Small businesses often lack dedicated HR staff, time, and resources. This makes it harder to keep up with employment laws, manage staff effectively, and handle admin efficiently.
Introduction
HR is often one of the biggest pain points for small businesses. With limited time, tight budgets, and little in-house expertise, handling hiring, compliance, and employee management can quickly become overwhelming.
But neglecting HR isn't an option; the risks to your business, reputation, and team morale are too high.
This guide breaks down the 8 most common HR challenges small businesses face and gives you clear, actionable solutions to tackle each one head-on.
1. Hiring the right talent
The Challenge
Small businesses often lack the brand recognition and recruitment budgets of larger firms. Attracting high-quality candidates can be tough, especially when competing with companies offering bigger salaries and flashy perks.
The Solution
When it comes to recruitment and selection, focus on what you can offer that bigger companies can’t: flexibility, purpose, and growth potential. Write clear, compelling job ads that highlight your culture and values. Leverage employee referrals and tap into local networks or industry-specific job boards. Streamline your interview process to move quickly on top talent, and don’t underestimate the power of attitude and potential over experience. By using a great ATS, you can reduce time, cost and enhance the candidate experience. Ask us at My HR Hub how we can do this for you!
2. Managing employee turnover
The Challenge
High turnover disrupts workflows, drains morale, and ramps up costs. For small businesses, losing even one key employee can have a major impact.
The Solution
Start by understanding why people leave, we feel exit interviews are too late – there is usually nothing you can do at this stage as the employee has ‘left the building’. Using great 1-1’s and Employee Engagement tools to find out how your employees feel and what can be improved. Ask us about our brilliant, low-cost Employee Engagement survey. Focus on building a supportive work environment with regular feedback, clear career paths, and recognition for good work. Offer competitive (not necessarily highest) pay and benefits and prioritise work-life balance. Retention starts with good hiring, but it's sustained through strong leadership and open communication. Seeking management training and development from HR specialists is always a great way to improve your understanding of managing people, helping you to retain great staff!
3. Building an effective onboarding process
The Challenge
Poor onboarding leads to confusion, slower ramp-up times, and a weaker connection to the company. In small businesses, onboarding is often rushed or informal if it happens at all.
The Solution
Create a structured onboarding plan that covers more than just paperwork. Introduce new hires to your team, tools, and culture from day one. Provide a checklist, assign a mentor or buddy, and schedule regular check-ins during the first few months. Even simple steps like a welcome email or first-day agenda can improve engagement and retention dramatically.
4. Handling payroll and benefits
The Challenge
Payroll errors and confusing benefits processes can frustrate staff and lead to legal issues. For small business owners juggling multiple roles, it’s easy to make costly mistakes.
The Solution
Use reliable payroll software or outsource to a payroll provider to ensure accuracy and compliance with tax regulations. Clearly communicate pay dates, deductions, and benefits to employees. Keep things simple, offer core benefits like paid leave, pension schemes, and flexible working where possible. Always document policies and provide easy access to information, especially during onboarding or pay reviews.
5. Managing performance and productivity
The Challenge
Without a clear system in place, it’s difficult to track performance, address issues early, or reward high achievers. Small teams often avoid formal reviews, leading to misaligned expectations and missed opportunities.
The Solution
Implement regular one-to-ones and simple performance check-ins. Set clear goals for each role and give honest, constructive feedback. Encourage self-assessment and two-way conversations to build trust and accountability. For underperformance, act quickly but fairly clarify expectations, offer support, and document discussions. Recognise wins, no matter how small, to keep motivation high. Ask us about our low-cost, high-value HRIS / (HR systems for SME’s) that will reduce your admin, track your meetings and keep you one step ahead of compliance.
6. Developing leaders from within
The Challenge
Small businesses often rely on a handful of key people. When these individuals leave or move roles, there’s rarely a clear succession plan, creating risk and instability.
The Solution
Identify high-potential employees early and invest in their growth. Provide opportunities for them to take on responsibility, lead small projects, or mentor others. Offer training tailored to your business goals, this could be online courses, shadowing, or one-to-one coaching. Leadership development doesn’t have to be formal or expensive, but it should be intentional and ongoing. For any Manager who has responsibility for employees or a team, ensure that they have HR and People Management training.
7. Maintaining company culture
The Challenge
As small businesses grow or shift to hybrid working, it becomes harder to maintain a consistent, engaging culture. Without intention, culture can fade or fracture.
The Solution
Define your values clearly and live them daily. Leadership must model the behaviours you want to see. Celebrate team wins, encourage feedback, and create regular touchpoints for team bonding, both in person and virtually. Hiring for cultural fit (as well as skills) helps protect your company’s identity. Remember, culture isn’t a poster on the wall; it’s how your team acts when no one’s watching. 😊
8. Limited HR resources and know-how
The Challenge
Most small businesses can’t afford a full-time HR professional. As a result, owners or managers end up handling HR with little experience or support.
The Solution
Leverage affordable HR software to automate admin tasks like time-off tracking, onboarding, and document management. Consider outsourcing complex areas such as legal compliance or recruitment. Tap into online resources, local business networks, or government support schemes for guidance. The goal isn’t to do everything, it’s to prioritise the essentials and get expert help when needed.
Making HR work for small business growth
HR doesn’t have to be a drain on your time or energy. By understanding the key challenges and tackling them with clear, focused solutions, small businesses can build strong teams, stay compliant, and create a workplace people want to be part of. You don’t need a full-time HR department, just a smart, consistent approach that supports your people and drives your business forward.
FAQs for challenges small businesses face
Yes. Outsourced HR gives you expert support without the cost of an in-house team. It’s scalable, affordable, and ensures your business stays compliant and protected.
You can outsource tasks like recruitment, compliance, contracts, payroll, onboarding, performance management, and more, either in full or selectively.
Focus on strong leadership, regular feedback, flexible working, and clear career development. Small, consistent actions often matter more than costly perks.
Ignoring HR risks can lead to legal trouble, high turnover, low morale, and reputational damage. A proactive approach protects your business and supports growth.
