Five reasons SMEs waste money on HR

Human resources (HR) management is essential for small and medium-sized businesses (SMEs) success. However, despite its significance, many SMEs spend money on HR procedures that don’t yield optimal results.

Peter Drucker once stated: “Do what you do best and outsource the rest”.

Hire an Accountants

Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 900 3500
Monday to Friday 10am – 5pm

Small companies are too small to have an in-house HR manager. An employee with some HR expertise has been seconded to the role.

In this blog, we will review five reasons why SMEs may end up wasting resources on HR, shining light on difficulties while providing insights into other HR expenses that SMEs incur.  

Table of contents

Five causes for SMEs to waste money on HR

SMEs are inherently goal-oriented

What is the objective of hiring an HR team? They do not get figures for your next period. Then, what? The goal of an HR team is to assess the team’s overall efficiency and train them based on their potential. 

They support the leadership in making decisions related to human resources and offer them strategic thinking. In addition, HR handles recruitment responsibilities. 

In essence, they are aligned with the company’s objectives. All these points are invalid in the context of a new business.

These tasks are done collectively until the number of staff reaches 20. The entire team remains together in the small workplace.

All the potential and strategic planning is done on the goods and advertising. SMEs are already goal-driven and don’t require any HR team to guide them to the organisation’s objectives and orientation.

However, hiring or outsourcing 1-2 hr consultants can be a beneficial resource in handling the limited staff so that there is effective employee engagement in your small enterprise, yet you incur less cost.

SMEs are already energy driven

An employee joins a business and lasts there for three specific reasons:

  • The wage and financial returns they get.
  • Their learning and developing process
  • For overall well-being

Despite established and reputable businesses, SMEs maximise all three criteria. This is why traditional businesses require HR to market their jobs and hire staff members. HR must promote the advantages of working for established businesses to keep these workers.

SMEs are familiar with addressing bigger issues; one solution is outstanding economic returns. Money does not remain a problem in such instances. Learning is also an ongoing procedure because it requires fresh things to be created. The staff has lots of fun developing and executing these open-floor plans.

Startups have individuals with enormous enthusiasm who work in a pre-assumed direction with all their effort. They require fewer members in the HR team to oversee or channel their energy because they can already do much more than their ability. Their endurance and excitement merely restrict the need of a larger HR team. 

Neglecting proper recruitment strategies

SMEs waste money on HR by neglecting proper recruiting techniques and following inefficient processes. Hiring too quickly or using only conventional methods, such as posting jobs on job boards, might result in high employee turnover and higher recruitment expenses.

An excellent or outsourced HR team will take the time to understand your unique business needs and goals. However, SMEs must be clear about their business needs to avoid using a one-size-fits-all strategy.

If you are outsourcing or hiring few but quality HR professionals, it should align with your company objectives and be business-driven, practical and can respond quickly to changing requirements. 

Ensure you know that your outsourced partner will take time to understand your requirements. You and your staff remain accountable for everything. Their actions account for and contribute to the company’s mission.

Non-compliance with labour laws

Neglecting or being ignorant of labour laws and regulations can result in expensive lawsuits, penalties, and fines. Small and medium-sized businesses (SMEs) must constantly comply with pertinent employment legislation, including wage and hour rules, anti-discrimination laws, and workplace safety standards. 

This could entail consulting HR specialists or legal experts, regularly auditing HR policies and procedures, and educating managers and staff on their legal and ethical obligations.

However, the outsourcing partner or the in-house HR team should proactively address concerns and complaints, keep up-to-date records, and establish strong rules and procedures to help reduce legal risks and safeguard the business’s long-term financial health and reputation.

Manual administrative tasks

Excessive time spent on manual administrative duties raises the possibility of errors and compliance problems and utilisation of valuable resources, such as payroll processing and benefits administration. 

SMEs should consider spending money on HR software programmes that automate these procedures, optimise operations, and offer precise data management. 

This reduces the possibility of expensive errors and frees HR experts to concentrate on more strategic tasks, like employee engagement and talent development. 

Scalability and flexibility are features of cloud-based HR systems that enable SMEs to adjust to evolving requirements and regulations without substantial upfront investments in hardware or infrastructure.

Other HR expenses that SMEs waste their money on

  • Hiring too soon: Before hiring someone full-time, carefully evaluate your needs.
  • Overhiring: Outsource people for non-revenue-generating work until you have sufficient funding for full-time hires.
  • The wrong hire: Focus on employing individuals with a track record of delivering the desired outcomes.
  • Unnecessary benefits: When starting, focus instead on cheaper and better ways to attract new hires.
  • Compensation for expenses: Establish an early expenditure reimbursement policy early on to start everyone on the same page.
  • Business travel: When communicating with clients, use digital means rather than site visits.

Hire an Accountants

Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 900 3500
Monday to Friday 10am – 5pm

Final thoughts 

Small and medium-sized businesses can reduce unnecessary spending and improve productivity by handling these typical HR expenses. 

Companies should plan and conduct themselves more professionally as they expand. Business growth will also need appropriate human resource planning and human capital. 

Having a team that focuses on HR management will become essential if you want to achieve long-term growth.