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. Because learning changes everything.® 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. © McGraw-Hill Education ‹#› 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. © McGraw-Hill Education ‹#› 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. © McGraw-Hill Education ‹#› 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. © McGraw-Hill Education ‹#› 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 analy.

1. 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.
Because learning changes everything.®
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.
© McGraw-Hill Education
‹#›
Figure 18.1: Federal Laws That Apply as Small Businesses

2. 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.
© McGraw-Hill Education
‹#›
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.

3. © McGraw-Hill Education
‹#›
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.
© McGraw-Hill Education
‹#›
Writing a Job Description
A job description defines all knowledge, skills, and abilities

4. 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.
© McGraw-Hill Education
‹#›
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.

5. © McGraw-Hill Education
‹#›
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.
© McGraw-Hill Education
‹#›
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.

6. © McGraw-Hill Education
‹#›
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).
© McGraw-Hill Education
‹#›
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

7. open-book policy.
Owners often communicate conflicting terms when making
psychological contracts.
Reviewing performance is an ongoing process.
The performance review.
The pay review.
© McGraw-Hill Education
‹#›
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.
© McGraw-Hill Education
‹#›
HRM at the Founder’s Level
Three issues to think about.
The leadership you provide.
The advisers you secure.
The partners you select.

8. © McGraw-Hill Education
‹#›
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.
© McGraw-Hill Education
‹#›

9. 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.
© McGraw-Hill Education
‹#›
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.

10. You can apply the same thinking to employees.
© McGraw-Hill Education
‹#›
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.
© McGraw-Hill Education
‹#›
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

11. 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.
© McGraw-Hill Education
‹#›
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.
© McGraw-Hill Education

12. ‹#›
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.
© McGraw-Hill Education
‹#›
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.

13. © McGraw-Hill Education
‹#›
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.
Because learning changes everything.®
www.mheducation.com
Accessibility Content: Text Alternatives for Images
© McGraw-Hill Education
‹#›
Figure 18.1: Federal Laws That Apply as Small Businesses
Grow – Text Alternative
With one or more employees, owners are subject to the Equal
Pay Act, the Federal Insurance Contributions Act (FICA), the
National Labor Relations Act, the Uniformed Services
Employment Rights Act, the Jury System Improvements Act of
1978, the Civil Rights Act of 1866 and 1981, the Employee
Polygraph Protection Act of 1988, the Immigration Reform and
Control Act of 1986, and the Fair Labor Standards Act.
With ten or more employees, the owner is subject to all of the
previously stated laws plus OSHA Recording and Reporting.
With fifteen or more employees, the owner is subject to all of
the previously stated laws plus the Americans with Disabilities
Act, Title VII of the Civil Rights Act of 1964, and the Civil

14. Rights Act of 1991.
With twenty or more employees, the owner is subject to all of
the previously stated laws plus COBRA, and the Age
Discrimination in Employment Act.
With fifty or more employees, the owner is subject to all of the
previously stated laws plus Executive Order Number 11246 (aka
Affirmative Action), and the Family and Medical Leave Act.
Finally, with one hundred or more employees, the owner is
subject to all of the previously stated laws plus ERISA and the
Worker Adjustment and Restraining Notification Act.
Return to parent-slide containing image.
© McGraw-Hill Education
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