Small Business HR: Essential Strategies and Tools for Employee Management

It's 8am, and Ryan, owner of a growing moving company, is already juggling three HR crises: an urgent hiring need, a scheduling conflict, and a pending safety inspection. Like the other 27 out of 33 million small business owners in the US, he’s playing the role of CEO, manager, and HR department all at once.

“I wear the HR hat along with many others, and it took some getting used to at first,” says Ryan Carrigan, CEO & Co-Founder of MoveBuddha.com. “It did give me a newfound respect for HR workers though. I don’t think I appreciated just how much goes into this sort of role until I was navigating it myself.”

If Ryan's story sounds familiar, then you're in the right place. This guide will show you how to build an efficient, compliant HR system that saves you time and protects your small business—whether you're just getting started or looking to improve your existing processes.

How does HR work in a small business?

In small businesses, HR functions typically fall squarely on the shoulders of the business owner or a designated manager (typically a production manager or operations manager). According to SHRM, 50% of small businesses handle HR tasks themselves–and the challenges are very different from what large corporations face. 

Here are some other things that make small business HR uniquely challenging:

• Time crunch: Small business owners spend an average of 18 hours per week on HR tasks instead of growing their business.
• Expensive mistakes: The average employment lawsuit costs $75,000, and 40% of small businesses face employee-related legal issues annually.
• High stakes: Replacing just one employee costs about half to two times the employee's salary.

Think of HR less as corporate bureaucracy and more as your business's immune system—it protects you from costly compliance mistakes while helping your team perform at their best. That's why so many small business have been turning to all-in-one HR tools like Homebase.

These tools can automate HR tasks, helping you reduce that 18-hour weekly time-drain so you can invest it back into running your business. 

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Do you need HR for a small business?

While it’s true that if you’re a small business you don’t need a full-fledged HR team–or even a full-time HR person–it doesn’t mean you shouldn’t invest in proper HR management. Even if you only have a handful of employees, you need basic HR functions to do the following:

• Maintain legal compliance and avoid costly penalties
• Create clear workplace policies and procedures
• Handle payroll and employee benefits administration
• Manage employee documentation and records
• Address workplace conflicts and complaints
• Ensure fair hiring and termination practices
• Keep employee morale and productivity high

Most small businesses find success using HR software like Homebase to automate these day-to-day tasks, combined with specialized services when needed for complex issues like legal compliance or benefits administration. 

The key is to start with the basics—time tracking, scheduling, and employee documentation—and then add on more HR systems as the small business grows. 

What are the 7 major HR activities at a small business?

An operations or production manager at a small business ideally oversees the following essential human resources tasks:

1. Recruiting and hiring: Find and bring on the right people to help grow your business.
2. Training and development: Teach new hires the ropes and helping current staff grow their skills.
3. Performance management: Set clear expectations and help employees succeed in their roles.
4. Compensation and benefits: Create competitive pay packages that attract and keep good people.
5. Employee relations and culture: Build a positive workplace where people want to stay and grow.
6. Employment law and compliance: Follow the rules that keep your business safe from legal issues.
7. Administration: Manage the essential paperwork that keeps your business running smoothly.

1. Recruiting and hiring: Build your team.

Every hire in a small business can make or break your team. You need to write clear job descriptions, conduct structured interviews, and run thorough background and references checks. 

At Rhen's Nest Toy Shop, for example, owners Christina and John built their success by prioritizing culture fit in the hiring process, focusing on finding staff who could create engaging experiences in their battery-free, imagination-focused toy stores.

🏠 Homebase tip: Christina and John streamlined their hiring by using Homebase’s hiring and onboarding platform to post jobs across multiple job boards and screen for candidates who matched their family-friendly culture, helping them save time in the process.

2. Training and development: Set up your team for success.

The first 90 days make or break a new hire's success. You have to create a simple but effective onboarding system that covers essential training, documentation, and performance expectations. 

Take Dots and Doodles art studio, where Laura Hilger set up her mostly high school staff for success by creating clear checklists and digital guides. Her approach to training turned first-time workers into confident team members who could handle everything from the day-to-day customer service to art projects.

🏠 Homebase tip: Laura uses Homebase's mobile app to keep her young employees on track with digital training materials and automated reminders, making sure nothing falls through the cracks.

