HR Makeover

AT SOME POINT, SMALL BUSINESSES NEED AN INJECTION OF BIG-BUSINESS HR PRACTICES. HERE’S HOW TO OVERHAUL TO FOSTER GROWTH, ENCOURAGE EMPLOYEES, AND AVOID POTENTIAL LIABILITIES.

It’s a pattern small-business owners everywhere seem to repeat. They start a company, soon realize they can’t do everything themselves, and begin the process of bringing qualified people onboard. After the first round of hires, the usual management problems percolate. The owner, strapped for time, troubleshoots seat-of-the-pants solutions each time incidents occur, or he or she hands over human resource issues to the person entrusted with payroll and office management.

Quick fixes, maybe. But over the long run, both approaches are recipes for HR disaster. That’s why most small businesses—from family-run, mom-and-pop shops to 21st-century, high-tech startups—are in dire need of an HR makeover. Many small businesses overlook the HR component due to practical constraints like lack of time and money. Others believe formalized policies and procedures are for corporate cultures and not conducive to creating the warm and cozy environment they want to foster in their own small business. Either way, by not establishing official policies, small businesses leave themselves open to a variety of legal liabilities, not to mention difficulties attracting and retaining a qualified and motivated workforce.

“A lot of operational styles of small-business owners are shoot from the hip—they make things up as they go along,” says William Hubbartt, president of Hubbartt & Associates, a human-resource consultancy in St. Charles, IL (www.hubbartt.com), and an HR specialist appearing on Jim Blasingame’s Small Business Advocate site (www.smallbusinessadvocate.com). “That’s good to a point until you start to grow and issues start creeping back into the mix. You have to have guidelines so you don’t get tripped up by violating employment laws you didn’t know were out there.”

Getting serious about formalizing HR encompasses a number of factors, but it doesn’t have to cost big bucks. It can also be accomplished without hiring a top salary, full-time HR practitioner. Business owners willing to invest the time can research HR regulations and create and formalize their own policies and employee handbooks. They can also tap the Web for online resources and handbook templates that can give them a head start. For those that don’t want to take the time or cultivate the expertise, a more efficient approach might be to contract with an HR specialist, who can come in on an as needed basis.

“It doesn’t have to be a big deal—you can bring in someone knowledgeable and in about a half-day and for under $1,000, you can make sure that you’re in compliance,” says Vince Pellettiere, president of HR Design Solutions LLC, a human-resource consulting company in Gurnee, IL (www.hrdesignsolutions.com), that performs such audits under contract. “Given the consequences of not being in compliance, it’s a pretty good investment.”

Here are the primary areas small business owners need to consider when giving HR that much-needed overhaul:

Regulatory Roundup

One of the primary reasons to polish up your HR practices is to put some protections in place for both your employees and your business. Formal, written policies set ground rules for employees, while protecting their basic rights. At the same time, a consistent set of procedures goes a long way in promoting team-building and maintaining structure and order. It also helps to prevent miscommunications and misunderstandings that can lead to injuries in the workplace as well as employee lawsuits.

“Companies are establishing HR practices from the first day whether they know it or not, so it’s best to do it deliberately rather than just letting it happen,” explains Beverly Wood, managing partner at HRxpress.net (www.hrxpress.net), a Santa Barbara, CA, HR consulting and compliance firm. “That way, there’s a well-thought-out strategy that’s consistent, and companies avoid any discrimination issues or morale problems.”

There are a number of state and federal regulations that small businesses need to respond to from an HR standpoint. All businesses are required to post a variety of notices in the workplace, covering guidelines on things like job safety and health protection, equal employment opportunities, disability acts, medical leave, and minimum wage, among other areas. Poster requirements vary from state to state and depend on the size and type of company. (Go to www.dol.gov/osbp/sbrefa/poster/matrix htm to find out more about poster requirements.)

Beyond posters, small businesses also need to be clear on how to classify employees properly so they’re compensating individuals within the scope of the law, thus avoiding costly fines or potential lawsuits. Employees are classified as exempt or nonexempt, depending on their pay status and their duties, and that classification governs whether a small business is responsible for overtime pay and minimum wage standards along with specific tax obligations and filing related paperwork. Staying compliant with these rules (covered under the Federal Labor Standards Act) is no small task for many business owners, who lack the specific expertise to discern the differences between the two classifications. Family businesses, in particular, also need to be mindful of regulations related to employing minors.

A Personnel Touch

Documenting all of your HR policies in some form of an employee handbook is a practical way to ensure consistency. Along with the basic discrimination and compensation guidelines mentioned above, the handbook should cover policies related to hiring practices, working conditions (things like hours of operations and policies on lunch hours and coffee breaks), compensation, time off, benefits, career development, promotions, performance evaluations, and rules of termination.

Having such an employee handbook was a priority for Sports & Wellness Physical Therapy, a physical therapy practice in Santa Maria, CA, as soon as it began to hire its first employees. “From the get-go, we hit the ground running with personnel policies and a handbook,” explains Lisa Story, business manager for the practice. “Once we employed people, it was important that there was equity and fairness among all employees, and in order to do that, you need policies.”

Sports & Wellness enlisted HRxpress to evaluate its procedures and put together a formal policy manual that the company updates on an annual basis and has employees sign every year. “That ensures everyone is operating on the same page,” Story says. The manual has come in handy on several occasions to help the owners justify personnel decisions that they’ve made.

Employee handbooks are also well suited for documenting policies related to confidentiality agreements and other security measures. Here, a business owner can make it clear to employees that they’re not to share critical customer or competitive information, for example, or merely instruct employees in how to handle the sharing of other sensitive information and items—things like computer passwords and keys. “In the flurry of day-to-day activity, business owners don’t think about those things,” admits Jeff Corn, coowner of Alliant Media Group, a 12-person provider of business and residential telephone services and media and home theatre systems.“We have a wealth of issues to deal with from how to reset passwords on a computer to advising people of their rights when it comes to termination. Having a handbook provides a very structured, disciplined approach that makes sure we go through all the kinds of wickets we need to, to protect ourselves from liability.”

Buttoning Up Benefits

A buttoned-up small business also needs to consider offering a buttoned up benefits package, at least one that is competitive with other companies in the region and mix. Basic medical insurance coverage and paid vacation time are the most popular benefits, while other companies throw in more creative benefits like training, wellness programs, or parking privileges.

The standard in the United States is to offer between nine and 11 paid holidays. Some companies offer paid sick days and personal days on top of that, while others are less flexible about formalizing time-off policies. “The idea is, do as much as you can,” says Susan Heathfield, president of Heathfield Consulting Associates, a management consulting firm in Williamston, MI, and the human-resource guru on About.com (http://humanresources.about.com). “In terms of attracting and keeping the best people, benefits are so important,” she says.

In the end, taking a proactive stance to all things HR-related is a surefire way to carry your company through the next stage of growth. “If you have the proper people, systems, and programs in place, you will affect employees’ behavior, which has a direct impact on your customer relationships, which then have a direct relationship to the health of your business,” says HR Design’s Pellettiere.

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