A Guide to Human Resources for Small Business

Apr 30, 2018


As a small business, there are many things you're exempt from, but human resources isn't one of them.

Human resources for small business is one of the first things you should think about as soon as you consider hiring your first employee. Why? Because as soon as you hire someone, it's your employees - not your product or service - that become the most valuable part of your business.

Human resources doesn't only shape your company - it can also make or break it through hiring, firing, and performance.

So do you need small business HR? Absolutely. Keep reading to learn how to get started.

What Is Human Resources?

Human resources is a management system dedicated to all things related to your employees - i.e., your human resources.

It covers:

  • Hiring
  • Firing
  • Benefits
  • Employee development
  • Employee management
  • Employee communication
  • Employee safety and wellness

Essentially, human resources help keep your employees happy and healthy at work.

Although human resources appears to be heavily administrative, it has a massive impact on how your employees work. Your small business HR department tells them:

  • How to behave
  • How to communicate
  • How to settle issues between each other and between employees and management

It also serves the vital function of setting the culture in the workplace. Are you a company that drags workers back into the office the second they're discharged from the hospital after an illness? Or do you encourage people to take time for themselves when they need to so that they can be happier and more productive workers?

Taking small business human resources seriously is critical because it's more than paperwork - it reflects who you are.

Do I Need Human Resources for My Small Business?

Yes, human resources for small business is always a good idea, even if you fall outside the scope of businesses which are covered.


Because it might be you and a handful of staff now, but scaling your business is easier when you're already compliant with HR protocols and regulation. HR will help you grow sustainably and create a company that moves forward together.

Human Resources for Small Business: Essential Requirements

Human resources for small businesses becomes more complicated as your business grows in size. HR law is known for changing at will and for creating red tape. However, there are three things that virtually all small businesses need to have to be compliant with federal law:

  1. Employee files
  2. Employee handbooks
  3. Employee Information posters

Here's what you need to know about each of these categories:

Employee Files

The United States federal government requires you to keep three files for every employee:

  • Employee general file
  • I-9 file
  • Employee medical file

The government only accesses the I-9 file, and you should keep these together in a safe, locked place. Don't place them in the general employee file.

A general employee file is both a requirement and a helpful tool for you. It should include employee:

  • Resumes
  • Training documents
  • Performance reviews
  • Employee evaluations
  • Payroll details
  • Tax forms

An employee's file should be kept together in one folder and should remain separate from other employee files. You have a legal obligation to protect personally identifiable information.

Employee Handbook

Your employee handbook is the A-Z of working with your company. It's not something you want to buy in stock format; it's crucial for you to write and understand the policies outlined in the handbook.

The handbook shares your employee policies with your employees in writing as part of the onboarding process. It's like a contract and serves as a mediator in disputes. That means employees need to read and abide by it - and so do you.

You've probably received a few employee handbooks during your career. How many have you read? Not many - unless HR walked you through it.

We recommend writing an employee handbook that doesn't just sit in desk drawers. Encourage employees to refer to it by making it personal to your company and your staff and make it a pageturner by highlighting the perks you offer.

Employee Information Posters

Most businesses are required to post at least one informational poster in a visible part of its premises. From handwashing signs to OSHA warnings, you're likely to find at least one sign that applies to you.

Check the requirements for your county and state to see what you need to put up. Don't be afraid to ask your county and state commissioners for an exact list of requirements, so you're in complete compliance with the law.

The Top 3 Small Business HR Mistakes

Human resources for small business is all about creating a process and sticking to it. Failing to follow and document these processes cost your business some serious money.

Here are the top small business HR mistakes made every day by employees who throw the book at HR:

1. They Hire Too Quickly

HR hiring practices are there to ensure your hiring decisions are stellar every time. Skipping the process and hiring too quickly means you're hiring people but not the right people.

A bad hire is expensive to the tune of $50,000 per lousy employee.

Save yourself $50k by using a consistent process and sticking with it to ensure you get the right information every time.

2. They Don't Update the Employee Handbook

Does your handbook reflect the latest changes in employment law? Does it reflect important changes made to your company?

The only way to ensure your handbook means anything is to update it regularly.

3. They Don't Document Performance

Your team is stellar; things get done. Do you really need to review and document their performance? After all, if they didn't perform, you'd fire them, right?

Thinking about hiring, firing, and performance along these simplistic lines will damage your company.

If someone isn't performing and is subsequently fired, it can get messy if there are no documented performance issues. In an ideal world, you should address performance problems as they happen, making notes along the way.

Firing an employee should be a last resort, but by informing the employee of issues and keeping a record, you can justify your decision to the employee and a judge if needed.

Put Your People First

People are paramount, and that's why human resources for small business is essential.

Not sure where to start? Download our HR Starter Kit for the guidance you need to get your HR off the ground.


Disclaimer: HR Branches provides general information about Human Resources. Please note that the information provided, while reliable, is not legal advice. Please seek legal assistance, or assistance from State, Federal, or International governmental resources, to make sure your legal interpretation and decisions are correct for your location and circumstances. The purpose of this information is for guidance, ideas, and assistance on general HR matters.

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