Managing human resources in small firms is different for four main reasons: size, priorities, informality, and the nature of the entrepreneur. As a rule, it’s not until a company reaches about 100 employees that it can afford an HR specialist. Yet even five-or six-person retail shops recruit, select, train, and pay employees. So, it’s usually the owner or their assistant that does the HR tasks; the bookkeeper might handle payroll, for instance.

As a result, SHRM found several years ago that even firms with under 100 employees often spend the equivalent of two or so people’s time each year addressing human resource management issues. One effect of this is that human resource management tends to be more informal in smaller firms. For instance, training tends to be informal, with an emphasis on methods like coworker and supervisory on-the-job training.

Entrepreneurs are people who create businesses under risky conditions, and starting new businesses is always risky. Entrepreneurs therefore tend to be dedicated and visionary, and somewhat controlling. This combination of small size, priorities, informality, and entrepreneurial tendencies can easily translate into several problems for a small firm’s human resource management practices. For example, violating Family Medical Leave Act regulations, and not paying for overtime hours worked, to name a few.

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