Small companies are unlikely to employ an individual in the specialist role of human resources manager. With limited budgets for salaries, small businesses tend to put a higher priority on filling operational positions. While this may be a financial necessity, the lack of an HR manager can put small organizations at a disadvantage in a number of key areas.

Failure to Address Performance Issues

When operational managers perform multiple roles, HR processes such as performance management are unlikely to become a priority unless a crisis occurs. Operational managers may be unwilling to tackle poor behaviors or substandard performance among their employees. Alternatively, they may lack the necessary skills or experience to do so. Failing to address performance and behavioral issues in a proactive manner can lead to a loss of productivity and increased employee turnover, both of which can adversely impact a company's profitability.

Failure to Develop Employees

With no specialist HR managers to guide them, small companies are likely to lack the formalized learning and development structures that exist in larger organizations, such as annual appraisals, training needs analyses and development plans. The lack of such processes can lead to training needs being overlooked and a failure to keep staff up to date with best practices. If employees see no opportunities to learn and develop within a small company, they may choose to leave to further their careers.

Difficulty Attracting Top Talent

The quality of employees within a small company is particularly important, given that resources are limited. Attracting new employees of the correct calibre can be a challenge for small companies if they find themselves competing with large organizations. In large organizations, HR managers can ensure that the company's brand is promoted to job seekers. HR managers achieve this through advertising, attending job fairs, and building relationships with institutions such as colleges and universities. Small companies lack the dedicated resource to increase their profile among job seekers, which can lead to them losing out on top talent.

Failure to Comply With Employment Legislation

Employment legislation and government regulations place many of the same burdens on small companies as on large organizations. While HR managers within large organizations have time to keep up to date with changes in employment legislation and regulations, this is much more of a challenge for overstretched managers in small companies. Failure to understand current employment legislation can lead to unintentional breaches of employee rights. This may occur when a company denies employees a right to which they are entitled, or a manager dismisses an employee unfairly.