3. Performance management: Help your team excel.

For small business owners, performance management isn't about corporate-style annual reviews—it's about creating a clear path for your employees to succeed and grow with your business. This means tracking and improving employee performance through regular feedback, clear metrics, and recognition programs. 

For example, Brooklyn Tea owners Jamila and Alfonso transformed their team by celebrating achievements publicly and using metrics to guide improvement.

"It's not just about punching in and out," explains Jamila, "It's about making our community feel seen and dignified so they can feel like they're really brought into what we're trying to accomplish"

4. Compensation and benefits: Compete for talent while on a budget.

The key to competing against corporate salary packages is getting creative with employee payment. Industry standards suggest that you keep labor costs around 30% of sales, but that doesn't mean you can't build incentive pay strategies that make great people want to work with you. 

Back to Brooklyn Tea, Jamila and Alfonso cracked the code by offering a mix of competitive base pay and growth-focused perks. They support their team's outside interests (like featuring employees' art in the store) and offer flexible scheduling that works around school and side gigs.

🏠 Homebase tip: Brooklyn Tea uses Homebase's labor cost tracking and forecasting to make smarter decisions about compensation, identifying slower business days to create schedules while keeping up with competitive wages.

5. Employee relations and culture: Build a positive workplace.

Small businesses thrive on strong relationships and positive culture. This means establishing clear communication channels, addressing conflicts as soon as they come up, and building a healthy team dynamic through regular meetings and social events. 

Small businesses that take employee relations and culture seriously tend to have things in place like open-door policies, regular team check-ins, and recognition programs that help keep spirits high.

6. Employment law and compliance: Set ground rules that protect your business.

Every growing business needs clear policies to protect against legal issues, keep operations consistent, and empower employees to make good decisions. It’s helpful to start with written guidelines for the basics like scheduling, time off, safety procedures, and daily operations. 

At Squash Blossom Boutique, owner Lisa leveraged her 20-year IT background to modernize the store's operations after taking ownership—the previous owners had relied on Word documents for scheduling and an honor system for time tracking.

🏠 Homebase tip: Lisa found success using Homebase's built-in team communication features to keep everyone informed about policies and procedures. By digitizing her employee handbook and procedures, she reduced confusion and potential compliance issues while making it easier for employees to access this important information anytime.

7. Administration: Manage the important details.

For small business owners, HR administration is the foundation that keeps everything running smoothly (or becomes your biggest headache if managed poorly). This includes maintaining records of everything from basic employee files (I-9s, W-4s, emergency contacts) to time and attendance tracking, payroll documentation, benefits forms, training certifications, performance reviews, and safety incident reports.

At Needle in a Haystack, owner Cathe discovered just how crucial good administration was when she took over the business. "The previous system was all paper-based—time cards, employee files, everything," she explains. "One compliance audit would have been a nightmare."

🏠 Homebase tip: Cathe eliminated manual paperwork by using Homebase to store all employee records digitally and track safety compliance in one secure system. In Cathe’s words: “Not having all that paper has made my life SO much easier!”

What HR policies should a small business have?

HR policies protect your business from costly mistakes while creating a better workplace for your team. But managing these policies can quickly become overwhelming—that's why having the right systems in place is crucial. Here are the essential policies every small business needs, along with practical ways to implement them:

Key employment laws and regulations.

Employment laws can get overwhelming, but they're your roadmap to running a safe and legal business. Here are some of the most important regulations an HR manager needs to be on top of:

• Wage and hour laws (overtime, breaks, and minimum wage requirements)
• FLSA worker classification (exempt or non-exempt)
• FMLA compliance guidelines, even if you're not yet at 50 employees
• State-specific blue laws regulating business operating hours
• Minor employment rules for employing teen workers
• Workplace safety standards and OSHA regulations
• State and local paid leave laws

With Homebase, for example, you can automatically track compliance with these laws and get alerts before issues arise—like when employees are approaching overtime or missing required breaks. The app maintains all your required documentation in one secure place, helping you stay compliant.

Documentation requirements.

Think of documentation as your business's insurance policy—when problems arise, organized records are your only defense against expensive disputes and compliance slips. Every small business needs to maintain certain pieces of essential paperwork including:

• I-9s and W-4s for new hires
• Detailed time records 
• Performance notes 
• Displayed labor law posters
• Benefits forms 
• Disciplinary records
• Approved leave requests

This makes keeping records manually almost an impossible task. The good thing is that modern HR platforms like Homebase can actually organize and store all of these employee records securely in the cloud, giving you the peace of mind and instead access when you need them most.

