HR Fundamentals for small business

Most small businesses grow organically. Decisions are made based on current information and usually there is no long-term plan considering future implications.

So when does human resources (HR) become relevant and when should you start applying HR practices in your business?

The short answer is … Immediately

On average, your labour costs will account for 20% - 35% of your gross sales. For service-based businesses this can be more than 50%.

Why then is HR the lowest priority?

Simply, HR activities don’t make money in the same way a sale or new client does.

HR is a long-term investment. It is the accumulation of good business decisions focused on accomplishing future objectives. Proactive HR Management will be the defining factor that leads to your company’s success.

So where do you begin? What are the key HR Fundamentals you should be thinking about as you grow your business?

The Foundation

 1. Salaries

It may seem like a strange place to start but if you don’t know what you can afford to pay someone, how can you employ them?

Determine payment structures upfront

Decide what you can afford to pay your staff, ensuring minimum wage rates are met, and confirm you are competitive within the market. This will put you in a strong negotiation position when you start recruiting. 

You will also be more confident that you are not over-spending on your labour costs. 

2. Headcount Plan 

Headcount Planning is proactive HR management. Never employ someone until you know how many people you need. No matter how stressed your feeling with workload. 

Create a 12-month view of expected sales and corresponding service hours / widgets to be developed or manufactured. 

Consider scheduled work verse forecast work 

Scheduled work will have a signed contract already verse forecast work which is not yet guaranteed. Map the number of staff required to complete the work by calculating the number of expected hours. 

Lastly, calculate rough estimates of how much recruitment, training and ongoing remuneration will cost your business. Think in terms of total cost of workforce (TCOW) and build this into your budget. 

3. Recruiting 

Whether they’re your mate or someone new, you should collect and assess the following information before making an offer. 

Resume: a 1-pager on previous experience is enough for you to know if an interview is needed to confirm they can do the job. 

Certificate/Tickets: Always obtain a copy of industry or work-specific qualifications. As an employer, you are legally required to ensure your employee is qualified to complete the job. 

Working Rights: Make sure the person you are hiring is legally allowed to work in Australia. Many companies don’t complete the Visa Entitlement Verification Online (VEVO). 

Complete a VEVO check 

Reference Checks: This is 100% optional. You won’t be provided references who don’t give positive feedback. Ref checks become useful when identifying cultural fit or development areas. 

Pre-Employment Medicals: This can include but is not limited to a basic fitness assessment, drug and alcohol screening and/or audiometry testing. 

Book medicals only if required for your industry 

Not all tests are mandatory and must be job-related. They can also act as a baseline if required in the future when managing workers compensation claims. 

4. Employment Contracts 

An employment contract is an agreement between an employee and the employer that outlines the terms and conditions of employment. This can be written or verbal. 

Never verbally hire someone 

Verbal agreements allow for the misinterpretation of agreed conditions. Written employment contracts are mutually beneficial providing protections for both employees and employers. 

Always provide a written employment contract 

The contract should clearly outline the employee’s wages, roster, leave accruals, claimable expenses and termination clauses. Also include confidentiality and protection of trade secrets or proprietary information. 

Always check the National Employment Standards (NES) and any Award or Agreement to ensure the terms and conditions applied meet minimum employment standards. 

5. Personnel Files 

It is a legal requirement to keep employee records for seven (7) years. 

Start this now to save time later 

It is recommended to securely store an employee’s resume, qualifications, proof of working rights, reference checks and pre-employment medical in a Personnel File. 

In addition, you should store the employment contract, payroll information and superannuation details. This covers many of the basic requirements to store annual earnings guarantees, hours of work and individual flexibility arrangements. 

You also need to store pay records, leave taken and remaining balances, superannuation contributions and if applicable, termination records. 

Note: A full list of information to be kept for each employee is prescribed in the Fair Work Act 2009 and Fair Work Regulations 2009. 

6. Payroll 

Payroll software should be the first HR purchase of every new business. It is vital to help alleviate one of the most significant administrative burdens. 

The software will help you keep track of employee pay rates, automate payroll runs and deduct payroll tax. 

Don’t go fancy or expensive 

Online software such as XERO or MYOB will give you the basics you need to start your business as well as payroll functionality, leave tracking and timesheet recording. 

The Building Blocks 

7. Organisation Structure 

Once you have more than 5 employees, it is a good idea to start considering an organisational (org.) structure. 

There is a perception that org. structures create unnecessary hierarchy, remove autonomy and hinder new ideas, innovation and future growth. 

A simple structure will provide company direction 

The structure can be as flat or pyramid in shape as you like. The core purpose is to make it clear where responsibility for tasks and final accountability for decisions will occur. 

The structure highlights clear escalation points, delegates authority and creates the basis for succession planning 

8. Job Descriptions 

As an extension to your org. structure, a job description is all about role clarity and setting clear expectations. 

Provide role clarity from Day 1 

A job description is a document clearly outlining job requirements, job duties, job responsibilities and skills required to perform the role. 

The document can be used to support succession planning, identify development opportunities and training needs as well as supporting the management of performance. 

Policies & Procedures

9. Employee Handbook 

Lastly, don’t write a suite of policies and procedures. 

Instead implement an Employee Handbook. This will guide your team on what is expected of them and establish protocols for how to manage issues that may arise. 

A handbook will form the foundation of your business

The handbook can include:

• Company vision, mission, values and objectives;      
• Code of Conduct including anti-discrimination;
• Safety and Security procedures;
• Leave procedure (E.g. annual leave or sick/personal leave);
• Expense claims procedure; and
• Disciplinary process. 

Implement these nine (9) HR Fundamentals and you have the foundation in place to grow your business.