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Updated: May 9, 2024

Start here: HR basics for small business owners

Published By:

Erin Ellison

More from our experts

Being an employer means taking on some responsibilities to ensure your employees have a safe workspace, are treated fairly, and can be taxed at the end of the year. At the end of the day, handling HR can mean a lot of paperwork for small business owners, but it can also mean building a company culture and making sure your company is a great place to work.


If managing HR means tossing all your employees’ HR docs in a file folder and feeling like you are flying by the seat of your pants, you’re not alone. Doing HR yourself takes an average of 18 hours a month — and many small business owners say they’re not confident they get it all right. And as a business grows, there are more HR requirements and more cats to herd. By the time a company reaches 50 employees, our research shows that it probably even has a dedicated in-house HR manager.


So, how do you stay compliant and avoid liability without spending too much time or money on HR? The best way is to identify all your responsibilities upfront and to develop processes for things like hiring, onboarding, reprimanding, and terminating employees. Here are the four basic HR steps you should take to get things right:


1. Start with compliance

Baking compliance into your HR department from the get-go will help you today and down the road — even if your HR department is just a filing cabinet. When it comes to keeping the taxman, the state employment department, and their associates happy, focus on documentation, organization, and information:

  • Proper documentation is all about keeping clean records. Whether you store them in that old-fashioned filing cabinet or the cloud, every employee needs a file with all of their info. This can include things like their resume or application, W-4, handbook sign-off, payroll information, and anything else that’s relevant to your business. If you’re ever in doubt about whether you need a document, it may just be better to stick it in the file.
  • Have your employees fill out their Form W-4 or Form W-9 on their first day of work. You’ll need these forms to collect basic tax information and to help you prepare employees’ payroll tax filings at the end of the year — but which one? The IRS takes employee classification seriously, so you’ll want to be sure you get this right. There are several helpful resources out there to help you determine the right employee classification for your staffer.
  • Organize your I-9s. I-9s can be stored either with the employee’s personnel file or separately to be in line with what the US Citizenship and Immigration Services (USCIS) requires — but always in a way that’s readily available should they come knocking for an audit. Because of this, we (and the USCIS) recommend keeping them in a separate file for easy inspection.
  • Labor law poster regulations are there to help you keep business practices inclusive, safe, and standardized for everyone involved — no matter how big or small you are. They require that you not only inform your employees about the relevant labor laws but also in an easily accessible way. So, you’ll need to keep the necessary federal and state posters in a common area like the break room or hallway on the way to the lockers. The good news: you can find out what posters you need on the federal level with this advisor tool. You’ll also want to check out any additional requirements by visiting your state’s labor office website. You can also subscribe to a labor law poster service service to make this easier.


To-Do: Decide where and how to store your personnel files, and stick to your system. Check your compliance regulations at least twice per year. Order your labor law posters early.

How long should you keep HR files?

The EEOC recommends keeping an employee’s personnel records for at least one year after their employment ends (which is how long former employees have to file a lawsuit for many employment-related causes of action). Tax records should be kept at least three years.

2. Build your own employee handbook

Your employee handbook is one of the most vital documents you will ever have for your company’s employees. As a guide to how they should interact with one another, you, and your business, it can answer a variety of questions to help prevent future employee confusion or frustration. Think of it as the ultimate FAQ.


While writing a manual may seem daunting, there are helpful templates available from HR service providers and organizations, so you don’t have to start from scratch. Generally, your handbook should cover topics that are unlikely to change in the short-term such as vacation policies, bereavement, holidays, calling out sick, discrimination policies, harassment policies, dress codes, floating holidays, and any other standard practices. You can also include things like social media rules and company mission and values.


Having a handbook will keep everyone on the same page about what the rules are. And it’s also important to spend time reviewing the handbook with your new hires to answer any questions they have.


To-Do: Make a list of important policies to include in your handbook, and keep track of common questions. Look into cloud-based HR service providers, or ask your payroll service provider if they can help with HR tools.


Consider creating an applicant flog log (AFL) to organize interview records, collect statistical data for the federal government, and assist HR teams in improving recruiting efforts.

