BA350

1. Because learning changes everything.®
Chapter Eighteen
Human Resource Management:
Small Business Considerations
Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.

2. © McGraw-Hill Education 2
The Bigger Small Business: Hiring Employees
Of all the decisions a small business faces, none is as important or
complex as the decision to hire an employee – many never do.
• Adding employees increases the amount of work that can be done but
also increases the demands on the owner.
The next key decision is what work should be done, who the best people
are to do the work, and how the firm should take care of them.
• Think about the work to be done and carefully balance costs with
increased productivity.
• Finding the right employee fit is important, consider using a
probationary period.
• Taking care of employees includes understanding the many laws that
apply to small businesses as your number of employees grows.

3. © McGraw-Hill Education 3
Figure 18.1: Federal Laws That Apply as Small Businesses
Grow
The U.S. Department of Labor provides
help in determining if laws apply to you.
• State laws are varied.
• Different states may have the same law
but the specifics may differ.
• Determine the laws that apply as you
start hiring.
Hiring employees makes your firm more
professional, but comes with a need to
deal with more laws and regulations.
• The best way is to work with an
attorney.
Access text alternative for this image.

4. © McGraw-Hill Education 4
Attracting Employees
• Networking is a low-cost, though time-intensive, method of recruiting.
• Internet recruiting may speed up hiring and increase accuracy.
• Employee referral is underused and low-cost.
• Company websites can be used to post job openings.
• Universities have career service offices.
• Professional groups can be a resource for recruiting new talent.
• Outsourcing may be the answer in the form of a virtual employee.
• Employee leasing is a hybrid of outsourcing and paid staff.
• Contact local churches for parishioners looking for a new job.
• Check with local senior centers for residents who might like to work.
• Visit local high schools and community colleges for interest.
• State unemployment offices are a great, free resource.
• Three unpaid options – barter, internships, volunteers.

5. © McGraw-Hill Education 5
Matching the Worker to the Work
Even before your first hire, you need to know your basic needs and
what roles the new employee will fit into.
Ultimately, you want to “match” the job with the ideal individual.
Your first step is to define and describe all the work that will be part
of the new job.
Then you will need to know how to evaluate potential employees to
see how well they match your ideal set of requirements.

6. © McGraw-Hill Education 6
Writing a Job Description
A job description defines all knowledge, skills, and abilities needed to fill
the position, including personality, experience, and education.
• A job analysis defines the job itself, job tasks, critical tasks, and critical
competencies.
To get started, write down the job title and state whether the position is
exempt or nonexempt.
• Next, develop a job statement describing the position’s major and
minor duties.
• List any educational requirements, desired experience, and
specialized skills or knowledge required.
• Include the salary range and benefits.
• Finish by listing any physical or other special requirements for the job.

7. © McGraw-Hill Education 7
Evaluating Job Prospects
In making successful hiring decisions, rely on the job description to identify
important knowledge, skills, and abilities the ideal candidate needs.
• If flooded with applicants, use essential factors from the job description
to screen applicants, adding factors until you have a pool of applicants.
• Once you have the pool, use the job description to create a set of
questions you will ask of all candidates.
• A behavioral-interviewing approach generates responses the owner
can directly understand and relate to the applicant and the job.
• Construct questions to elicit descriptions of situations the interviewee
encountered – most lead to follow-up questions.
• Consider involving one or two other interviewers.
• If you check one applicant’s social media, you must check it for all.
Take your time and make sure you have the right person.

8. © McGraw-Hill Education 8
Selecting the Right Person
You are hiring your first employee and have two nice candidates you think
you could get along well with – one with experience, one without.
• Consider future growth – if your current pace of business is fine,
consider the inexperienced person at a lower hourly rate.
• If you want to grow, choose the experienced candidate.
For first-time hiring situations, you may try part-time first.
• This allows you time to refine what you want to see in the job
description and in the business.
In other situations, make use of the probationary period.
• This leaves a graceful way out of having the wrong person in a job.

9. © McGraw-Hill Education 9
Training Your Employees
To begin, assess your training needs to answer the following questions.
• Where is training needed? What key areas need the most attention?
• What specifically must an employee learn to be more productive?
• Who needs to be trained?
Once you have answered these questions, design your training program.
• There are two different types of training: initial and ongoing.
• Offering training makes new employees feel valued, challenged, and
rewarded.

10. © McGraw-Hill Education 10
Initial and Ongoing Training Methods
Two broad types of training: on-the-job and off-the-job.
• On-the-job training occurs while performing the regular job.
• Techniques include orientations, job instruction, apprenticeships,
internships and assistantships, job rotation, and coaching.
Off-the-job methods include:
• Lectures, special study, videos,
conferences or discussions, case studies,
role-playing, simulation, programmed
instruction, and laboratory training.
• Ongoing training can be less formal – by
encouraging employees to meet regularly
to discuss issues and share new ideas.
Three training guidelines.
• Give your employees
opportunities to use
their new skills.
• Make training an
ongoing process.
• Think of training as an
investment (as
opposed to expense).

11. © McGraw-Hill Education 11
Rewarding Employees
Six recurring factors among the
most valuable to employees.
• Teamwork.
• Recognition.
• Training.
• Empowerment.
• Contribution.
• Communication.
Entrepreneurs need to make job
offers and manage based on an
open-book policy.
• Owners often communicate
conflicting terms when making
psychological contracts.
Reviewing performance is an
ongoing process.
• The performance review.
• The pay review.

