Small Business 101: HR Mistakes to Avoid

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Even seasoned business owners feel challenged by myriad demands, human resources among them. Most small business owners don’t have time to become an expert in human resources management and can’t necessarily afford to hire one. It’s tempting to let some things slide, but doing so can lead to costly mistakes.

The good news is, with a relatively small investment of time, you can minimize your risk. Here are three crucial areas to keep in mind. 

1. Hiring Basics

Application Forms. Purchase a template or create yo

ur own. Applicants certify their answers are truthful, giving you a legal basis for not hiring, or firing someone who provides false or misleading information on their application. The form highlights any employment gaps you may want to investigate, asks whether or not they have been convicted of a felony, and gives you permission to check their employment references.    

Smart Interviewing. Make sure all the questions you ask are job-related and thus legal. Your goal should be to get more information about prior behaviors, as the past usually predicts the future. Avoid leading questions such as, “This position requires someone who is organized. What traits would you bring?” Instead, it would be better to ask, “Describe a situation in which you had to juggle competing tasks. What was accomplished? How did you get it all done?” Don’t be afraid to ask about employment gaps or other potential red flags. If the candidate’s answers are short, ask them to provide more detail. 

Careful Employee Selection. Although fitting in with your work culture is important, you don't want to hire someone just like yourself. You want diversity in skills and talent within the company, which is why it’s ideal to get the best performer. Focus on key job skills—especially those that complement yours or the group. It’s essential to contact a candidate’s references. Ask for more information if the person hedges and, as with interviewing, request specific examples. A candidate can have exceptional interviewing skills, but references may reveal another story. Most important, if you haven’t found the right person, leave the position open longer. Hiring the wrong person is worse than hiring no one at all—and can be expensive.

2. Legal Pitfalls

Employment Laws. Know which state and federal laws apply to your business. The Family & Medical Leave Act, for example, applies to employers with 50 or more employees; your state may have a similar law that encompasses smaller organizations. Use the federal I-9 form and comply with your state’s new hire reporting requirements. A third of states require using E-Verify, the online system that compares I-9 information to Social Security and Homeland Security records. 

Exempt vs. Non-exempt Status. Classify employees correctly into exempt and non-exempt categories, according to rules established by the Fair Labor Standards Act (FLSA), which governs minimum wage and overtime requirements. Maintain accurate timekeeping and other personnel records and be sure to pay time and a half to non-exempt staff who work in excess of 40 hours per week.   

Independent Contractors. Employers may be tempted to misclassify employees as independent contractors to lower costs; or there can be honest confusion due to different definitions of “employee” for varied state and federal purposes. But states and the feds have been cracking down on violators. To protect your business from having to pay fines, penalties, back taxes, and back wages, analyze contractor positions based on IRS rules along with your state’s unemployment and workers’ compensation rules. 

3. Employment Best Practices

New Employee Orientation and Training. Place yourself in new employees’ shoes. What information, tools and training do they need to function in your work environment? Studies indicate that most new employees decide whether to stay or leave a company within the first 6 months, so be sure to be welcoming early on to help them feel they’re a part of your team. New employees experience lots of new sensory information—from the physical environment to new colleagues and new systems—so make sure to give information in increments to not overwhelm them. If you’re thoughtful sooner rather than later of your employees’ new experience, you can ensure they will become more productive and engaged, and thus, more likely to stay.

Nip Poor Performance in the Bud. Communicate expectations clearly and give constructive feedback for improvement. Make sure you provide enough training and support. If your best efforts fail and termination becomes inevitable, don’t procrastinate. Make sure all performance-related reasons are documented clearly. Even in employment-at-will states, it’s important to avoid any perception of discrimination or retaliation. Treat the person with dignity and respect—not only because it’s the right thing to do, but because it’s good business practice. And it can help you avoid any potential legal action against your business in the future. 

Reward Your Best Employees. Make every effort to properly reward good performance. When the company’s financial situation prevents salary increases or bonuses, get creative—provide flexible work schedules, interesting assignments, or a gift certificate to a great restaurant or spa. Be mindful that it’s very costly to replace a good employee, so reward your employees with some kind of benefits if you can.

With the daily craze of operating a growing business, it's all too easy to neglect areas, such as HR, that don't seem to directly contribute to the bottom line. But making these suggestions part of your company’s operation can help you avoid hassles and greater costs in the future.

For nearly ten years, HRSentry has helped organizations across the country navigate the tricky world of human resources. Their online tools have been developed to save time, resources and money. For more information, visit HRSentry or call 1-800-523-2564.