Human Resource forms one of the most important components of any business. But in small or mid-sized companies (having 5-100 employees) development of an HR function is a gradual process that happens when the business becomes stable and mature. However, the growth period is the time when such companies face the greatest HR challenge. Mostly hiring senior HR professionals is not a viable option considering the increased cost. The focus on revenue generation, client acquisition, and improvement of product/services push the HR to the back seat. Inappropriate hiring, undefined policies, non-aligned processes, and lack of proper communication between employees and management are usual issues when the value of HR is not readily apparent. As the company and workforce grow, small business owners should be aware of the HR challenges, so they’re prepared to tackle such issues at the earliest.

Here are today’s most common HR challenges small companies face in the business – 

1. Hiring Mistakes – Small business owners face a variety of challenges when it comes to recruitment. The process is difficult and time-consuming because of no recruitment expertise. Improper handling of the hiring process can make the company settle for a candidate who seems to be a fit on papers but not suitable as job requirements. Employers fail to analyze recruitment strategies to identify, attract, develop, and retain talent as per their business needs.
2. Chaos in record-keeping – Accurate and proper documentation facilitate decision making in the organization. Documentation forms the base of the HR function, but a casual approach to it can result in legal issues. Small businesses face challenges in record keeping because of lack of proper template, and formats. In addition to employee information, it is important to document company policies, procedures, and benefits to create a transparent working culture. 
3. Lack of formal Induction program – Induction is a well-planned program to acquaint the new joiner with organization, people, and workplace. Absence of a specialist to design, organize and conduct a formal induction program for employees pose a lot of challenges for SMEs, in the form of new hires fit in, role clarity, acquaintance with colleagues, and company culture. 
4. Unsystematic Payroll Management – Payroll is not just paying employees, where on one hand it ensures on-time employee payments it should also assure business compliance with applicable laws and regulations. Small businesses usually suffer in this domain because of unplanned processes and systems. The failure to collect correct information on time results in faulty and late payments with non-compliance, fines, and penalties.
5. Improper Database Management – As the business grows the related information in the form of data increases. Eventually, the time and effort required in its collection also increase. But all these go in vain if this information and data are not properly handled, and organized. The absence of proper data strategy in small companies creates a lot of challenges in collecting, storing, sharing, and using data for business decisions.
6. Compensation and benefits – Because of their attention on revenue, SMEs fail to do an appropriate compensation benchmarking. That results in an inappropriate pay mix for the employees. It would not be easy to attract talent if the company is not aware of the right amount to offer, to an employee. Along with this identifying an appraisal cycle, deciding on benefits packages like health insurance, retirement plans, training, and development programs are crucial factors for potential hires. Understanding them and deciding on a suitable mix is one of the key areas small businesses struggle. 
7. Unclear job description – Start-ups and small businesses often take a casual approach when it comes to assigning proper roles and responsibilities to employees. It’s usual to see everyone pitching in to do all kinds of tasks leading to confusion and resulting in inefficiency. One of my HR friends was discussing the same issue in her current organization and looking for a suitable strategy to address it.
8. Talent retention – Even after having sufficient budgets some small businesses struggle to retain employees because of competition and unplanned retention strategies. When employees’ issues are not handled by proper HR management it is difficult to retain quality employees and impact the business growth negatively.

Small businesses face myriad other problems apart from above because of no in-house HR function or a specialized Consultant. This can lead to dis-satisfied employees and affect the ROI through employee turnover. But if we address all these challenges with a well-thought strategy their impact can be mitigated and the organization can be brought on the path of success. An experienced HR professional or Consultant can advise on critical issues and strategize the HR processes to maintain and sustain a growth pace. 

Let’s check on the solution and strategy to address such issues and challenges in our next write up. Stay tuned and safe till the next edition.