Statistics published by the SBA (Small Business Administration US) indicate that most small businesses fail within the first 3 years of inception. One of the main reasons small businesses fail is due to a lack of proper business planning. A good business plan needs to be realistic and accurate. It should contain all aspects of the business including HR policies. Many small business owners do not develop any written policies or standards that highlight expectations for employee behavior or performance in the workplace.
I am in the process of changing the way my business is taxed from sole proprietor taxation to partnership taxation so I can get full liability protection from my LLC. During this transition, I’m learning that it is more than tax status that provides liability protection for a business. The more business structures that I put in place to distinguish my business as its own entity, the stronger my liability protection will be. To achieve this, I need to have HR policies even though I don’t have any employees, so I have addressed four questions: What are HR Policies? Why should a small business with no employees have HR policies in place? How to develop HR Policies? What are the Benefits of Having HR Policies with no employees?
What are HR Policies?
Human resources policies are formal guidelines and regulations that businesses implement to employ, train, evaluate and compensate employees. Clearly defined HR policies help prevent misunderstandings about the employer and the employee’s role and rights in the workplace. If a court dispute occurs between the employer and the employee, the employer is at a disadvantage if he doesn’t have a sound human resources policy.
Why should a small business with no employees have HR policies in place?
First and foremost, a small business owner officially or unofficially is an employee of their company. Most small business start off with the owner performing all aspects of the business, performing all jobs until profits allow for the business owner to hire employees. The next progression in the evolution of a small business is for the owner to hire employees. If the owner of a small business is the only employee in the company, the thought of having “official” standards or policies, may seem a bit crazy. So why should an owner/ employee of a small business worry about having HR policies, because not having HR policies and procedures in place can have consequences in all progressions of a small business.
Failure to create and adhere to HR policies often leads to reduced productivity and initiative, compensation practices that could lead to costly tax obligations or even an audit.
One of the benefits of owning a small business can also be a curse. The ability to set your own hours and work in pajamas is a definite benefit. Not having established hours of operation, or workdays could hurt a small business by confusing or frustrating customers; certain times of the day or days of the week could be better for business than others, and a relaxed approach to the workday could hurt a small business’ bottom line. If employees are hired under a relaxed workplace structure where there are no guidelines in place to outline expected duties and workplace behaviors, and if issues arise concerning amount of work or compensation, or conduct of other employees, the business owner has no legal protection and can be sued. HR policies address payroll policies and issues most small business owners overlook. Having a payroll process in place can help business owners separate money used for personal and business expenses. Comingling of funds is a major reason small business end up getting in trouble with the IRS.
Establishing workplace structures through HR policies and procedures helps to keep my focus on building my business and establishing a presence with potential customers and authors. It also helps me fight the urge to procrastinate. I have a structure in place to outline how I want to run my business on a daily basis. I pay myself a salary to avoid comingling funds and spending profits that should be reinvested in my business.
How to develop HR Policies?
Workplace policies do not have to be long and complicated documents that no one can understand. Standards can be easily summarized starting with the policy title and a brief paragraph which highlights expectations. A small business’s HR policy should start by outlining the following: employee classifications, such as nonexempt or exempt; equal employment opportunity guidelines; workdays; pay period dates and paydays; paycheck advances; overtime pay; break and meal periods; payroll deductions, including statutory and voluntary deductions; safety and health regulations; fringe benefits, such as vacations, holidays and sick and personal time; performance evaluations and pay increases; and terminations. The HR policy may also include other issues, such as timecard regulations; use of company resources, such as the Internet and telephone; sexual harassment; drug testing; dress code and complaints. It is good to start off with the basics even though they might not apply to your current situation.
Developing HR policies was daunting at first. I started with the basic policies as a foundation of how I would govern myself as an employee. I also thought of potential employment positions I may have at some point in my business. Then I expanded to how the business operates. The majority of my “workforce” will consist of authors under contract whose books will be published by my company. The authors will not be employees per se nor will they be considered independent contractors. I thought of the roles that authors I publish play in relation to the company and created policies addressing those issues. Such as social media policies, authors will be using the platform my company provides (such as a website, Facebook page) for marketing and promotion. I also created a policy around conduct, when authors are attending social gatherings promoting their books and book signings.
What are the Benefits of Having HR Policies?
Human resources policies that are properly established and maintained can be advantageous to a small business. A well-written and fair policy can provide guidance on how to run day to day operations, supervise and manage future employees during the employment, training, promotion and compensation processes; and serve as a communication tool to recruit good employees regarding job expectations and behavior. HR policies help establish a small business as more than just a hobby in the eyes of the IRS. If the business owner needs to apply for a loan or line of credit, having a fully realized HR policy to show the bank officer may go a long way to establish credibility.
One of the biggest benefits of creating HR policies is discovering policies that are related to a business and tailoring them to fit the business needs. HR policies provide a blueprint to a business structure from the operation standpoint. Like most small business owners my focus was on taxes, deductions, and profit. I didn’t realize the importance of record keeping, record storage, and intellectual property until I started developing my HR policies.
HR policies should comply with federal record-keeping laws. Employee records should include job application proof of citizenship (such as, birth certificate, photo id, and social security card), résumé, performance appraisals, and salary or wage changes. It is also important to keep leave or vacation requests, medical and payroll records. Along with employee records, sales record, invoices and expense records should be kept.
My business records will be kept in a LLC kit. I will be paid as an author of my company, so my file will include:
A signed Publisher/Author contract
A book submission form with attached manuscript
A signed receipt of HR policies and Procedures form
A direct deposit form
Copies of photo id, social security card, and birth certificate
Copies of required tax forms
New hire/author checklist
I will use accounting software to keep track of my sales, invoices, inventory, and payroll.
How certain employee records are filed, the length of time certain records have to be kept on file, if and when to destroy old employee records, are all components of record storage. For instance, Employee files containing personal information should be kept in a separate secure place from other business records and only authorized personnel should have access to those files. Records can also be stored electronically. With initiatives for businesses to go green and paperless, scanning hard copies of various types of employment documents and retaining only the electronic copies is becoming more and more popular. Electronic storage systems should be secure, accurate, reliable, and accessible. File backup systems that can store files in more than one place and contain metadata that can be authenticated for legal purposes.
Record storage is more important than I realized. Along with business and employee records, manuscripts, bar codes, and book cover art are records that require proper storage. My plan for record storage is to keep hard copies of records as well as electronic records stored on a hard drive, back up drive, and online storage. Additionally all files pertaining to one book (manuscript, cover art, and barcode) will be stored on a data disk. I also plan to purchase a PC for my business operation because I’ve read that PC’s provide more storage capacity and file protection than a laptop. Ninety percent of my business consists of online sales, emails and uploading files, all these records need to be stored in a safe secure way. A solid record storage policy and procedure will be an attractive feature for future authors and employees.
Intellectual property is a legal concept which refers to creations of the mind for which exclusive rights are recognized. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works. Common types of intellectual property rights include copyright, trademarks, and patents.
Publishing is a business that deals with intellectual property. The Publisher/ Author contract outlines the percentage of rights based on who contributes what to a literary work (the author for creating the work and the publisher for manufacturing and registering the work). Creating a policy that addresses this is just good business.
Deadlines and attention to detail are key factors in running a successful publishing business. There is a lot of behind the scenes work that goes on to get a book from acquisition to publication. By having HR policies in place, that address the behind the scenes processes, the day to day operations, and expectations, I am able to run my business more efficiently and avoid the mistakes that poor planning cost most small business. Also when I am ready to hire employees, or publish other authors, I have workplace standards established that will protect my business.