HR challenges and best practices for small businesses in 2025

But the thing is, even the smallest business needs HR. Whether you’re recruiting a new team member or trying to stay compliant, HR quietly underpins every part of your business. When it runs smoothly, your people thrive and you’ve got time to focus on growth. And when it doesn’t, you’re left grappling with admin errors, unhappy staff, and a whole lot of stress.

Let’s look at the HR challenges you’re most likely to be facing this year, and what you can realistically do about them without a huge budget or endless hours in the day.

Common HR issues in SMEs, and how to fix them

Recruiting and keeping good people

Finding the right person for the job isn’t easy when you’re competing with companies offering private healthcare, unlimited leave, and pool tables in the office. And once you’ve found someone great, holding on to them can be just as hard… especially if you can’t offer a clear path to promotion.

So, what can you do?

• Shout about your culture: Use your website and social media to show what makes your business a brilliant place to work. Share real stories from your team that get people excited about the idea of joining.
• Simplify hiring: Tools like applicant tracking systems (ATS) keep candidates in the loop and save you from sifting through messy inboxes. Write clear, engaging job ads that tell applicants what’s so great about working with you.
• Look after your current team as well: People want to feel valued and listened to, so set up an employee recognition scheme to reward good work in meaningful ways. Employees also need to know their career is going somewhere, so provide clear development pathways even if you can’t offer grand promotions.

Staying on the right side of the law

UK employment law isn’t exactly light reading, and it changes all the time. Add in GDPR, health and safety, and right-to-work checks, and you’ve got a lot to keep up with. This is especially challenging when you’re not an HR or legal expert in the first place.

To stay compliant:

• Get your paperwork in order: Run regular audits to make sure every employee has a proper contract and that your policies (such as absence, equal opportunities, and health and safety) are up to date and accessible.
• Use templates: You don’t need to start from scratch every time, and there are lots of good templates out there for everything from privacy policies to disciplinary procedures. Just make sure they’re UK-specific.
• Keep everyone in the know: Train your managers on the basics; a learning experience platform is ideal if you don’t have all of the knowledge in-house, which is often the case in small businesses. Sites like ACAS, CIPD and GOV.UK also offer resources and updates to help you stay informed.

Welcoming new employees

A new starter’s first day is exciting for the whole team. But if their laptop’s not ready and no one introduces them, they’ll probably spend those initial hours wondering whether they made a terrible mistake.

Poor onboarding leads to poor retention, but there are some easy ways to turn this around.

• Write a checklist: Cover all of the basics, including IT, introductions to colleagues, and induction training.
• Add a personal touch: Make sure the first few days aren’t all admin! Offer employees a welcome pack to help them settle in and show you’re thrilled to have them. This could include simple things like a branded mug, a notebook, and some good-quality chocolate.
• Set up a buddy system: Your existing team members are vital to helping new starters settle in. So pair your newest team member with a friendly colleague who can show them the ropes and offer support over the first few weeks. Recent starters often make the best buddies, as they still remember what it’s like to be new and can offer advice and reassurance.

Getting the best out of your people

If you’ve ever put off a performance review because you didn’t know where to start, you’re not alone. Many small businesses avoid formal reviews altogether. But to perform at their best, your people need crystal clear expectations and regular feedback.

Try these techniques:

• Set SMART goals: Vague targets like “improve performance” can lead to misinterpretation and disagreements. Instead, set specific, measurable, achievable, relevant and time-bound goals everyone can agree on.
• Check in regularly: Why wait until the end of the year, when the biggest wins and opportunities for feedback may be long forgotten? Get quick monthly chats in the diary so you can go over recent activities and address any challenges early on… it’s also less daunting for employees this way.
• Use simple tools: Don’t try to juggle everything yourself when HR tools for small businesses can make managing your people far easier. Platforms like People First help you track goals, log feedback, and create development plans without needing a whole HR team.

Making training part of the day job

Training often gets put off because it sounds expensive and time-consuming. But people can only excel in their roles if they have up-to-date knowledge and skills, and research also shows that employees who feel supported to learn are half as likely to think about leaving.

This doesn’t have to mean booking pricey workshops; instead, you can:

• Use online platforms: There are plenty of practical resources online that can help you fill skills gaps within your team. You could even use learning management software to quickly and easily create your own engaging learning content.
• Encourage shadowing: In a small business, it’s a real advantage when everyone understands how different parts of the organisation fit together. Give your team the chance to learn by spending some time shadowing different roles.
• Create a plan: Work with each employee to map out how they can grow their skills to support the future of the business. Don’t forget to factor in people’s personal interests and career aspirations.

Creating a positive team dynamic

Disagreements are part of life. But in a small team, the tiniest bit of friction can have serious consequences, from affecting morale to bringing projects to a halt.

