For a small business owner, human resources is another job competing for attention – and it’s one that is easily sidelined.
But people are the driving force behind every business. Strong HR practices can both keep you legally compliant, and help create the conditions for productivity, engagement, and growth, catching issues before they escalate.
So the HR challenge for small businesses is not whether to invest in HR, but how to focus limited resources.
The four HR must-haves
Below, two HR experts with experience working with SMEs share the areas of HR that should never slip down a small business’s priority list.
Stay on the right side of the law
Keeping up with the evolving UK employment law landscape is critical for small businesses, says Kelly Tucker, managing director at HR consultancy HR Star.
“Being legal and compliant would be my recommendation as the number-one priority,” she says. “Making sure you have employment contracts in place to detail employees’ terms and conditions of employment is a legal requirement, [as is] ensuring your employees have been through ‘right to work’ checks.
“In addition to the contracts of employment, I would also recommend having an employee handbook which details the core policies and procedures – for example, absence management, disciplinary and grievance procedures, and equality and diversity. These protect the business if a dispute does arise.”
Get the right people on board
According to Sarah Ropek, founding HR partner of small-business HR provider The Fractional HR Department, some of the most crucial HR practices are those that shape the earliest stages of the employee experience.
“Hiring people who align with your values, giving them a great first impression, and managing probation effectively makes everything else in HR much easier,” she says.
The cost of getting this wrong is significant. The Recruitment & Employment Confederation estimates that a bad hire can cost more than £130,000 for a mid-level role. A strong probation process can mitigate those losses by giving businesses a chance to confirm the fit before making a long-term commitment.
“Probation isn’t just a formality,” says Ropek. “it gives you a structured window to support new hires and resolve any issues early.” She argues that the upcoming Employment Rights Bill, which strengthens probation rights, will make this process even more critical for small businesses.
Manage conflict
In smaller businesses, even minor disruptions can have major knock-on effects. A single difficult relationship, or a performance issue left unaddressed, can quickly impact client outcomes and morale across the team.
“Creating an open environment where issues can be raised and resolved early costs nothing,” says Ropek. “But it has a huge impact on engagement, retention and performance. A culture of honest conversations often prevents minor concerns from becoming major problems.
“If your managers find this difficult, a small investment in line manager training or coaching pays off quickly. Even a single session equipping managers with the skills to give feedback, handle conflict, and support their team can transform the way people experience your business.”
Build company values
Company values shouldn’t be restricted to large corporations with formal social responsibility programmes.
A clear set of company values is a simple and cost-effective tool. It helps small businesses make consistent decisions about who to hire, how to manage performance, and how to build culture.
“I would always encourage businesses of any size to have company values that are embedded in their people practices,” says Tucker. “This sets a strong foundation for attracting and retaining the right people, and enables businesses to spend more time on proactive people practices and less time dealing with poor performance and high employee turnover.”
In practice, this might mean referencing values in job adverts, reinforcing them during induction, and linking them to recognition or promotion decisions. For example, if collaboration is a core value, then teamwork should be discussed in appraisals and rewarded when demonstrated.
“Being legal and compliant would be my recommendation as the number-one priority.”
Kelly Tucker, Managing director, HR Star
What can wait? Streamlining HR
Not every HR activity is essential for a small business. Some practices can be moved further down the to-do list without exposing firms to undue risk.
According to Tucker, some of the areas that can be safely deprioritised include advanced benefits packages, extensive HR tech implementations, and formal leadership development programmes. These initiatives are valuable, but aren’t essential for early-stage or smaller firms.
Streamlining HR doesn’t mean avoiding areas like recognition and development altogether. It simply means finding more time- and cost-effective ways to keep people engaged.
“[For example], simple recognition systems like public praise in team meetings or ‘kudos’ emails reinforce values and encourage positive behaviours,” says Tucker.
Where possible, offering flexible work options to employees is a low-cost benefit with huge gains for engagement and wellbeing. A CIPD study found 80% of employees feel that working flexibly has had a positive impact on their quality of life.
Supporting employees with work-life balance is another critical retention tool for smaller firms. In fact, a study by Randstad published earlier this year found that work-life balance has surpassed pay as the leading motivator for talent.
Findings like this show that you don’t need a full HR department to manage people well. Concentrating on the essentials, and keeping everything else simple, is often the most effective way for small businesses to build strong teams and avoid unnecessary complexity.
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