Industry News, Human Capital Management

7 HR mistakes small businesses and startups must avoid

May 03, 2020


As a small business or startup, you have a lot on your plate. Not only do you need to build your business through sales and marketing, you must take care of finances and general day-to-day operations. On top of this, you need to ensure you're hiring and keeping the right employees. Your employees can make or break your business.

"By understanding

common HR errors you can avoid them."

In this article, we discuss some of the common employment related mistakes made by small businesses and startups. By understanding common HR errors you can avoid them, which could save you thousands of dollars.

1. Not having a vision
Let's say your company is expanding and you now have the need and the money to hire a new employee. That's great news! And it's an exciting time. But don't begin the hiring process until you establish a clear vision of the duties to be performed by the new employee and the type of person you want to bring on board. Ask yourself:

  • Exactly what role will this person play in my organization?
  • What type of background and skills does he or she need to accomplish assigned tasks?
  • And, most importantly, will adding an employee result in an increase in revenue and/or net income?

Of course, you'll likely ask yourself many more questions throughout the process, but always begin by defining your vision and following it.

"It can cost roughly $4,000 for an SMB to recruit a single


2. Not screening properly
You waste time and money when you don't properly screen candidates. Prior to inviting someone for an interview, ensure the HR professional (possibly a recruiter) phone screens the individual. If he or she feels like that candidate is the right fit, a formal interview can be scheduled. Screening ensures that the company is not wasting time interviewing candidates who lack the requisite aptitude and attitude for the position.

3. Compromising your criteria to expedite the process
Did you know it can cost roughly $4,000 for an SMB to recruit a single candidate? According to a report from Bersin, it can, and that's a 7 percent increase from the previous year. Most small businesses cannot afford to waste that kind of money on a single bad hire, and if you do it repeatedly, you could be wasting many thousands of dollars. The recruiting expense is just the beginning. After that, the compensation and other expenses associated with the employee are lost when either you or the employee decides that it isn't working. According to a CareerBuilder survey, 27 percent of U.S. respondents reported one wrong hire cost them over $50,000.

That's why it's crucial to do your homework prior to hiring someone new. A single misstep can lead to a poor hire, which, in addition to the wasted direct costs, can lower morale and productivity of other employees. Beyond this, a bad hire can cost a company in terms of replacement costs as they continue their search for the right person.

4. Not paying correctly
Small businesses often have limited financial resources and strict budgets. They don't have a lot of room to make financial mistakes. Because of this, it's vital they don't mess up simple HR practices like paying their employees on time and correctly. The Fair Labor Standards Act, which establishes minimum wage and overtime rules, states that "employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,000 for each such violation."

When money is precious, you cannot afford to waste it by making avoidable mistakes.

5. Misclassifying employees
Are your workers full-time employees or independent contractors? It's imperative that you classify them correctly. It can be tempting to classify workers as independent contractors who are responsible for their own payroll taxes and benefits and for whom your only wage reporting requirement is the annual IRS Form 1099. For employees, the company must pay half of the tax required by the Federal Insurance Contributions Act or the full tax mandated by the Federal Unemployment Tax Act and withhold certain taxes, along with other requirements, including preparing and filing the annual IRS Form W-2. But misclassifying workers could cost your company hundreds if not thousands of dollars in back taxes, employee benefits and penalties. Misclassification of workers is a very common type of self-inflicted wound.

6. Not offering the right perks and benefits
All businesses offer some type of perks and benefits to full-time employees. But are they offering the right ones? This is something HR professionals must continuously scrutinize and improve upon if they want to retain their workforce.

"Seventy-three percent of

employees say their benefits package plays a major role in their workplace happiness."

In an Aflac survey of U.S. office workers, roughly 42 percent said their employers would have a greater chance of keeping them if they offered better benefits. On average, nearly 73 percent of employees said their benefits package played a major role in their workplace happiness. A competent benefits broker can help you design an employee benefits package that fits your budget and the most important needs of your employees.

7. Forgetting about employee development
Once employees receive and are happy with their salary and perks and benefits, they tend to look longer term. They not only want to know that their actions are positively affecting their company, they also want to feel as if they're developing their skills and creating opportunities for advancement in the process. HR managers must create an environment in which good work is recognized and rewarded, and in which employees believe they have a meaningful future.

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