HR Challenges in SME

SME Market - Complete Controller

The success of small to medium-sized enterprises (SMEs) is often viewed as an indicator of overall economic health. Moreover, businesses with less than 250 employees may be more straightforward to manage when compared to multinational companies with thousands of employees—consequently, the matters of scale result in a different mix of challenges. However, businesses face many challenges when implementing human resources (HR) systems and policies in an SME. 

The issue prevails because, unlike large organizations, SMEs tend to take HR issues and concerns for granted and ignore them either partially or fully. In fact, they only act when matters peak; thus, the scenario becomes out of their control. Moreover, HR matters are often more complicated than other departments like accounting, which can be scrutinized and corrected through calculations. LastPass – Family or Org Password Vault

Consequently, small to medium-sized enterprises must adopt the best HR practices and procedures to accomplish their company goals and business objectives. You do not need large reserve funds as long as you have the right people putting processes in place at the right time. Here are some of the common HR issues SMEs currently face:

Absence or Lack of HR Department in SMEs

Most small-sized businesses and some medium-sized enterprises have no HR departments because they perceive that having a fully functional HR department is an additional cost. Hence, in the absence of an HR department, workers tend to resolve workplace issues, resulting in chaos and more issues among workers. Therefore, they are often vulnerable to concerns affecting their morale and job motivation.

Managing Talent

Lack of talent management is another big issue for SMEs, which ultimately affects the following HR processes:


The HR process begins with recruiting the ideal candidate for a position. Remember, the quality of the individuals you hire will eventually determine their success or failure in the long term. SMEs typically recruit through referrals: their relatives, people they know, or individuals related to shareholders. This is okay if merit and qualifications are the basis on which the people are employed. However, SMEs normally prefer relatives and friends, assuming that they are easy to deal with and willing to work for them at a lower rate.

Unfortunately, the downside of this practice is that the hired friends and relatives often 
lack the requisite skills and expertise, which can cost the company in the long run. Moreover, family-owned small businesses usually have no formal recruitment process, especially ones acquired by succession or inheritance.

Cubicle to Cloud virtual businessTraining and Development:

In today’s developed business societies, organizations should acquire an adequate pool of skilled and experienced employees with the current market scenario. Therefore, large companies demonstrate concrete efforts to hire smart and skilled people and upscale their abilities by making them go through various training and development programs.

However, SMEs often tend not to rely on external training and development programs because of budget constraints. Therefore, they conduct 
on-the-job or in-house training, often producing lower results or providing no training.

Reward and Remuneration & Performance Appraisals:

Reward and remuneration are other essential HR aspects that all organizations, regardless of their size and nature, should effectively use to motivate their employees. They must have a transparent and dependable system for setting salaries for their staff. However, many SMEs either have a vaguely structured reward and remuneration system and performance appraisals or none of them at all.

This is primarily because other structures like a job description, competency framework, and values for the different roles are not well-defined. Moreover, small business owners or managers are busy or are not trained to handle more than average ‘performance.’ In fact, most SMEs are not focused on scale and growth to tackle appraisal processes.ADP. Payroll – HR – Benefits

Talent Retention:

Retaining competent employees at the junior level is often a challenge for SMEs. This junior level usually consists of workers with functional skills like electricians, field salespersons, etc. This class is significantly mobile, rarely available in consistent job shifts, and may even quit working without giving prior notice. The unexpected loss of employees affects SMEs, especially during the seasonal days.

Moreover, vague role definitions, lack of career prospects, or any perceived unfairness in the remuneration or appraisal system can trigger thoughts of attrition among workers. HR managers should be aware of employees’ engagement at all levels of the 
enterprise and their retention drivers.

Maintaining the Spirit of Innovation and Entrepreneurial Culture

Bursting with excitement, aspirations, expectations, and immense potential, SMEs in their early days often promote a business culture that is fun, fast-moving, innovative, and entrepreneurial. Such a culture generally comprises young, energetic team members who show excellent coordination and dedication, work closely with each other, and frequently interact with their seniors and business founders. 

However, SMEs tend to lose this spirit as the business grows and matures. Therefore, due to conventional ways of business management, they often fail to grow further. In fact, it becomes a challenge to sustain operations in the competitive market at some point.

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