures that your people stay engaged and motivated to give their best even during change and uncertainty.

Here are some possible solutions to overcome this challenge:

• Invest in managers' change management education—change starts from the top.
• Get employees' buy-in on change—building a new culture, and adopting new skills, will not be successful without the people's side of change.
• Communicate the change to employees—show them the purpose and benefits of change, prepare a plan or action, and how they can participate in the process. Use apps to share status and progress on a daily or weekly basis.

💪 Use our change leadership training for faster results.

🌈 Building a diverse and inclusive culture for a hybrid workforce

In addition to insufficient funds and resources, small business struggle with implementing DEI (diversity, equity, and inclusion) due to their structure. Small businesses often lack the know-how on where to start with implementing a diverse or inclusive workplace. They also don't have the budget to hire a chief diversity officer.

Here are some possible solutions to overcome this challenge:

• Provide managers with ongoing support—offer DEI training and education to enable them to perform at their peak and implement successful DEI initiatives across the organization.
• Create concrete policies that allow DEI to be pushed into daily conversations. Policies can include staffing routine practices, leadership, appointing managers, etc.
• Address bias hindering inclusiveness and take meaningful steps to ensure employees from diverse backgrounds and gender are treated fairly.

🌈 Learn how to promote workplace diversity, equity, and inclusion.

🧘 Focus on well-being and wellness

In small businesses, the workload is high on each employee, mostly leading to burnout. And because of the small startup workforce, unpredictable working hours affect employees' mental health or lead to burnout.

When Gallup asked employees what they would prioritize when working with another organization, pay and well-being took the top spot. 

61% crave work-life balance—they want to choose when, where, and how to perform their jobs.

Here are some solutions to overcome this challenge.

• Instead of offering health insurance, build a culture of total health—avoid allowing employees to work for unreasonable hours and give sick leave and parental leave.
• Leaders should live by example—don't send work messages to employees by 4:00 am asking for unreasonable due dates, and tell them to go home to families at the appropriate times.
• Build an environment that supports healthy living—implement laws against smoking or drinking beer at the workplace, and curate healthy food supplements at lunch.
• Build a healthy culture by:

-> Checking in on employees regularly.

-> Encouraging employees to take breaks when they are feeling tired.

-> Providing opportunities to bond with colleagues outside of work.

-> Looking out for poor health practices and warning against them.

🧘Share our well-being booster program with your team.

🤹 Managing remote & flex work

Offering employee benefits is an issue for small businesses hiring remote teams because the employee's location determines the workplace policy. Also, onboarding employees to apps can take several weeks for smaller businesses than larger companies with a better workflow.

Then, getting new hires up to speed is often difficult. For instance, shipping the company's physical tools like laptops to new hires is always a big challenge for HR and IT teams, especially when the new hire is in another country.

Here are some possible solutions to overcome this challenge:

• Use good management apps to streamline your remote onboarding experience.
• Provide flexible working hours. Be open to adjusting workflow as long as employees complete the task at hand in the required quality.

💼 Learn how to be a great remote leader, overcome challenges and inspire your team. 

➡️ Zavvy enables small businesses and their people

Zavvy is a holistic HR solution for small business owners to tackle their HR challenges and enable a satisfied, engaged, and productive workforce:

• 💪 With our training solution, you will help employees gain the skills and knowledge they need to succeed in their roles and contribute to the organization's goals. There is a vast collection of external training resources. You can also embed your internal training resources. 
• 🚀 With our onboarding workflows, you can automate everything from preboarding and new employee training to probation period reviews and goal setting.
• 📈 With performance reviews, you can connect employee goals to the larger organizational goals.
• 🔁 With automated 360 feedback cycles, you will be able to share regular feedback to ensure that employees are meeting the expectations of their roles and working towards the organizational goals.
• 🧭 With career frameworks, you can create and communicate career pathways for everyone transparently so that everyone knows how they can grow as the company scales.
• 🌱 With our growth plans, you can combine goals and actual development measures.
• 👩‍💻 With the survey builder, you can continuously measure well-being, remote engagement, and more.

Grow your people and your business with Zavvy. Get started with a free demo and consultation with our team.