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What Are The Important HR Requirements For A Small Business?

23 October 2023

Running a successful small business requires an extensive number of roles and responsibilities to be allocated and undertaken. Contracts, handbooks, policies and training are all HR requirements, but they can also promote a positive work culture that significantly benefits your business.

At many organisations, these will fall under the responsibilities of a dedicated HR manager, who’ll act as the go-to person for any issues relating to the employee lifecycle, and any disputes that might arise along the way.

For SMEs that lack the luxury of in-house expertise, however, these HR requirements still need to be carried out effectively. Failing to do so could result in a number of challenges, ranging from a lack of clarity towards expected behaviour, to action being taken by an employee who feels that they may have been unfairly treated. In many cases, this means they are done by members of staff who might not be entirely familiar with the role and responsibilities of HR.

In this blog post, we will explore some of the most essential HR requirements for small businesses, and highlight the advantages of executing them correctly – as well as the potential consequences of neglecting them.

What are the important HR requirements for a small business?


Establishing straightforward, clear and comprehensive HR policies is fundamental for any business, regardless of size. Good policies should cover equal opportunities, anti-discrimination, harassment, code of conduct, leave policies, and disciplinary procedures. At a minimum, UK law requires businesses to have the following HR policies in place: 

  • Disciplinary and dismissal;
  • Grievances; and
  • Health and safety. 

Ensuring a business has well-defined policies supports a healthy business culture, reduces legal risks, and promotes consistent practices. Without developing and enforcing these policies, businesses could face legal disputes, low employee morale, and increased difficulties in resolving conflicts smoothly and effectively.


Drafting employment contracts is an essential part of the hiring process. Fundamentally, contracts should outline job responsibilities, compensation, benefits, working hours, confidentiality agreements, termination clauses, and any other terms and conditions relating to the relationship between employer and employee.

Clear and concise contracts help to manage expectations, protect the business and its employees, and minimise potential misunderstandings. Failing to implement proper contracts can lead to legal complications, financial liabilities, and damage to the employer-employee relationship. 

Employee handbooks

An employee handbook is a valuable HR tool used to outline company policies, procedures, and expectations. Its primary function is to serve as a guide which employees can regularly refer to when they need clarification on important information, including things like working hours, holiday or vacation policies, benefits, and company values. 

A well-crafted handbook ensures consistency, facilitates employee onboarding, and helps to resolve conflicts, issues or misunderstandings. Without an employee handbook, businesses run the risk of inconsistent practices, confusion, and a lack of clarity in their workplace culture.

HR software

Although HR software may seem like a luxury for small businesses, implementing an affordable and user-friendly HR software solution can streamline and automate many administrative tasks. 

It can assist with things like managing day-to-day workflows, employee data, payroll management, leave, performance evaluations and more. Utilising HR software saves time, which enables enhanced efficiency, reduces administrative errors, and ensures compliance with legal requirements. 

Neglecting HR software may increase the administrative burden, which may lead to more manual errors, more paperwork, and greater difficulty in managing HR tasks effectively. Ultimately, this all takes up valuable time that could be put to better use elsewhere.

Training & development programmes

Investing in employee training and development programmes is often vital for small businesses to grow and stay competitive. That might include on-the-job training, online courses, workshops, or mentoring programs. 

Although allocating sufficient funds and resources can be challenging if budgets are limited, providing relevant training opportunities enhances employee skills, increases productivity, and boosts job satisfaction – all of which contribute to higher retention rates.

On the other hand, neglecting employee training and development could result in a stagnant workforce, low employee engagement, and reduced productivity, as well as skill gaps that may leave staff unable to adapt to industry changes. Without investing in employees, your workplace might become a less productive one, and with far lower retention rates.

Improving poor performance

Establishing a process through which poor performance can be addressed is crucial, both for maintaining productivity and a high-performance culture. This process typically includes setting expectations, meeting for regular performance evaluations, and providing constructive feedback – all of which should give the employee opportunities to improve. 

Addressing poor performance promptly, fairly and effectively allows businesses to take proactive measures to manage underperforming employees. They can then provide the necessary support to those employees, and take appropriate action if required. 

Ignoring poor performance can lower morale, hinder team productivity, and have a detrimental impact on the success of the business. Discover how Loch HR can help you navigate the various challenges of poor performance.

While small businesses and SMEs might not have the resources for a dedicated HR manager, it is essential to prioritise certain HR requirements. Investing time and effort in these considerations will undoubtedly contribute to long-term success, and the continued growth of your business.

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