For many small business operators, the realm of human resources can seem like
a minefield of liability.

An outdated – or nonexistent – handbook is a big liability, even for businesses that think they’re too small to need one.

The good news is that you can learn from others’ errors as well as their successes.

In this article, we’ll cover seven all-too-common HR mistakes, along with actionable tips for optimizing your policies.

1 Hiring Hastily

Expanding your team is a major business decision, and a rushed selection can impact productivity, morale, reputation, and risk exposure. In fact, the U.S. Department of Labor estimates that the cost of a bad hire is at least 30% of the employee’s first-year salary – and most small businesses can’t easily absorb a loss like that.

For better results, develop a consistent recruitment process where qualifications and responsibilities are explained in detail, and candidates are assessed for cultural fit in addition to hard skills.

2 Misclassifying Employees

Most managers are familiar with the terms exempt, nonexempt, contractor, and employee, but too many are hazy on the specifics. Misclassifying a nonexempt employee as exempt or an employee as a contractor is an easy mistake if you don’t understand the rules, and it can lead to hefty penalties and loss of trust and goodwill.

Review the current criteria issued by the Internal Revenue Service, the U.S. Department of Labor, and your state’s labor department. Be sure to reexamine classifications as roles evolve to avoid back pay and fines.

3 Overlooking the Employee Handbook

An outdated – or nonexistent – handbook is a big liability, even for businesses that think they’re too small to need one. Every company, regardless of size or type, operates within a framework of policies and regulations. When these aren’t spelled out in one place, it causes confusion and leaves employers vulnerable to legal claims.

Have new hires review your handbook and sign an acknowledgment – but don’t treat this as the end of your compliance process. Policies should be regularly revisited and communicated.

4 Neglecting Records

Most entrepreneurs are big-picture thinkers, and few list paperwork as a passion. But mishandled or missing personnel files can threaten even the most promising ventures. From taxes to immigration to health, HR records contain vital and sensitive data, and if they’re not in order, you could be subject to severe penalties or litigation.

Create an organized folder for each employee. Consult the U.S. Department of Labor, your state’s labor department, and the U.S. Equal Employment Opportunity Commission for record retention requirements. Keep I-9 forms and health-related documents secure.

5 Leaving Learning to Chance

While today’s workers need more specialized skills than ever to succeed, training is on the decline. Recent U.S. Census data shows that the share of workers receiving on-the-job training has fallen by more than a third since the 1990s. Meanwhile, a growing body of research indicates that undertrained employees are less productive, less collaborative, and less engaged.

Invest in the long-term success of your employees with an initial phase of hands-on, role-specific, responsive training. Then, follow up with ample opportunities for continued learning and development.

6 Failing to Document Performance Issues

A wise HR professional once said, “If you didn’t document it, it didn’t happen.” This is a valuable adage for many aspects of business management, but it’s especially true for contentious issues like employee discipline. Failure to record rules, consequences, incidents, and outcomes can lead to conflict and a continuation of adverse behavior.

Communicate performance expectations proactively and address issues as they arise rather than waiting for formal reviews. Establish a progressive discipline policy to maintain fairness in handling problematic patterns.

7 Terminating Without Due Diligence

Most U.S. workplaces practice at-will employment, meaning either the employer or the employee may sever the relationship at any time. But this general principle is subject to contractual and legal limitations. In addition to considering the impact of layoffs on production, client relations, and morale, employers have to defend against wrongful termination suits.

Ensure you follow all applicable laws and internal policies regarding final pay, accrued PTO, and benefits. When in doubt, consult an experienced employment attorney.

Stay Up to Date

When it comes to personnel matters, it’s always better to be proactive than reactive. Once you have evaluated your business’s risk profile and implemented the right solutions for your situation, it’s essential to revisit your policies regularly. If you perform a quarterly review of financial reports, add HR documents to the agenda.

Leverage Expert Advice

For more personalized guidance on optimizing your business operations, consult your financial institution.

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