3. Create a process for onboarding and, yes, termination

A solid onboarding process can boost your retention rate by 82%! Using a handbook is a basic piece of the puzzle, but the real key here is setting up a well-defined process that makes onboarding smoother and faster (so you can still get on with running your business).


That means making a list you can easily check off every time you bring on someone new. Software can help with things like e-signing documents or allowing new employees to self-onboard. That way they can easily sign off on paperwork from anywhere or enter all of their information themselves. This is especially helpful if you have remote workers to onboard, but it still saves time for folks in-house (including you) as well. A strong onboarding experience is also important for integrating new employees into your company’s culture.


On the flip side, you’ll also need to be able to offboard someone who’s resigning or terminate an employee who’s not doing great work. Nobody is excited about the termination process, but it’s better to prepare now for when it happens. Depending on your state, there are different requirements for things like separation notices or final paychecks, but there are a few best practices:

  • The Department of Labor has some helpful information on termination for employees. While people will leave your company more often through resignation than firings, you’ll still need to manage a whole host of activities to end their tenure with your company like COBRA for insurance and paperwork for unemployment benefits.
  • Consider holding exit interviews to learn more about why someone is leaving your company. This can help you address any internal issues sooner rather than later, or look at ways to boost engagement.
  • Different states have different rules about termination and final paychecks, but know that you cannot withhold an employee’s final check — even if you have fired them. Take a moment to find this information in your state’s labor laws now so you’ve got a handle on the legal requirements.
  • Hang onto terminated personnel files. On the federal level, an I-9 can be destroyed one year after termination and payroll information can be destroyed after three. When you do get rid of these files, remember they contain lots of private, personal information, so look into document shredding services.


To-Do: Use an onboarding checklist to ensure everything is completed for your new hire. Learn about termination regulations for your state and at the federal level. Consider working with a document shredding service for terminated personnel files.

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4. Keep your new employees engaged

You’re already well on your way to creating a compliant workplace. Now, it’s time to think about keeping your team happy so they’ll stick around. Retention matters for a few reasons including maintaining team morale, keeping the best talent with you (and not your competition), and managing limited resources like the cost of recruitment, replacing a skilled worker, and the downtime to get someone new up to speed. Not to mention, happy employees do their jobs better.


According to a recent State of the American Workplace report from Gallup, only 33% of employees in the United States are “engaged” — meaning they feel a profound connection to their company — at work. That means that two-thirds of employees may be feeling like they’re spinning their wheels on the job or getting ready for a change. So, how do you boost employee engagement? One way is to keep communication clear. Another is to offer the benefits that your employees are looking for.


Improving communication might mean choosing a messaging platform for the office or finding a tool to simplify sharing requests like shift changes — or just talking to your people regularly. “Stay” interviews can help you address trouble spots, but also learn what your team needs from you and your business to remain engaged.


It’s also important to take a step back regularly and assess the benefits you offer: Does your health insurance coverage match up with your workforce? Is adding a 401(k) something your people are regularly asking for? Would a new training or upskilling workshop be helpful to you and your employees? Ask your team about the atmosphere in the workplace — is there anything that can be improved? It can be hard for small businesses to compete in the labor market, so it’s good to have a strong sense of what your employees need to be happy.


To-Do: Retention and employee engagement are all about communication and empathy. Try having check-ins with each employee regularly to gauge their engagement or frustrations and brainstorm future benefits and perks.


At the end of the day, the best approach to human resource basics is focusing on creating a functional, safe, and enjoyable workplace — and keeping yourself organized. These fundamentals will keep your HR practices in compliance while still giving plenty of room for growth as you expand your staff. If you aren’t quite ready to hire your first HR manager or take on the added responsibilities yourself, there are HR service providers who can help you with self-onboarding, document templates, and more. In fact, if you use a payroll service provider, you may already have access to a whole set of HR tools from them.


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Erin Ellison is the former Content Marketing Manager for OnPay. She has more than 15 years of writing experience, is a former small business owner, and has managed payroll, scheduling, and HR for more than 75 employees. She lives and works in Atlanta.