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Top 3 HR Issues Facing Newly Formed Businesses

Newly formed businesses and startups may be tempted to bypass Human Resources in favor of other business units, like marketing, sales, finance, etc. After all, if they’re newly formed, they probably don’t have many employees yet anyways, so why worry about HR at that point? Well, here are three HR issues that every new business needs to consider.

Employee Classification

Do you know whether you just hired a contractor or an employee? Don’t be so sure. The IRS has rules about employee classification that can generously be described as confusing. Answering the question requires winding your way through a twenty-factor test – and many of the factors are just open-ended questions that are subject to interpretation. It’s sometimes so difficult, in fact, that the IRS actually has an official form for employers to throw their hands up in the air and just say, “You figure it out for me.”

As a result, worker classification issues dog many small businesses and startups, sometimes to the point of shutting them down. Homejoy, a startup behind a home-cleaning marketplace, closed shop after a series of lawsuits from “independent contractor cleaners who claimed they were really employees.”

Employee Benefits

If you want to stay in business, you want good employees, but unfortunately, 72% of respondents to the Randstad Sourceright 2016 Talent Trends Report say talent scarcity has negatively affected their business. As a result, 82% have made recruiting a top priority.

But to attract top talent requires competitive compensation packages. New businesses often can’t afford the enterprise-grade benefits that would allow them to compete with the big players in their market. This can seem like a no-win situation, because many small businesses also believe that working with an organization like a PEO that would give them access to big-business type benefits would cost too much. Not so! As we describe in our article on “Six common PEO misconceptions debunked,” PEOs are often cheaper for clients than the DIY method, while simultaneously creating a better employee experience when it comes to benefits and HR issues.

Employee Engagement

“Engagement” is another one of those catchphrases that seem more appropriate to big businesses that have cash to burn. But the truth is, employee engagement – or its lack – has a disproportionate impact on small businesses, and therefore must be considered. An older but still salient finding from the Workplace Research Foundation: increasing employee engagement investments by 10% can increase profits by $2,400 per employee annually. At an enterprise-sized organization, that would be a drop in the bucket. At a new SMB, it could keep the doors open while you grow profitability in other ways. Then there are the costs associated with turnover (an average of $4,000 and 52 days to fill an open position, according to It’s never too soon to think about how to get your employees committed to your business’ success.


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.