In this presentation, we will discuss about employee relations in small & medium enterprises, focusing on the concept of small firms, importance of small and medium sized firms, necessity of human relations in small firms. To know more about Welingkar School’s Distance Learning Program and courses offered, visit: http://www.welingkaronline.org/distance-learning/online-mba.html

1. “Employee Relations in Small & Medium Sized Enterprises”
Learning Objectives
√ Definition of a Small Firm
√ The importance of Small & Medium Sized
Enterprises
√ The necessity for a systematic approach to
the key aspects of human relations in small
firm.

2. “Employee Relations in Small & Medium Sized Enterprises”
Structure
11.1 Introduction
11.2 What is a small firm?
11.3 Importance of a small firm
11.4 A human resource plan
11.5 Summary

3. “Employee Relations in Small & Medium Sized Enterprises”
11.1 Introduction
We need to define a small firm first. Then we
elaborate employee relations in small firms. The term
employee relations is more suitable for small firms
compared to industrial relations, as they are
managed informally and rarely unionized.
The processes of recruitment, induction,
training, issues of pay, communication, work place
regulation and trade unionism form the crux of the
relations.

4. “Employee Relations in Small & Medium Sized Enterprises”
11.1 Introduction
Employers neglect employee relations in small
firms as their focus is on production & selling and
accounting for them. This leads one to believe that
small firms have harmonious employee relations.
But if you examine their labour turnover,
health & safety records, pay and the number of
unfair dismissal cases ; pattern of employee relations
in small firms may be worse than many of their
larger counterparts.

5. “Employee Relations in Small & Medium Sized Enterprises”
11.1 Introduction
Small firms are diverse, there are many styles
of employment relationships that reflect personalities
involved especially those of owner / managers.
Being small in number is not the only
determinant of the pattern of employee relations. The
industrial sub-culture is also important. The
traditions of specific industries exert greater
influence on the expectations of the owner / managers
and workers.

6. “Employee Relations in Small & Medium Sized Enterprises”
11.2 What is a small firm?
Parameters that are used to define a small firm are
1} number of employees
2} amount of capital invested
3} annual turnover or sales
4} amount of raw materials utilized and
5} degree of mechanization and automation
Any single parameter alone cannot
define a small firm.

7. “Employee Relations in Small & Medium Sized Enterprises”
11.2 What is a small firm?
The most important feature of small & medium
sized firm is the personalized form of management,
with the owners themselves actively participating in
all the aspects of the management.
Unlike larger firms, small firms do not have a
personnel department with experts in the field. One of
the owners in his ‘spare time’ has to handle
recruitment, induction, training, pay revisions,
promotions, bonus etc.

8. “Employee Relations in Small & Medium Sized Enterprises”
11.2 What is a small firm?
It is natural that these important functions are
often accorded low priorities. Further the owners are
committed to the ‘success’ of the firm so much that it
becomes almost an obsession.
In absence of any visible conflicts owners
assume that these functions are somehow being
carried out.
Some writers conclude that based on ‘close’
relations between the owner & the workers, employee
relations are better than the impersonal bureaucratic
ones in larger firms.

9. “Employee Relations in Small & Medium Sized Enterprises”
11.3 Importance of a small firm
Small scale sector has emerged as a dynamic &
vibrant part of the economy accounting for about
35% of output in the manufacturing sector & over
40% of country’s exports.
The wide sweep of economic reforms
encompassing trade, fiscal & monetary policies is
expected to have a major impact on small scale sector
and will be known later.

10. “Employee Relations in Small & Medium Sized Enterprises”
11.3 Importance of a small firm?
There are various labour laws affecting small
firms like
◘ Factories Act 1948
◘ Industrial Disputes Act 1947
◘ Industrial Employment [Standing Orders}
Act 1946
◘ Minimum Wages Act 1948
◘ Payment of Wages Act 1936

11. “Employee Relations in Small & Medium Sized Enterprises”
11.3 Importance of a small firm?
There are various labour laws affecting small
firms like
◘ Employees’ PF Act 1952
◘ Payment of Gratuity act 1972
◘ ESI Act 1926
◘ Payment of Bonus Act 1965
◘ Trade Unions Act 1926
◘ State Shops & Establishment Act

12. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
The first step in establishing a small firm is to
formulate a business plan for output, selling, finance
etc. This be supplemented by a human resource plan.
Owners are generally reluctant to involve their
employees in the planning process, but such
involvement assures commitment and enthusiasm
from employees.
Such plan should specify the dimension of the
workforce , both in terms of quality & quantity

13. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
Recruiting
The first step is to evaluate the precise
requirements of each job vacancy. This permits the
owner to prepare a job description scripting the duties,
responsibilities and authority of the position for
which the person to be recruited.
This is followed by job specifications which list
desired qualifications, experience and personal
qualities in the prospective recruit.
While recruiting, help of non formal agencies
for recruitment is sought by such firms.

14. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
Induction
Small firms normally neglect to induct
recruits in a formal way. Details of work to be carried
are explained to the new entrant and he/she is
expected to start work.
However, a proper induction program covering
technical & personnel aspects of the job does speed up
smooth integration of the recruit into the operations
of the small firm.

15. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
Training
Training assumes more importance in small firm as
there is less division of labour and individual
has to carry multiple tasks in a small firm.
potential for promotion there is limited
owner is more dependent on employees.
Hence employee’s needs have to be identified and
appropriate training has to be imparted.

16. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
Pay
While as a rule pay levels in small firms are
lower compared to larger firms ; there are few high
tech small firms that offer salaries that are more
than the levels offered by even MNCs.
Formal company level collective bargaining is
rare in small firms.

17. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
Communication
Small firms should not assume that day to
day frequent contacts with the employees
automatically ensure satisfactory communication.
It is a good practice to set up systematic
channels of communication to build high trust
working relationships and improve employee
commitment to the firm’s goals.

18. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
Rules & Regulations
With the informality which is the characteristic
of a small firm rules & regulations are considered
as redundant .
But, especially when there is a breakdown of
relationship between owner & employees, rules in
areas of discipline & grievance handling become
significantly important. The rules should be simple
and suit the needs of the individual firm.

19. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
Trade Unions
Individual membership and recognition of
trade unions are less useful in small firms. Most
owners see them as irrelevant.
But, if the right atmosphere is created, unions
in small firms can play a rightful role & provide an
effective channel for communication in the work
place. Unions in foreseeable future are not likely to
grow in small firm sector as a whole.

20. “Employee Relations in Small & Medium Sized Enterprises”
11.4 Human Resource Plan
The nature of employee relations in any organization
can only be fully understood in the context of , and
in relation to, wider socio economic , political and
legal structures.
Inter organizational relations play an
important part , especially in the case of small firms
where their relationships with much bigger firms can
have a major bearing on their own labour process
characteristics.

21. “Employee Relations in Small & Medium Sized Enterprises”
11.5 Summary
An over reliance upon the informal or non-
formal regulation of employee relations in small
firms may yield only precarious harmony. Owners /
managers should realize the importance of high trust
employment relationships to avoid the pitfalls of the
non-formal approach.
The first step, then, is to realize that a
systematic personnel management and industrial
relations function is necessary.

22. “Employee Relations in Small & Medium Sized Enterprises”
11.5 Summary
It is possible to develop personnel
practices which are not arbitrary,
nor too bureaucratic.
There should be a level of
informality and systematic
procedures.

23. “Employee Relations in Small & Medium Sized
Enterprises”
The End!
In the next session we cover chapter twelve on
“Labour & the Constitution”
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