The Top 5 HR Challenges Small Businesses Face (and How to Solve Them)

Running a small business is hugely rewarding, but it also comes with people challenges that can feel overwhelming.

Without a dedicated HR department, business owners can find themselves juggling recruitment, contracts and tricky employee issues on top of everything else. Many small business owners I speak to admit they’ve taken to Google for the answers in a moment of stress.

The good news is that most challenges are common, and with the right approach they’re completely manageable. Here are five of the biggest HR challenges small businesses face, and practical ways to solve them.

1. Recruitment and Retention

The challenge: Finding the right people is tough and keeping them can be even harder. Small businesses often can’t match the salaries, perks or recognition of bigger employers. That makes it tricky to attract talent and even trickier to hold onto them once larger opportunities come along.

The solution: Instead of trying to compete on salary alone, highlight what makes your business special. Can you offer flexibility, a family-friendly culture, or the chance to learn a wide range of skills quickly? People often value a positive workplace and career growth more than an extra few pounds.

Be clear in job adverts about your values and culture, celebrate small wins or milestones to make people feel valued and create simple development plans, even if budgets are small.

2. Compliance and Legislation

The challenge: Employment law changes regularly - from holiday pay rules to flexible working requests, and it can feel overwhelming to stay compliant. Missing something isn’t just a paperwork issue, it can open the door to costly disputes, fines or damage to your reputation.

The solution: Prevention really is better than cure. Keep your policies up to date and accessible, and make sure managers know the basics. If in doubt, seek advice before making a decision.

Subscribe to HR or legal updates so that you hear about changes early on, have a yearly HR Health Check of your documents and contracts and partner with a HR consultant to spot risks before they escalate.

3. Performance Management

The challenge: Managers can shy away from difficult conversations, hoping issues will sort themselves out. Unfortunately, problems usually grow, leading to lower morale, poor productivity, and resentment from other team members.

The solution: Build a culture where feedback is normal, not scary. It doesn’t have to be formal. Little and often works best where feedback is concerned. Praise good work and tackle problems with clarity and compassion.

Use simple one-to-ones to check in regularly, keep feedback specific - say what’s going well and what needs to change and why and focus on solutions and support, rather than just pointing out problems.

4. Training and Development

The challenge: Budgets can be tight, so training falls to the bottom of the list. But when employees feel stuck or unsupported, they disengage and may move on. This is far costlier than investing in their growth.

The solution: Development doesn’t have to be expensive. Small businesses actually have an advantage - employees can pick up varied skills quickly.

Encourage peer learning where staff shadow each other and swap skills, explore free or low-cost online training platforms and give constructive feedback and opportunities to stretch within their role. When people see that you care about their growth, loyalty will follow.

5. Managing Absence

The challenge: In a small team, one person off sick can put huge pressure on everyone else. Unmanaged absence can spiral, creating frustration and sometimes even conflict within the team.

The solution: A clear, consistent approach makes a big difference. Document your absence policy, record patterns and check in early. Conversations should be supportive but honest.

Meaningful return-to-work chats will help to spot underlying issues. If patterns to appear, address them sooner rather than later. Be flexible where possible, but clear about your expectations - a fair approach reduces disruption and helps staff feel that they’re cared for.

Need HR Support?

Small businesses don’t need a huge HR department to succeed, but they do need simple, proactive processes. By tackling these challenges head-on, you’ll build a positive culture, protect your business and free up time to focus on growth.

If you’re looking for HR support, whether in Hampshire or beyond, working with BloomHR could make all the difference. You’ll get tailored advice, quick support and someone who genuinely understands the pressures small businesses face.

We’re here to help. Contact us for more information.