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The most valuable aspect of any business is its staff, and with statistics indicating that Australia’s SME sector employs up to 40 percent of the nation’s workforce, it is essential to understand the importance and significance HR can have in generating and maintaining business success.

Bill Gates was once quoted as saying: “Take away my 20 best people and virtually overnight, Microsoft becomes a mediocre company.”

Employing the wrong staff or turning over staff in a small business can be catastrophic as they often take important intellectual property and countless hours of training that cannot be easily replaced.

Attracting and employing the right staff if essential, but just as important is retaining and managing them. HR plays a very important role in recruitment, retention and everyday staff management. Too often HR is put to the bottom of the pile in SMEs because owners and managers don’t have the required HR skills or experience, they find it easier to put up with a poor performing employee than having no performer at all; and such processes and policies are considered time consuming and costly. And yet, if you think about it, HR is fundamentally more important for SMEs as one employee can disrupt the entire business!

Access to simple and effective HR support is fundamentally important for all businesses, regardless of size. HR is required to set the guidelines of how to find, retain, manage and motive every businesses biggest asset: its people. For SMEs, HR can and should influence and motivate its people to a much greater degree as it promotes the more accessible face-to-face interaction often lacking in larger businesses. Proactive and effective HR should bring out the best working skills of each employee while being aligned with business goals.


Attracting the right people is an integral part of building a SME, from writing the ad, to reference checking and ultimately selecting the best person for the role, a thorough recruitment process is essential. No longer do job applicants line up at your door looking for work, to find the right person you need to actively attract them and often the potential employee will interview you in their search for the right job.

To the unskilled SME owner, this process is daunting and one that cannot only be time consuming and expensive, but hold high risk and have long lasting effects for the business. No one wants to invest time and money into someone who is the wrong fit for the business and this is where someone with a strong HR background can be invaluable.


The first step for all SMEs is to understand is that effective HR must reach beyond merely attracting quality staff. Although ensuring a thorough recruitment process is being used is a fundamental guideline, HR should not simply be limited to this first phase of employment. It is hard work to retain staff; a conscious effort must be made to keep the good, manage the poor and get rid of the bad.

Retention begins from the day the employee starts to the day they leave, the length of the period in between is directly proportional to the amount of time a business puts into its retention strategy. Induction, policies, probation, regular appraisals, feedback, rewards, challenges, training, development, exit interviews and understanding what motivates the staff member are all important when it comes to staff retention. In SME’s these are all things that often get pushed aside and are seen as non-profitable activities when there is no HR.

Discovering what motivates your staff is important when it comes to retaining them. Don’t be afraid to try a variety of options as what motivates one person may not motivate the next so avoid a blanket approach. The beauty of being a smaller business is you have the flexibility to manage employees individually. Find out what motivates each individual employee, balance the staff’s importance with what your business can afford and you will be surprised how easy it is to compete with the larger organisations. There are cost-effective alternatives that will keep your staff, motivated and in your business.

Everyday staff management

HR support is critical to provide advice, guidance and support for employees and SME owners alike. Where there are employees there are questions around entitlements, legislation, harassment and company policy that come up regularly. Having up-to-date policies, procedures and employee handbooks means employees have clear guidelines to work from.

Although it may seem common practice for businesses to have simple policies and procedures in place, the overarching concern here for owners and managers is that they don’t have the time (and usually experience and skills) to dedicate to HR when they should be focusing on the business and doing what they do best. It may take time upfront, but will save time in the long run.

Staff issues arise at various phases throughout an employee’s lifecycle; someone resigns over the peak period, people taking leave at the same time, employee disagreements, or realising someone doesn’t have the necessary skills are all situations where it is necessary to be proactive in implementing and managing HR.


Often it is cost-prohibitive for SMEs to take on a dedicated HR employee, leaving them to use unskilled internal staff that could be better utilised running the business or neglecting HR all together. There are other options available. The most time and cost-effective solution to managing HR for SMEs is outsourcing.

We are not talking about expensive recruitment agencies or over-priced consultants; we mean taking on board an external HR support service so that you have a dedicated HR manager available to your business as and when you need it.

An external HR manager can help manage all aspects of the employee lifecycle. In today’s complicated and volatile recruitment market employers seem too scared to ‘rock the boat’ so to speak, in case an employee leaves and they can’t find anyone to replace them. From recruitment to building team relationships and employee morale to increase employee productivity and efficiency, an external HR manager will take control of every HR situation to allow the owner to continue with the business uninterrupted.

Appointing an external HR manager is also beneficial in adhering to the business’ budget. With the guidance of expert experience and advice the SME has the flexibility and power to control where and how your money is being spent.

HR management for all SMEs is essential in gaining and retaining employees that add value and significance to your growing business. Outsourcing HR management is the most time and cost-effective solution that will proactively increase the bottom line of the business while allowing owners and managers to dedicate resources and energy to what they do best, running the business!

Top HR Tips for SME Owners

  • Employee Handbook

It doesn’t matter if you have one employee or 50, it is important they understand the values, key policies, benefits and expectations of your business. The best way to provide this is in the form of an Employee Handbook. An Employee Handbook holds the answers to all the questions your staff would normally direct to the HR department of a larger company. By having a customised, clear and comprehensive Employee Handbook you are promoting a professional workplace, showing a duty of care to the employees, setting the standard and ultimately saving you time.

  • Ensure a thorough recruitment process is in operation

It is more costly taking on the wrong employee than no employee at all. Not to mention the time costs of going through the application process, particularly when you’re not 100 percent sure of what you are looking for. By implementing a strategic and thorough recruitment process you are eliminating unnecessary cost and time issues that are often associated with this process. It is not just choosing the person that is willing to work for the amount you can afford, you need to know what motivates them, whether they will fit into your culture and where they want to be in five years’ time.

  • Proactively schedule a meeting at three months for all new staff

This meeting should be used to allow the employee to comment on their work thus far, their role in the business and any concerns they have experienced or might expect to experience working in your business. This also provides the employer with the opportunity to gain feedback on the current workings of the business, as well as provide both positive and constructive feedback to the employee in non-threatening circumstances.

  • Implement regular internal feedback sessions

Such sessions will allow the employer and employee to provide open and honest feedback on the current working environment. These sessions can open communication channels across all staff levels while promoting and stimulating a positive and trustworthy business culture. Listen to your staff and value their opinions.

  • Have an underlying focus on employee retention and satisfaction

The beauty of SMEs is that these businesses have the ability to provide inexpensive, non-monetary retention strategies. Discover what motivates your staff. Retention is particularly important in today’s tight candidate market, with money increasingly not the driving force behind business loyalty. Simple non-monetary rewards include special mention at a business function; holding an internal celebratory lunch or dinner to congratulate staff; childcare, gym memberships; flexible work hours or offering extra annual leave. Happy and motivated staff are more productive and more likely to stay with you longterm.

HR in SMEs is often referred to as having a negative impact on the bottom line but, without it, what happens to your biggest asset (your staff), what is the true cost to your business?

-Sue-Ellen Watts is founder of external human resource company Watts Next (www.wattsnext.com.au), providing complete and customised HR support, recruitment, training, coaching and resources specifically for SMEs <–>

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Sue-Ellen Watts

Sue-Ellen Watts

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