12. © McGraw-Hill Education 12
Compensation, Benefits, and Perks
The first step in a compensation plan is to determine if hiring an hourly or
a salaried position.
• The federal government defined nonexempt and exempt employees in
the Fair Labor Standards Act (FLSA).
The next step is determining your compensation philosophy.
• Do you believe in higher base pay, or do you like flexible pay?
The next step is to find comparison factors for salary.
• A living wage is needed to meet basic needs.
Benefits include – bonuses and long-term incentives, health insurance,
retirement plan, and perks.
• Good perks do not need to cost a lot, some free perks are powerful.
• Perks should take no more than 3% of the personnel budget.

13. © McGraw-Hill Education 13
HRM at the Founder’s Level
Three issues to think
about.
The leadership you
provide.
The advisers you
secure.
The partners you
select.

14. © McGraw-Hill Education 14
The Leadership You Provide
Two key factors in traditional leadership theories is task and person.
• But neither of these does much to explain what we think of as leaders.
Leadership is essential to the growth of any small business.
• Many entrepreneurs realize there is an optimal size of the firm.
Leadership looks at three key components other than task and person.
• Innovation – we look to the leader as its key visionary.
• Operation – the ability to manage the business as it grows.
• Inspiration – the owner should be the biggest booster and champion.
Experience and formal learning provide what it takes to be a leader.

15. © McGraw-Hill Education 15
The Advisers You Secure
You may have a board of directors, but also an advisory board.
• A group of people you assemble because you trust their judgment.
An owner often cannot discuss problems or prospects with employees.
• Having advisers gives you a chance to articulate your thoughts, try
them out on others, and get feedback and possible suggestions.
Advisers may be recruited from people you know from anywhere.
• What is important is whether you think they have knowledge or
connections that can help you do your business better.
• Many advising relationships are unpaid, but some are paid a stipend.
• Advisers serve at your pleasure – you can set a time limit, which you
can extend.

16. © McGraw-Hill Education 16
The Partners You Select
Selecting partners is one of the greatest challenges.
• Issues of mutual responsibility and support are both important.
• Success comes from shared core values and complementary skills.
The core values relate to: mission, money, and method.
• Partners who agree on the “why” of the business are more likely to
share and generate passion in the firm.
• Disagreements about money may be the top reason for conflict.
• Money and mission represent the “ends” of your business – method
represents the “means” and is the most involved of the three.
Note that partners can be more than a legal term.
• You can apply the same thinking to employees.

17. © McGraw-Hill Education 17
Human Resource Issues in the Family Business
Family business is a catchall term covering tens of
millions of firms.
There are two key HRM issues that continually surface
in family businesses.
Striking a balance between nepotism and meritocracy.
Managing privilege.

18. © McGraw-Hill Education 18
Nepotism, Meritocracy, and the Family Business
Nepotism is the philosophy of selecting/promoting based on family ties.
• Advantages are involving people you trust and having the loyalty and
support from your family.
Meritocracy is the philosophy of selecting/promoting based on merit.
• When the family member is the best for the job, the two live in harmony.
• When they differ, you must make a difficult decision.
The answer to the nepotism versus meritocracy issues is simple, work
somewhere else first.
• There will be nagging doubts if a family member is hired right out of
college – so, work somewhere else first.
• Work in a related industry, with a customer, or a competitor.
• If you succeed elsewhere and then enter the family business, it will
give you a stronger basis for your worth.

19. © McGraw-Hill Education 19
Managing Privilege
Easy to say and hard to do – separate family and business.
• Family members should be treated like everyone else, no privileges.
• Either give all employees similar privileges, or deny favorable
treatment for family members.
• Other staff may view hard working family members negatively, as the
hard work could give them a larger payout (ownership) in the future.
• Having career ladders for all employees minimizes differences and
shows the importance of employee contribution.
• Family members may guilt an owner into hiring an incompetent family
member – put them in a position where they do the least harm.
• Disciplining and firing relatives may be necessary – just remember the
business, not you, dictates the terms of work behavior.

20. © McGraw-Hill Education 20
Good Human Resource Practices for All Businesses
• Transparent procedures with consistent application.
• Job basics: consisting of the job description.
• Job metrics: use objective evaluation.
• Task repair: have processes in place to help the mistake-maker learn.
• Lines of communication: a suggestion box, an open-door policy, a
scheduled time for issues, or an ombudsperson as a go-between.
• Clear termination rules: make sure reasons are clear, known, fair, and
consistently enforced.
• Line of appeal: have a way for a disciplined employee to have their
side of the story heard.

21. © McGraw-Hill Education 21
Dividing Up Ownership and Dividends
Family members may receive compensation or benefits packages that
look more like owner packages than employee packages.
• To handle this, create profit-sharing plans or a bonus system for
nonfamily employees based on performance.
• When applying benefits, treat family and nonfamily staff the same.
Even when family is not involved, the employees’ share of the rewards
should equal their share of at-risk contributions.
• Convert share contributions to cash equivalents at fair market value.
• Each person’s share is divided by the total of all shares.
• This determines the employee’s share of ownership.
This provides a relatively transparent way to build out the equity shares.

22. Because learning changes everything.®
www.mheducation.com
End of main content.
Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.