Workplace safety standards.

Safety at work isn't just another checkbox. It's about protecting your people and your business's future. The average workplace injury costs small businesses $39,000 in direct costs alone, and that doesn't include lost productivity or damaged team morale.

Here are some best practices for building your safety system from the ground up:

• Create written safety rules for common risks in your industry
• Establish basic health and cleaning standards
• Put up clear emergency procedures and evacuation plans
• Document all safety training with dates and signatures
• Inspect safety equipment regularly
• Track incidents with standardized reporting forms
• Have first aid and emergency contact lists up to date

And, guess what? HR software tools like Homebase can also take care of tracking workplace safety compliance.

You can use the platform to send automatic reminders when certifications need renewal and help maintain OSHA-compliant documentation. Plus, using a mobile app, your employees can quickly report safety concerns, allowing you and your managers to address the issue right away.

Anti-discrimination policies.

Creating fair workplace policies isn't just about avoiding lawsuits–it’s about building a safe, inclusive work environment that people enjoy working in. Smart anti-discrimination policies help you make better decisions and they create a workplace where everyone can contribute their best work. 

Here's how to build fair, protective policies that attract great talent:

• Establish clear hiring criteria based on job skills and qualifications
• Define acceptable workplace behavior and expectations
• Create a straightforward process for handling accommodation requests
• Train managers on protected classes and fair treatment
• Document all your employment decisions with performance-based reasoning
• Set up confidential channels for reporting concerns

Manage your HR & compliance with Homebase

How to set up HR for a small business?

Setting up HR for your small business doesn't have to be overwhelming. Start by understanding your specific needs, then build your HR foundation step by step. Here's how to create an HR system that grows with your business:

Assess your HR needs.

Before diving into policies and procedures, take stock of your current HR challenges. Are you struggling with hiring? Spending too much time on paperwork? Having trouble keeping good employees? 

Understanding your pain points helps you decide which HR functions to tackle first. It’ll also help you figure out whether you need to re-train your current managers, get HR software, hire HR specialists, or a combination of those things.

Create your employee handbook.

Your employee handbook is your playbook, your company values, and legal protection all rolled into one. Start with the essentials: attendance, conduct, safety procedures, and benefits. Keep the language clear and practical, avoiding legal jargon that confuses everyone. 

Most importantly, make sure your handbook reflects your actual practices–courts look closely at this during disputes.

💡Want more help? Watch our webinar recording where HR expert Kara Govro walks you through exactly how to create an effective handbook. Whether you're creating your first handbook or updating an existing one, this practical guide will help you build a handbook that actually protects your business.

Custom employee handbook - Homebase HR Pro

Build your HR infrastructure.

With your handbook in place, it's time to build the core HR processes that will help your business run smoothly. Think of these components as the engine that powers your HR operations—each part needs to work together efficiently. 

Here are the essential pieces to put in place:

• Compensation structure: Create clear pay ranges and benefits packages.
• Hiring process: Develop standard job descriptions and interview procedures.
• Training program: Establish onboarding checklists and development paths.
• Performance management: Set up review processes and feedback systems.
• Compliance tracking: Maintain required documentation and safety standards.

Set up HR systems.

According to Valoir research, small businesses spend up to 40% of their day on HR tasks that could be automated. That's two whole days every week spent pushing paper instead of growing your business! 

Pick one pain point to solve first. Maybe it's the hours you spend on scheduling, or the constant worry about payroll mistakes. Master that, then move on to the next challenge. 

Having a great HR system in place doesn't have to be complicated anymore, especially in this age of HR tech; it's all about choosing the right tools. Modern platforms like Homebase can transform those scattered spreadsheets and paper files into a streamlined system that practically runs itself, handling everything from I-9s to overtime calculations in one place. 

What HR services do small businesses need?

Consider starting with essential HR services that address your immediate needs. A lot of small businesses find success using a combination of HR software solutions and part-time HR consultants to handle these core functions. 

Small business HR services can help you manage HR functions like recruitment and compliance more efficiently, allowing your business to concentrate on growth.