To keep things harmonious:

• Make your grievance procedure clear: Employees shouldn’t be left to resolve major disputes alone; make sure everyone knows how to raise concerns, and that they’ll be taken seriously.
• Train managers in conflict resolution: A calm, informed approach can stop small issues from snowballing.
• Encourage openness: Your people should feel comfortable sharing feedback and opinions with each other as well as senior leaders. When this is done constructively, there’s less opportunity for things to get out of hand.

Getting payroll right

Payroll mistakes cause stress for both you and your team, and half of employees would consider leaving if their pay was repeatedly wrong. At the same time, manual processes take up time you probably don’t have to spare.

Save yourself the headache:

• Use payroll software: Digital payroll platforms automate calculations, tax, and payslips to save you time and prevent errors.
• Give your people more control: 43% of workers say their morale has suffered due to the rising cost of living. With self-service tools, employees can check their pay and other financial information whenever they like, helping them plan better. You could also ease the pressure by offering financial education resources and even earned wage access. Our small business payroll software comes with everything you need to do this.
• Offer simple perks: You don’t need a big benefits package to make people feel valued. Even small bonuses or a team wellness budget can go a long way.

Making flexibility work

With 74% of UK employees preferring hybrid work, flexible working isn’t going anywhere just yet. But as you probably know, this comes with a whole host of challenges. How do you keep everyone aligned? And how can you keep your people motivated and productive?

Here’s what helps:

• Set clear expectations: Be upfront about availability, response times, and how work gets done.
• Pick the right tools: Combine communication tools like Microsoft Teams with an HR platform that lets the whole company collaborate through a shared social feed.
• Trust your team: Where possible, give people control over their own schedules and trust them to balance work with their personal life. With clear expectations and performance reviews in place, you’ll be able to spot and resolve any issues before they have an impact.

HR best practices UK businesses should keep in mind

So you’ve tackled the big challenges. But how do you keep things running smoothly?

Make HR part of your bigger picture

HR isn’t just admin. Align it with your wider goals to grow your business in a sustainable way.

• KPIs: Set specific KPIs for hiring, retention, and development.
• Planning: Involve HR (even if that’s just you!) in business planning, thinking ahead about what kind of team you’ll need to make your vision a reality.
• Regular reviews: Continually review and adjust your approach to HR to make sure it delivers.

Take advantage of technology

Manual processes could be costing you hours each day, not to mention they’re prone to mistakes. The right tools can make a huge difference.

• Functionality: Choose HR tools for small businesses that cover key areas like recruitment, onboarding, and performance.
• Seamless integration: Make sure systems talk to each other so you’re not logging into five different platforms or keying in the same data twice.
• Small steps: If you’re new to HR software, start small. Our People First solution for small businesses is easy to get to grips with so that you can streamline your processes without the faff.

Communicate like humans

No one likes being left in the dark. Consistent, honest communication is essential for building trust as well as getting things done.

• Check-ins: Schedule regular team meetings and send email updates as needed.
• Listening skills: Train managers to listen and act on feedback as well as giving instructions.
• Clear communication: Keep written comms straightforward, concise, and jargon-free.

Empower your managers

Managers often handle the brunt of HR tasks, so give them the tools to do it well.

• HR training: Offer short training sessions on key topics like reviews, grievances, and hiring.
• HR tools: Give managers software that speeds up their work and shortens the to-do list.
• Peer support: Help managers find mentors and encourage your leaders to learn from each other’s experiences.

Keep an eye on compliance

Prevention is cheaper (and less stressful) than cure, so don’t wait until there’s a problem.

• UK HR compliance: Stay up to date with changes to UK employment law and other regulations.
• Policy maintenance: Review contracts and policies regularly.
• Thorough records: Document everything, from training sessions to disciplinary actions; you never know when you might need evidence for an audit.

Put your people first

Your people are your most valuable resource; make their experience a good one.

• Onboarding: Give employees a warm welcome to get things off to a strong start. Then don’t forget to check in regularly.
• Growth: Give them frequent opportunities to learn and develop skills that will benefit your business.
• Recognition: Show you value a job well done, whether it’s through a shout-out in a team meeting or a financial reward.

Build for growth

Even if you’re a team of five today, you might be twenty next year. If you want to grow your business, start getting the infrastructure in place now.

• Processes: Document your processes while they’re still manageable.
• Templates: Create templates that speed up work in every part of the business.
• Central hub: Create a platform where everyone can access the documents they need and manage things like holidays and pay; HR software is ideal for this.

While there’s no one-size-fits-all approach to HR strategy for startups and small businesses, addressing these common challenges can create a more resilient workplace that helps your business grow.

If you’re ready to stop wrestling spreadsheets and chasing missing paperwork, take a look at our HR and payroll tools designed specifically for smaller businesses.