What Are the Most Essential Human Resources Functions for Small Businesses?

Small businesses often overlook critical HR functions that could be game-changers in their growth and employee satisfaction. In this article, insights from a Managing Consultant and CEO as well as a Director & Safety Expert provide expert perspectives on essential HR practices. The first insight emphasizes the importance of establishing a strong recruitment and onboarding process, while the final insight highlights the effective management of leave and sick time. With a total of eight powerful insights, this article offers valuable advice for any small business looking to enhance its HR strategies.

• Establish Strong Recruitment And Onboarding Process

• Ensure Effective Employee Onboarding

• Foster A Sense Of Community

• Implement Comprehensive Employee Benefits

• Prioritize Accurate And Timely Payroll

• Develop Structured Training And Development Program

• Maintain Clear And Consistent Performance Management

• Manage Leave And Sick Time Effectively

Establish Strong Recruitment And Onboarding Process

From my experience working with over 100 startups at Spectup, I've found that the most crucial HR function for small businesses is establishing a strong recruitment-and-onboarding process. During my time at N26, I witnessed firsthand how proper onboarding transformed new hires into productive team members much faster than companies that skipped this step. Small businesses need to get this right because every single hire has an outsized impact on their success. One wrong hire can seriously disrupt a small team's dynamics and productivity. 

At Spectup, we invested heavily in our onboarding process when growing from 3 to 10-plus team members, creating clear role definitions, setting expectations, and ensuring new team members understood our culture and ways of working. I've seen many startups struggle because they rushed hiring without proper processes, leading to misaligned expectations and costly turnover.

A solid recruitment-and-onboarding system helps prevent these issues by ensuring cultural fit, clear communication of responsibilities, and proper integration into the team. This foundation becomes especially important as the company grows, making it much easier to scale without losing the core culture and efficiency that made the business successful in the first place.

Niclas Schlopsna, Managing Consultant and CEO, spectup

Ensure Effective Employee Onboarding

The most essential HR function for a small business is effective employee onboarding.

At Height Dynamics, we believe that proper onboarding helps new employees quickly understand their roles, company culture, and safety protocols, especially in industries like ours where safety is critical.

Incorporating a strong onboarding process ensures that employees are engaged and productive from the start, reducing turnover and minimizing costly mistakes down the line. For small businesses, this function is crucial as it sets the foundation for long-term success and growth.

Guy Pearce, Director & Safety Expert, Height Dynamics

Foster A Sense Of Community

One of the most essential HR functions for a small business is fostering a sense of community and belonging. As someone who transitioned from investment banking to founding Rocket Alumni Solutions, I've seen the power of creating a supportive culture. We used innovative recognition programs that not only highlighted individual contributions but also strengthened team dynamics, reducing turnover by 31%.

Implementing recognition programs can transform your workplace environment, boosting morale and motivation. For example, our interactive digital awards helped schools improve engagement, increasing lead conversions by 30%. Small businesses can apply this by tailoring recognition to reflect company values, creating a more cohesive and committed workforce.

Chase Mckee, Founder & CEO, Rocket Alumni Solutions

Implement Comprehensive Employee Benefits

One of the most essential HR functions for small businesses is implementing comprehensive employee benefits, including health care plans. At Strange Insurance Agency, I've seen how offering robust employee benefits can improve retention and morale. For example, businesses that incorporate flexible healthcare plans tend to reduce turnover by around 20%, as employees feel more valued and secure.

Providing employee benefits is more than just a perk; it's a strategic investment. Utilizing holistic plans that encompass healthcare, payroll, and HR services not only attracts top talent but also streamlines operations, allowing small businesses to focus on growth. These comprehensive packages result in increased productivity and overall employee satisfaction.

My experience with The Holistics Company has shown that streamlining benefits administration can remove logistical barriers for smaller businesses. This means less time spent on complex administrative tasks and more energy directed at business development and customer satisfaction, which ultimately boosts profitability and business success.

Christian Strange, President, Strange Insurance Agency, Inc

Prioritize Accurate And Timely Payroll

For a small business, payroll is the most essential HR function. It’s critical for ensuring employees are paid accurately and on time, which impacts both satisfaction and compliance. However, payroll doesn’t necessarily require a dedicated HR person, especially with outsourced options and software solutions available to streamline this process. Beyond payroll, the next most impactful HR function depends on the business’s size and goals. 

For smaller teams, establishing an employee handbook can set clear policies, reduce liability, and support consistency for future decisions. For growing businesses, investing in recruitment is key to finding the right talent, which directly influences productivity and culture. Incorporating these functions helps build a strong operational foundation that supports long-term stability and growth.

Clarissa Pinto Ribeiro, HR Advisor, Founder, CPR Consulting, Planning & Recruiting

Develop Structured Training And Development Program

Based on scaling Premier Staff from a $4,000 investment to managing events for Fortune 500 companies, I can definitively say that the most essential HR function is a structured training-and-development program. Our Captain Development Program has been crucial in maintaining a 99.6% show-up rate and extraordinarily high retention in an industry known for turnover. 

Rather than just hiring experienced people, we invest in developing our talent internally, allowing every team member to see a clear growth path. This approach has created a warm, empowering culture where staff choose to stay with us despite competitive offers. For small businesses, implementing a systematic training program isn't just about skill development—it's about creating a culture of growth that attracts and retains top talent while ensuring consistent service quality.

Daniel Meursing, Founder/CEO/CFO, Premier Staff

Maintain Clear And Consistent Performance Management

Clear and consistent performance management is the single most essential function for small businesses. It sets the tone for everything—employee development, accountability, and business growth. Many small business owners believe good performance will come naturally, but without structure, things slip through the cracks. Regular feedback loops help employees understand where they stand and how they can improve. It's about setting specific, measurable goals and checking in frequently to align those goals with the company's priorities.

Here's the part that's easy to overlook: performance management isn't just for underperformers. High achievers need it, too. If you don't regularly engage with your top performers, they start to feel invisible, and you risk losing them. It's also an opportunity to identify patterns that might be holding your business back—like projects that constantly run over time because expectations weren't clear from the start. Incorporating performance management helps you build a culture where people feel valued and accountable. It's easier to correct small missteps early rather than facing costly mistakes or unexpected turnover later. Plus, it gives you data to make informed decisions about promotions or reallocating tasks, which is critical as your business grows.

Chris Masanto, Co-Founder, Pet Lab

Manage Leave And Sick Time Effectively

I live and work in WA state. Leave management is one of the most significant areas in which a small business can get into a sticky situation.

WA has several state-specific requirements regarding leave and sick time that veteran HRs can struggle to navigate.

A smaller business with at least 50 employees is well-advised to contract this work to an HR firm or hire an HR professional.

Deborah Traxel, Sr. Director of Human Resources