Here's a practical roadmap to choosing the HR services your small business needs:

Pick your HR platform: Start simple, scale smart.

Not all HR platforms are created equal, especially for small businesses where every dollar counts. That's why your business needs HR software that combines essential features like hiring, scheduling, and compliance tools in one affordable package—it's the difference between spending hours on endless HR tasks and having time to actually grow your business.

The HR platform you choose should be easy enough that your team actually uses it. While big names like ADP and Paychex offer robust features, all-in-one platforms like Homebase are specifically designed for small business needs and budgets.

Start from your most pressing need and build everything from there. Mimi Nguyen, CEO of Cafely, focused on finding a platform that centralized all work-related communications first. 

“We’ve compiled every necessary info related to their job duties in that platform as well,” Mimi says. “For instance, if an employee has a question in relation to their task, they no longer need to tap on someone from my HR team and instead they can refer to the platform immediately. After implementing, we noticed improved employee retention rates by about 15%.”

When should a small business hire HR?

When HR tasks start piling up, many small business owners jump straight to thinking they need to hire a full-time HR person. But that's often not the best first step. Before that, consider that most small businesses can handle their HR needs through a combination of HR software and targeted outsourcing.

Think of it like building a house—you don't need to hire a full-time contractor when you can use the right tools and bring in specialists as needed. The key is knowing when you actually need dedicated HR help versus when you just need better systems and the occasional expert to support you on a freelancing basis.

Key signs you need HR help.

Watch for these signs that it's time to upgrade your HR approach (but not necessarily hire full-time help):

• You're close to 50 employees (FMLA compliance kicks in)
• Your managers spend more time on paperwork than leading your team
• Employee complaints are increasing or they’re going unaddressed
• You keep missing important compliance deadlines or documentation
• Turnover is getting high and exit interviews are revealing issues you could have solved earlier
• You're expanding to multiple locations or crossing state lines
• Basic HR tasks are taking you longer than 20% of your work week
• You're facing employee relations issues that make you feel like you’re way out of your depth
• Recruiting and onboarding are getting more and more complex

If you're experiencing several of these signs, don't panic—you're not alone. One quick perusal of related subreddits will show you that HR is typically a big source of overwhelm for small business owners. The key is choosing the right combination of tools and support to address these challenges you have without overcommitting to unnecessary overhead.

Finding the right HR support.

Before jumping into hiring, consider these three approaches to managing HR:

1. HR software + existing staff: For most small businesses, this combination works well. Tools like Homebase handle the day-to-day HR tasks while your managers focus on people leadership.
2. HR software + outsourced expertise: When you need specialist help, bring in HR consultants or services for specific projects while keeping your core HR functions automated.
3. Full-time HR hire: Usually only necessary when you hit 50+ employees or face complex HR challenges that require daily, hands-on attention.

Most small businesses succeed with a hybrid approach: using HR software to manage the day-to-day, hiring outsourced services for technical tasks like payroll and compliance, and designating an internal coordinator to handle culture and employee relations. 

This combination gives you the protection and expertise your business needs while maintaining a personal connection with your team.

What is the best product for small business HR?

As we've seen throughout this guide, good HR management isn't about doing everything yourself—it's about having the right systems and support in place to protect your business and empower your team.

Homebase can help you simplify HR for your small business by consolidating all the functions we discussed into one powerful tool. With Homebase, you can:

• Hire and onboard without effort using job posting tools that share openings across multiple job boards and digital onboarding that lets employees complete tax forms, sign policies, and get set up—all online.
• Track hours accurately with the Homebase time clock, which lets employees clock in and out from their mobile devices, while automatically syncing timesheets with payroll.
• Simplify scheduling with drag-and-drop templates, automatic shift reminders, and easy swaps for no-snag team coordination.
• Run payroll with confidence using integrated payroll tools that calculate wages, deduct taxes, and handle direct deposits for your team.
• Stay compliant with built-in tools that monitor labor law updates, track breaks, and provide expert guidance to avoid costly mistakes.
• Foster communication and culture with team messaging features and tools for feedback, recognition, and engagement.

Instead of juggling multiple platforms or drowning in paperwork, Homebase brings it all together in one user-friendly system, saving you from wasting time and from compliance errors.

Ready to stop struggling with HR and start growing your business? Try Homebase free and join over 100,000 small businesses who've found a better way to manage their teams.

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