Costly mistake of business person looking at piggy bank flying away with some balloon

Small Business HR Mistakes (Part 2) – What You Don’t Know Can Cost You

Unlike large corporations, small medium enterprises (SMEs) simply don’t have the luxury of deep pockets, resources and expertise at their disposal.   They are challenged to come up with creative solutions to stretch their dollar and get the most out of what resources they do have.

This makes SME’s especially vulnerable to HR mistakes as one wrong move can have devastating impacts on the business.  Can your business afford to pay $122,000 each time to defend an employment lawsuit?  According to Chubb’s 2013 Private Company Risk Survey, this is the average total cost associated with an employment practice claim in Canada.
In continuation of the Small Business HR Mistakes blog series, this 2nd post will highlight the common pitfalls businesses make “during” the employment relationship that can prove costly.
The laws “don’t apply to me” mentality
This assumption is akin to “putting your head in the sand”.  Operating this way will only cost you more down the road as it is harder to undo mistakes once they are set.  The employment laws are in place to protect workers and somewhat level the power imbalance that exists in organizations.

As such, most laws apply to companies of all sizes the same – whether you are a large employer with 1000 employees or you are an owner-operated business with only 10 workers – size in this case, doesn’t matter.  You as an employer are expected to know and comply with all legislative requirements that apply to you.  This includes health and safety, employment standards, human rights, labour relations, pay equity, accessibility and workplace violence & harassment laws to name a few.

Although it is difficult to keep up with the ever increasing employment obligations, you simply can’t afford to “not know” these days as the repercussions of non-compliance can be detrimental to your business.   Best to engage an HR expert or employment lawyer to help you navigate the HR minefields and manage your risks proactively.
Promoting workers not fit to manage people
A good worker does not necessarily mean s/he will be a good manager.  The skillsets required to excel in the respective roles are completely different and frankly – not everyone is cutout to manage people.  Yet, these decisions to promote in smaller companies are often made in haste without much regard for skill and fit.  As a result, a promotion that is meant to reward may actually do more harm than good.

This is a common mistake small medium businesses make that I believe costs them the most over time.  At best, the performance of the new manager could suffer without additional training and support to be successful, thus taking the productivity of the team s/he manages down with them.   At worst, “bad managers” drive good employees to quit, increase workplace conflict and possibly lawsuits.  The impacts of poor management are lasting and the high costs associated are simply undeniable.


Lack of documentation 
Smaller companies often make the mistake of not putting things in writing or doing so haphazardly.  From policies/procedures, job descriptions, to employment letters and investigations, such documents are often non-existent.  This poses a huge risk.
In the absence of complete and objective documentation, employers would be ill-equipped to defend their actions should a complaint arise.  It also leaves a gaping hole for different interpretations to surface.  This can contribute to confusion, employee disengagement, disagreements, and potentially, invite abuse or even legal complaints at worst.     Maintaining good records is not just good practice, it is absolutely essential to protecting your company’s brand and bottom-line.
Failing to properly investigate complaints
Under current human rights and health and safety laws (Bill 168), employers are obligated to investigate workplace complaints involving discrimination, violence and harassment (both personal and sexual).   This is an area where even the largest employers (i.e. CBC, Walmart, RCMP, the Parliament) are coming under fire in the media.  I’ve written about this topic in the past which you can read more about here.
For small medium businesses, the challenge with investigating complaints is further compounded by a lack of resources, time and know-how to properly perform such a function.   As a result, complaints can be dismissed prematurely, or just simply not acted upon altogether.    Employers need to beware that doing so comes with severe consequences.

This is especially in light of the changes to the workplace sexual harassment law (Bill 132) coming into effect this September whereby employers can face orders, fines and even prosecution for failing to act or investigate incidents of personal and sexual harassment.  As an employer, you simply can’t afford to take these issues lightly anymore.    Any missteps will cost you a lot more than any initial investment to perform a proper investigation from the outset.

HR takes a backseat to other business priorities
Sales/marketing, finance, technology and operations are typically the functional area most SME’s prioritize.  HR unfortunately is not top of mind until a fire erupts.  However, knowing employees are the backbone of your company, HR should be just as integral to the business strategy as the other priorities.
Studies show engaged workplaces thrive and directly increase profit margins for companies.   Good employers know this does not happen by accident.  It is the result of much planning, commitment and conscious effort to prioritize a “people-first” mentality.
Just like a house is bound to collapse unable to weather storms without a solid foundation – the same goes for HR.   Without the right people foundation and workplace culture in place, employee disengagement may spread, turnover increases and a toxic work environment can develop which all translates to significant costs for the organization.
If any or all of the mistakes mentioned in this article sound familiar to you, awareness of where your risks lie is the first step towards change.  Once informed, you are then in a better position to proactively address them and seek help in reducing your company’s exposure to such liabilities.
Stay tuned for Part 3 of our “What You Don’t Know Can Cost You” blog series, where we will focus on the various overtime traps small businesses fall into that can have severe financial ramifications as well.
The content shared in this blog post is for general information only and does not constitute legal advice. 
At Strategywise HR, we understand the HR challenges companies face and the workplace laws that affect you.  If workplace issues are keeping you up at night, or you are simply looking for a professional sounding board to determine the best course of action for your situation, please contact us for a free consultation.  Our focus is in helping mid-sized companies make informed people decisions that reduce risk and costly exposures. 

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