As a small business owner, you wear a lot of hats. Sales, operations, accounting, and human resources all fall on your shoulders and, undoubtedly, your main focus day in and day out is executing well for your clients and running a profitable operation.
This means that devoting any concentrated time to less critical business initiatives such as human resources can be nearly impossible. Acknowledging this, is it possible that you may be making one or more of these common small business HR mistakes?
5 Mistakes Small Businesses May Be Making
1. Not hiring the right people – According to SCORE’s study, 30% of small business failures are a result of poor hiring decisions. Taking the time to appropriately screen potential new hires before onboarding is of great importance. Hiring an individual hastily just to fill a need can cost you much more in the long run than patiently and carefully vetting a candidate who is truly the right fit.
One of the most important things to consider in the hiring process is the candidate’s attitude. Some crucial questions to consider are:
- How does the candidate handle constructive criticism?
- Are they emotionally mature?
- Are they motivated and a self-starter?
- Do they have the right temperament for the position?
Well-crafted interview questions can help flesh these answers out on the front end and keep you from ending up with someone who may have the skills for the job, but who is a poor fit when it comes to attitude and company culture.
2. Not creating clear job definitions – When hiring and promoting, it’s essential to fully communicate the expectations of the position to the candidate. Take the time to create clear and concise job descriptions for each and every role within the company, and then review those descriptions with new hires and/or employees being promoted to ensure clarity and alignment up front.
Studies have shown that the estimated cost of turnover is about 1/5 of an employee’s annual salary. This is why it is so important to ensure you are hiring the right person for the job. Instead of just having one conversation about the expectations of the job, have many. Read through each duty with the candidate and explain how the duty will need to be completed.
3. Not documenting or addressing performance issues – Thoroughly documenting employee conversations regarding performance, attendance or conduct is crucial. With clear documentation, you can properly demonstrate a history of disciplinary incidents throughout the course of an employee’s tenure. This paper trail is a critical safeguard if your company is ever faced with a lawsuit from an employee.
For instance, if you have two employees that both commit the same violation and one gets terminated and the other gets a warning, you, as the employer, could face allegations of discrimination. However, if you have properly documented that it’s the first offense for employee A, but the third offense for employee B, you can show that employee B went through the progressive disciplinary process and that the last offense required termination.
What to include in your documentation when addressing issues:
- Persons present for the conversation
- What the problem was (use examples)
- When the problem occurred
- Areas where improvements must be made (if any)
- How those improvements can be made
- The consequences of not making improvements
4. Misclassifying your employees – Small businesses sometimes make the costly mistake of misclassifying employees. Most workers are classified as either exempt or non-exempt depending on their salary and the type of work they do. The Federal Fair Labor Standards Act (FLSA) requires that in addition to paying at least the minimum wage, employers also must pay overtime to employees who work more than 40 hours in a given workweek unless they meet certain exceptions. There are also other classifications such as independent contractors.
Misclassification occurs when an employee is incorrectly classified such as in the case of misclassifying someone as an independent contractor. Generally speaking, your employees should all be receiving a W-2 (not a 1099) and have income taxes taken out of their paychecks. According to the IRS, there are three characteristics to help you determine your relationship with your employee: behavioral control, financial control and the type of employment relationship. The consequences of employee misclassification include:
- Employers who misclassify workers as independent contractors can end up with substantial tax bills.
- Employers can face penalties for failing to pay employment taxes and for failing to file required tax forms.
- Issuing a 1099 instead of a W-2 due to the misclassification of an employee can result in a fine for each misclassified employee. Misclassification can also occur when an employee is wrongly classified and paid as “exempt from overtime”. When employees are categorized as exempt from overtime and work without being paid overtime, they will be entitled to costly back pay.
5. Not understanding basic employment laws – Having a firm grip on the employment laws that impact your specific business is of vital importance. Here are five of the most important employment laws that small business owners need a working knowledge of in order to ensure compliance.
- Fair Labor Standard Act (FLSA): Establishes the standard for minimum wage. For the many New England States, minimum wage already has or will be increasing this year.
- Family Medical Leave Act (FMLA): Entitles employees to take up to 12 weeks (26 weeks for special military-related circumstances) of unpaid leave during a 12 month period for things such as birth or adoption of a child, a serious health condition or to care for an immediate family member (spouse, child, parent) with a serious health condition.
- Occupational Safety and Health Act (OSHA): This is the primary federal law that governs occupational health and safety in the workplace. It ensures that you provide a safe and healthy workplace for employees.
- Age Discrimination in Employment Act (ADEA): Clearly outlines what is legal and acceptable when it comes to dealing with employees according to their age.
- Americans with Disabilities Act (ADA): Prohibits discrimination based on a disability and requires employers to provide reasonable accommodations for employees with disabilities.
Many states may have more requirements, so employers must be sure that both federal and state wage and hours laws are met to avoid issues. Navigating each of these important HR issues can be complicated and often times intimidating. Please contact us for more information.