5 Major HR Challenges for Independent Businesses


With this week being Independents’ Week here in Liverpool, we look at 5 employment law and HR challenges facing independent businesses.

1. Recruitment and retention of good staff

Being able to recruit good staff is key to the success of most businesses. The challenge for independent businesses is attracting those star performers when there is competition from larger national or multinational companies. It is often difficult for an independent business to compete with larger organisations when it comes to salary and benefits. However, there are other ways in which businesses can offer attractive packages to a prospective employee such as through: bonuses linked to the performance of the business as a whole; flexible working and staff engagement.

With owners and managers often being so busy in an independent business, it is sometimes easy to lose track of how an employee is feeling in their job. Appraisals are missed and the employer loses the opportunity to gauge the employee’s levels of job satisfaction. The risk is that the employee then moves on, partly as a result of a lack of communication between the employer and employee prior to their decision to leave.

2. Employees leaving and then setting up in competition

Each business owner will have spent years of their business building up goodwill and a reputation with clients or the public at large. It can be devastating for a business owner to find that an employee whom they trusted with their customer base then leaves, sets up in competition and immediately approaches the customers with whom they had dealt. This is obviously more of a problem in some sectors than in others, but in any business where there is a long term personal connection between the customer and the employee, the risk increases significantly.
“But surely the employee can’t just hand in their notice, leave and then poach our customers,” you may ask. Well, much depends on whether they have entered into post-termination restrictions with their employer, which are likely to form part of a written contract of employment. Even if you have issued staff with an employment contract, there is no guarantee it will contain the restrictions you need, particularly if it has just been downloaded as an online template contract.

3. Keeping up to date with HR paperwork

We often find that owner-managed businesses understandably prioritise the growth and profitability of their business over the finer details of employee record keeping. For example, when an employee has returned from sickness absence, it is perhaps less likely in an independent business that the employer will have the time or resources to carry out a back-to-work interview or check that the employee has completed a sickness absence self-certification form.
Sometimes employers fail to issue a contract of employment when somebody joins, which not only places the employee in breach of section 1 of the Employment Rights Act 1996, it means that important terms that could protect the employer’s interests never become part of the implied contractual terms under which the employee is employed.

4. Employing family members and friends

This can have its positives and its negatives. Many people choose to employ family or friends when running an independent business. The arrangement will normally be built on trust rather than set out in any formal documentation. We have found that an employer will be less likely to issue a family member or friend with an employment contract than they will somebody they don’t know well. It all seems a bit too formal at the time.

Needless to say, while things are going well, this lack of formality isn’t such a problem. It is when tensions emerge that the lack of documentation and formal processes become a difficulty. For example, an employer is less likely to performance-manage a friend or family member using the disciplinary or capability procedure. It is more likely they will raise the issues in an informal verbal conversation. They might raise the issue more bluntly than they would with another employee or might just decide to end the arrangement without following any procedures. We have dealt with numerous cases over the years where (former) friends and family members of a business owner have brought employment claims against the business.

5. Risk of claims by employees

For all of the reasons set out above, procedures can easily be overlooked and mistakes can be made when independent business owners are trying to juggle all the demands of running a business profitably with the demands of handling staffing issues.

The risk of claims is all the greater now that employment tribunal fees have been deemed unlawful, such that statistics now tell us that there has been a dramatic rise in employment tribunal claims now being brought by employees compared to a year ago.

Although some claims can be settled for a modest sum, other types of claim, particularly those involving discrimination, can attract awards at a level that puts the viability of a small independent business at risk.

The advice to independent business owners is therefore to ensure that they take reliable advice on how to handle their HR and employment law needs, even where there does not appear to be an imminent problem. By waiting until the problem arises, it might already be too late to rectify the situation.


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