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3 Ways HR is Different for Small Businesses than Enterprises

At heart, human resources (HR) means the same things for any organization that work with employees: managing the employee lifecycle from hiring through termination or resignation, handling “transactional” activities like payroll and benefits processing, and developing strategies for optimizing the workforce. From there, however, HR’s role and activities can vary widely between large and small organizations. Small and midsize businesses (SMBs) often lack the cash to throw at HR issues, the staff with HR expertise, and the time to do an optimal job with HR activities. But how do these differences play out in practice, and what can small businesses do to catch up with their bigger competitors?

Small businesses tend to do less due diligence during hiring.

Smaller organizations are less likely to do thorough background or reference checks, and they may limit their recruitment efforts to just a narrow slice of channels, like internal job posting and social media. This makes it harder to find people with the right skills, which in turn forces small business owners to take on more tasks themselves, according to the 2016 Bank of America Small Business Owner Report. By contrast, large organizations can cast a wider net and go through a lengthier process designed to find just the right person. PEOs and other recruitment firms can make a huge difference for small businesses here by providing enterprise-grade service at small business-friendly fees.

Small businesses can struggle to offer competitive compensation packages.

Similarly lacking monetary resources, small organizations and startups may be reduced to bare bones benefits and intangible and uncertain forms of compensation like equity in a company that hasn’t yet found its feet. According to MetLife’s 14th Annual (2016) U.S. Employee Benefit Trends Study, employee retention is the top reason for offering benefits (83% of employers), but fewer than half (48%) of employees are satisfied with the benefits that they receive. All of that will make it harder to attract workers who have the high-level skills and background to command generous compensation packages. It’s no wonder that small businesses so often outsource their benefits programs, including insurance plans, to third-parties. By buying into a large health group plan in that way, they can gain access to enterprise-grade benefits while paying only a fraction of the price.

Small businesses can view HR as more transaction than strategic.

Large firms can take a long view with their HR investments, tying HR directly into business strategy. Small organizations are likely to think of HR solely in terms of legal and financial obligations. However, this means enterprises can get ahead while SMBs are constantly reacting to HR issues. HR consultants and service organizations can help small businesses to gain more insight into their HR operations and turn HR into a driver of future success. In fact, the National Association of PEOs, in its 2016 annual research report, found that employment growth for PEO clients exceeded that of small businesses overall, and businesses that used PEOs for at least four quarters were 50% less likely to go permanently out of business from one year to the next. Good strategy and excellent HR operations make a real difference.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about our ability to create a strategic HR function in your business that drives business growth potential, contact us today.