Human resources tends to be a reactive field rather than proactive. In most cases, business owners don't look for an HR solution until they realize they have an HR problem. But in most of those same cases, a little bit of proactive planning would have prevented a whole lot of reactive grief.
With that in mind, here are seven of the most common HR blunders that small businesses commit — and steps you can take to avoid them.
1. Not Knowing the Difference Between an Employee and an Independent Contractor
I can't tell you the number of times I've heard a business owner describe a member of their workforce as "a 1099 employee."
That description is an oxymoron. A worker can have either "1099" status or "employee" status, but they can't have both.
The "1099" designation refers to the IRS form that businesses use to document payments made for (among other things) "services performed by someone who is not your employee" (emphasis added). Those services are performed by an independent contractor, in other words.
It is important for a business owner to not only understand that there is a difference but know how to correctly categorize someone as an independent contractor or an employee. Determining the correct category can be more complicated than you think, so employers would be wise to brush up on both federal and state laws regarding this issue.
2. Not Having Adequate Job Descriptions
One of the biggest disconnects that happens between a business owner and an employee comes down to their expectations, which are often quite dissimilar. The business owner hires someone thinking they'll handle a specific set of responsibilities (but without actually articulating those responsibilities in a formal job description), while the person who accepts the job thinks they'll have a different set of responsibilities.
A job title, incidentally, is not the same as a job description. A title like "office manager" can have drastically different job descriptions from one company to another. So it's important for the business owner to spell out the job description in as much detail as possible so the new hire knows what to expect.
Another issue that comes up involving job titles/descriptions is that the business owner might not have a realistic grasp of what a particular job entails. Bookkeeping is a good example. A business owner who struggles with bookkeeping and devotes a lot of time to it might conclude that the best solution is to hire a full-time bookkeeper. But a professional bookkeeper has the skillset to do that same job in a fraction of the time it took the business owner to do it, so there might not be enough work to justify having made them a full-time employee. In that case, outsourcing would have been a better option.
3. Not Adequately Spelling Out Policies and Procedures
On a related note, employers often do a poor job of spelling out appropriate (or inappropriate) workplace behavior. A good rule is never to assume that anything "goes without saying."
Here's an example: A company I recently worked with had a problem with its delivery drivers playing loud music, which they neglected to turn down when they reached their destinations. This resulted in numerous customer complaints.
To solve the problem, the company instituted a written policy formally requiring its drivers to turn off all music before reaching customer sites.
4. Not Having Specific Procedures for Changing an Employee's Status
One of your employees has been performing far above your expectations. So you decide to reward them with a promotion that includes a new title and a big raise. What could possibly go wrong?
Well, you could be opening yourself up for a discrimination lawsuit if another employee thinks you denied them the same promotion for the same level of performance.
While it's impossible to implement completely objective standards for rewarding employee performance, businesses need to at least try to identify benchmarks and standards in their employee review procedures, such as meeting (or exceeding) specific company goals.
5. Not Having a Progressive Discipline Procedure
In this case, we're dealing with the opposite problem — an employee who performs below expectations, sometimes to the point that you decide to terminate their employment.
Again, it's hard to draft a one-size-fits-all procedure. Some behavior, such as theft or assault, is grounds for immediate termination. But in most cases, the offenses are far less egregious and therefore require a different approach.
Take chronic lateness. Showing up late on occasion is rarely grounds for termination, particularly if the employee makes a good-faith effort to acknowledge it, such as calling in to say they're stuck in traffic. But an employee who routinely arrives late with no explanation, which can have a detrimental effect on productivity and morale, is subject to termination.
The key is to document the employee's tardiness, and to do it in steps. First, speak to the employee and issue a verbal warning. It helps to have them sign an acknowledgement that you issued the verbal warning, with a witness present. If it happens again, issue a written warning. If it happens a third time, you now have solid grounds for termination. Without documentation, it becomes a "he said/she said" situation, which you want to avoid at all costs — and the cost of an out-of-court settlement can be steep. (I always tell my clients, "You never know who has an uncle who is an employment law attorney.")
6. Not Complying With Worker's Comp Regulations
Worker's comp requirements are pretty straightforward, but a growing business can unknowingly violate them by inadvertently crossing the threshold. The thresholds vary by state. A common threshold is four employees: A company with four or more employees must have worker's compensation coverage, although the company owner can exempt themselves. For example, in Florida if you have three employees (including yourself) and you hire one more, you either need to file for a personal exemption and get worker's comp coverage for your employees.
The construction industry is even stricter. Again, it varies by state. In some states, everyone must have worker's comp — no exceptions. If inspectors show up on a job site and you can't provide proof of coverage, they can shut you down immediately and issue hefty fines.
7. Not Adequately Maintaining I-9 Files
Finally, many business owners get themselves in trouble by failing to keep up-to-date I-9 files.
If your reaction is "What's an I-9?" then you're already in trouble. Employers must complete an I-9, or Employee Eligibility Verification form, for every person they hire.
Having current I-9 files is particularly important in industries that are susceptible to Immigration and Customs Enforcement audits. Although you can keep I-9 files electronically, I recommend printing hard copies and storing them, in alphabetical order, in a binder that's readily accessible. As with an IRS audit, anything you can do to make the auditor's job easier will decrease your likelihood of getting fined.
That's a Start — but Only a Start
By no means have I covered every HR blunder that could upend a small business. But if I've at least got you thinking of HR in more proactive terms, that's a huge step in the right direction.
Shana Ryan is President and CEO of Conceptual HR Solutions in Jacksonville, Florida.