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The value of human capital: Three common HR challenges for small businesses

Published Apr 23, 2022

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TO SAY that small businesses rely on the people that work for and manage them would be a vast understatement. Human capital is arguably the most valuable asset to a small business, especially during its fledgling years when the efforts of every employee contribute to the sustainability and financial viability of the small and medium enterprise (SME) in a very direct way.

Unfortunately, there are no shortcuts when it comes to managing people in a small business environment. Ultimately, doing it the right way begins with having a people-centric mindset and valuing the people who share your vision as an entrepreneur.

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In terms of human resources management, these are the three major challenges that SMEs face:

Understanding SA Labour Law and how it relates to SME employees

The legal framework that regulates employment in South Africa is extensive. One of the first tasks that will land in the lap of any SME owner is coming to an understanding of how our country’s labour laws apply in the context of a small business.

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For example, it is not unusual for small businesses to mitigate risk by employing independent contractors or freelancers, and this has legal implications.

According to legal and regulatory firm, LexisNexis, a large number of freelancers who work for SMEs do not know that they are not considered as being employees, as defined in South African labour legislation. For this reason, making the distinction between an employee and an independent contractor from the outset is vital.

As independent contractors, they will be liable to pay 25 percent tax on all their earnings, which can be administered by yourself as the SME owner or by the freelancer themselves.

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Nuances such as these will affect the clauses in their contracts and the terms of service. Whether you’re hiring employees on a full-time basis or as freelancers, you need to ensure that you have read these two important labour law instruments: The Basic Conditions of Employment Act 75 of 1997 and The Employment Equity Act 55 of 1998.

Staff retention

A report produced by students from the Cape Peninsula University of Technology identified that staff turnover was one of the biggest challenges SMEs in the micro-retail and tourism industries face.

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Some of the internal factors that were behind high staff turnover in these small businesses are poor training, poor working conditions, inefficient management practices, low remuneration and the lack of formal recruitment and selection processes. There are some great learnings for SMEs here. A lot of focus is often placed on acquiring the first few employees in an SME, while little is done to keep those employees stimulated and happy in their roles.

Implementing a staff retention policy doesn’t necessarily mean spending thousands on company perks and entertainment. As an SME, you could start by developing smaller incentive programmes, providing opportunities for growth and offering a healthy and stable work environment or remote working policy.

Preventing burnout

The majority of small businesses are run by individuals and small teams that sometimes double-up on their roles to stay apace and ensure that the business operations run smoothly. When processes are not implemented correctly and, the culture in a small business is unhealthy, burnout can become an inevitability.

According to The World Health Organization, burnout is “a syndrome conceptualised as resulting from chronic workplace stress that has not been successfully managed. Symptoms may include lethargy, mental aloofness, pessimistic and cynical feelings related to work, and reduced professional capability.”

BEN Bierman is the managing director of Business Partners Limited.

The Covid-19 pandemic and its effects on the mental health of employees showed business owners that employee wellbeing is inextricably linked with productivity and profitability.

What SME owners need to realise is that there is, therefore, a compelling case to be made for investing in ways to nurture employee wellness. This could mean having a staff counsellor on call, having regular check-ins with staff members, providing a generous leave policy and recognising and rewarding people for their contributions or milestones reached.

Ben Bierman is the managing director of Business Partners Limited.

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