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Nine Common Human Resource Management Challenges For Small Businesses

Human resources are one of the most important components of any small business. However, the responsibilities often fall to the owner or an executive, as many small businesses don’t have the capacity for a designated HR department or full-time employee. Often, managing these HR functions in-house creates many challenges. 

Small businesses find it helpful to outsource human resource management.

Small Business Challenges

When you devote so much time to growing your business and improving your products and services, how are you supposed to find the resources to manage HR? From recruitment and retention to payroll and benefits, it’s important that HR doesn’t fall by the wayside in a small business. Deficiencies in any of these areas could result in:

  • Non-compliance fines
  • Lack of talented employees
  • Inefficiencies that slow down your production cycle

Below, we identified some of the most common HR challenges for small businesses and how you can overcome them.

Hiring process

Hiring new employees is a major time and financial commitment for a small business. When job ads and interviews are improperly handled, the recruitment process can quickly become a time-consuming headache. 

For one, it takes an average of 23 days to find the right candidate, according to Glassdoor, taking time away from other important projects. For more technical positions, it can take a lot longer. On top of that, poor job descriptions can attract non-qualified applicants, eating away even more time to manually sift through each resume.

A hurried interview process or failing to ask the right questions can then result in bad hires, which can cost nearly $15,000 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 HR resources can be a great asset during training 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 could affect workplace safety.

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 can help prevent workplace injuries like sprains, strains, cuts, lacerations, and punctures as well as promote morale and retention.

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. When was the last time you updated your handbook? 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.


For small businesses, managing payroll and filing taxes can be a time-consuming and challenging task. Small and mid-sized companies spend an average of $2,000 per employee each year to handle payroll, according to PricewaterhouseCoopers. 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 found that 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 time tracking 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.

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 to retirement plans to supplemental insurance. 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 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. 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 percent 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 resolution 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 quality employees. 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. 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 HR Solution

Between recruiting and retaining employees to managing employee performance, there are many challenges small businesses face when it comes to the responsibilities of HR management. Outsourcing HR through a professional employer organization (PEO) like Group Management Services can help small businesses save time and money, while allowing you to focus on growing your business. 

GMS provides comprehensive HR services, including payroll administration, risk management, employee benefits, and more. Additionally, GMS can perform HR audits to help your business improve HR functions in a fraction of the time. Contact GMS today to see how we can help you cover these challenges in human resource management, so you can focus on your core business.

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