Cheat Sheet

HR for Small Business For Dummies (Australian Edition)

Human resource management (HR) is about building a healthy and productive working environment in which everyone prospers. Unique to small business is the personal relationships that develop between the small-business owners and the people they employ to build the business. With that relationship comes responsibility for everything from personal health and safety, wages, conditions and career aspirations. This Cheat Sheet gives you tips on gaining competitive advantage by implementing a structured HR system. Work out how to engage with staff to improve productivity and loyalty and apply key methods to measure your staff performance. You’ll also find out how to work out the real cost of employment using a simple formula that calculates all of the hidden costs.

Engage Your Small Business Staff for Better Performance

The buzz phrase for the modern productive small business is ‘employee engagement.’ An engaged employee is one who is committed and enthusiastic about his or her work, and thus is prepared to put discretionary efforts to further the employer’s goals. Discretionary effort is the preparedness to do more in your job than you’re strictly paid to do. It can mean working additional hours, assisting other employees, and contributing ideas above and beyond your own job tasks.

The key benefits of an engaged group of staff are revealed in better rates of retention (staff loyalty) and overall productivity improvements. Research conducted by academic boffins all show that the better performing businesses (across a range of industries) have more highly engaged staff, therefore it’s worth the effort to introduce your own program to engage staff in the success of your small business.

How highly engaged an employee is in their work can be measured by an employee's positive or negative emotional attachment to their job, colleagues and organisation. It’s not that difficult to get employees to be more engaged in your small business. Try these measures, for example:

  • Listen to what employees say about the work. If they’re doing the work for you then maybe their views are worthwhile.

  • Recognise really good work performance with immediate praise if you want to see the performance repeated.

  • Instill a bit of fun into the workplace. Just because we are working doesn’t mean it has to be serious all the time.

  • Share business results with your staff. It’s nice to know how well the business is going and how the staff contributes to its success.

  • Honest feedback from staff is essential if you’re to improve the business culture. Get an external consultant to run a survey every year to learn what staff really think of you and your business.

  • Commit to the task of improving communication, confidence and urgency. If you chose not to engage with staff, then they will disengage from you.

  • Flexibility works both ways, so be prepared to give a little to get some back. This could include time off work to attend to family issues or community participation, such as volunteering.

Measure Performance in Your Small Business

Measuring work performance is probably the most difficult task that any employer, including small business employers, can attempt. We intuitively know what good work performance is, but it’s really difficult to put into words. Nevertheless, it’s a task worth pursuing as it both sharpens your own sense of what it is that you want employees to achieve, and provides employees with a clear direction on what is expected of them. Here are some simple quantifiable methods that you can use to formulate performance standards:

  • Comparative measures are useful when a little competitive motivation can encourage staff. For example, comparisons in a sales team can help better performance. Identify and reward the best performers in the team.

  • Personal attributes are often good indicators of how well a person performs in their job. Such attributes may include leadership, initiative, problem solving, empathy and teamwork. Your observations and the views of other staff can be drawn on to assess the degree to which an employee exhibits the desired attributes.

  • Behavioural standards can be the mark of a really good employee. For example, you may wish your staff to show great patience with difficult customers, or just welcome people as they arrive at your business. Keep a diary of instances where staff have behaved well and not so well. Use this as a measure to draw upon when assessing performance.

  • Good results can’t be substituted. Good sales, new clients, improved production, valuable cost savings, but to name a few. These are usually the easiest to estimate and therefore project targets for each employee to work towards achieving.

  • Quality means customer satisfaction and consistently high standards of service and products. Manufacturers in Japan rose to great success in the 1980s on the basis of consistently providing high-quality products and service at competitive prices. There is no reason why you can’t do the same. Survey customers regularly and feed that back to staff. Quality check all of your production and service standards by making people individually responsible for their part in the production process.

  • Means-based methods of measuring performance focus on the way in which the work is performed rather than the end result. The assumption is that as long as an employee performs the tasks according to a strict methodology then the desired result (for example, a sale) will occur. Fast food outlets swear by this method.

The Cost of Having Employees in Your Small Business

Do you know the real cost to your small business in employing one person? Well, if you don’t know the answer, here's a hint. It’s substantially more than the hourly wage or yearly salary that you pay them.

Here are some of the items that contribute to the real cost of employment. Apply the percentages to salaries you pay staff to obtain an indication of what percentage of the yearly salary you will pay each year to employ a person working in your business in addition to their salary.

Employee-Related Item Percentage of Salary
Ordinary salary or wage 100%
Four weeks annual leave 7.7%
Annual leave loading 1.3%
10 days personal leave if ill or caring for immediate family members 3.8%
Superannuation 9.25%
Long service leave 1.7%
Workers compensation 3%
Payroll tax 0%

Add penalties of between 10 per cent and 150 per cent for work performed on evenings, weekends and public holidays, and you start to get an idea of the real cost. Fringe benefits tax on any non-salary benefits — such as private use of a business vehicle — is paid by you as employer at the top marginal rate of 46.5 per cent. The only upside is you will generally be exempted from payroll tax as a small business.

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