The Biggest HR Mistakes Small Businesses Make (And How to Avoid Them)

Running a small business often means wearing all the hats—sales, finance, marketing, HR… sometimes even cleaner. With so many spinning plates, it’s no surprise that HR can become the "we’ll-deal-with-it-when-we-have-to" department. But trust us: ignoring it until something goes wrong is one of the biggest mistakes you can make.

Whether you're hiring your first employee or managing a small but growing team, steering clear of these common HR pitfalls can save you time, money, and a whole lot of stress.

1. Hiring in a Hurry (Then Regretting It Later)

We get it. You’re swamped. You need help yesterday. So you post a quick job ad, skim a few CVs, and hire the first person who doesn’t look like a total disaster. Fast forward three months: poor performance, team drama, and an uncomfortable "we need to talk" conversation.

The Fix:
Take the time to get your hiring right. Have a proper job description. Know what you’re looking for before you interview. And don't skip reference checks. Better to wait a little longer than hire someone who turns your dream team into a nightmare.

2. Skipping Employment Contracts (Because ‘We’re Pretty Laid Back’)

Verbal agreements and handshakes may feel friendly, but they won’t protect you if things go pear-shaped. No contract = no clarity = legal headache waiting to happen.

The Fix:
Always issue a written contract before or on your employee's first day. It should outline hours, pay, notice periods, job responsibilities, and anything else relevant. It’s not about being formal—it's about being smart.

3. No Employee Handbook (A.K.A. the "We’ll Just Make It Up As We Go" Strategy)

Without clear policies, you’re relying on guesswork and goodwill. That’s fine until someone challenges a decision, complains about a colleague, or takes advantage of the ambiguity.

The Fix:
Create an employee handbook that outlines your policies—from absence management to dress code to disciplinary procedures. Make sure everyone has access to it (and reads it!). And yes, it should be updated regularly.

4. Misclassifying Workers (Freelancer or Employee? Hmm...)

Using contractors is tempting—they’re flexible, come with fewer obligations, and don’t need holiday pay. But misclassifying someone as self-employed when they’re essentially an employee can land you in hot water with HMRC.

The Fix:
Understand the legal differences between employees, workers, and self-employed contractors. If someone works set hours, under your direction, and is integral to your business, they’re probably not a freelancer—no matter what the contract says.

5. Dodging Difficult Conversations (Until They Blow Up in Your Face)

No one likes conflict. But avoiding it doesn’t make it go away. Whether it’s poor performance, bad behaviour, or a toxic attitude, letting it fester can poison your culture and drive your good people away.

The Fix:
Tackle issues early. Have regular check-ins. Give feedback often (and kindly). Don’t wait until formal disciplinary action is your only option. The earlier you deal with a problem, the easier it is to fix.

6. Inconsistent Treatment (Or, “But I Let Sarah Leave Early Last Week…”)

When you make exceptions for one person but not another, resentment builds. And that’s when the whispers start.

The Fix:
Fairness is everything. Apply rules consistently across the team. If you do make exceptions, have a valid reason—and document it. Clear, consistent processes protect you and your employees.

7. No Onboarding Process (AKA ‘Here’s Your Laptop, Good Luck!’)

A chaotic first week can leave new hires confused, unproductive, and already half-looking for the exit.

The Fix:
Invest in a structured onboarding plan. Introduce them to the team, explain your processes, give them clear goals, and check in regularly. A good start leads to better performance—and longer retention.

8. Neglecting Training and Development

Small businesses sometimes assume they can’t afford training. But failing to invest in your people can lead to stagnation, demotivation, and eventual turnover.

The Fix:
You don’t need huge budgets to offer development. Mentoring, job shadowing, online courses, and lunch-and-learns are all great options. Ask your team what skills they want to build—and help them get there.

9. Outdated Policies (Or No Policies at All)

If your policies are buried in a Word doc from 2016 (or worse, non-existent), you're probably not keeping up with changes in employment law.

The Fix:
Audit your policies annually. Keep up with legal updates or consider a digital handbook that updates automatically - no more scrambling when legislation changes.. Cough …The Handbook Guru…Cough

10. Thinking HR Is Just ‘Red Tape’

Here’s the truth: HR isn’t about bureaucracy. It’s about protecting your business, supporting your people, and creating a workplace where great things happen.

The Fix:
Embrace HR as a strategic partner, not just a compliance box to tick. When done right, it helps you attract talent, avoid risk, boost engagement, and grow sustainably.

The Bottom Line

HR might not feel urgent, until it suddenly is. Small businesses that invest in strong HR foundations early on save themselves a world of trouble down the line.

Need a hand getting your HR house in order?
Whether it's contracts, policies, or people problems, we’re here to help. Friendly, straight-talking support without the fluff.

Let’s get it sorted.

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