The Top 5 HR Mistakes Small Businesses Make (and How to Avoid Them)

Discover the top 5 HR mistakes small businesses make, from poor contracts to weak onboarding, and learn how to avoid them with simple, practical solutions.

Introduction

Running a small business means juggling sales, operations, customer service, and growth. With so many priorities, HR often slips down the list — until a problem arises. Unfortunately, HR mistakes can quickly lead to fines, disputes, or unhappy employees.

To help you protect your business and your people, we’ve rounded up the top five HR mistakes small businesses make - and what you can do to avoid them.

1. Not Having Proper Employment Contracts

One of the biggest HR mistakes small businesses make is relying on handshake deals or generic offer letters. Without a proper contract, you leave yourself open to disputes over pay, hours, responsibilities, or termination.

How to fix it:

  • Always use written contracts tailored to your business and legally compliant.

  • Include details like pay, working hours, duties, and termination conditions.

  • Review contracts regularly to keep them up to date.

2. Ignoring HR Compliance and Record-Keeping

Small business owners often underestimate the importance of compliance. Misclassifying employees, failing to track working hours, or ignoring holiday pay rules are common (and costly) errors.

How to fix it:

  • Stay informed on employment law changes in your region.

  • Keep accurate records of pay, hours, contracts, and performance.

  • Use simple HR tools or templates to stay on top of compliance.

3. Poor or Non-Existent Onboarding

Another frequent HR mistake in small businesses is skipping a structured onboarding process. When new hires are left to “figure it out,” they’re more likely to feel disengaged or leave early.

How to fix it:

  • Create a simple onboarding checklist.

  • Clearly communicate your company culture, policies, and role expectations.

  • Schedule check-ins at 30, 60, and 90 days.

4. Inconsistent HR Policies and Practices

Inconsistent treatment - such as letting one employee work remotely while denying another without clear reasoning, creates resentment and risks discrimination claims.

How to fix it:

  • Write down simple HR policies on working hours, leave, and performance management.

  • Apply policies fairly across your team.

  • Communicate openly so employees know what to expect.

5. Avoiding Difficult Employee Conversations

Many small business owners put off tough conversations about poor performance, misconduct, or conflict. By the time they act, the issue has often escalated.

How to fix it:

  • Address issues early with honest but respectful conversations.

  • Document discussions and agreed next steps.

  • Give regular feedback, not just when things go wrong.

Small businesses thrive when their people feel supported. By avoiding these common HR mistakes, you’ll reduce risk, improve employee satisfaction, and free up time to focus on growing your business.

At Home of HR, we provide HR support that’s practical, affordable, and tailored to your needs as a small business.

Ready to avoid HR headaches? Get in touch with us today and let’s make HR simple for your business.

Alice Hosker