Human Resources & Compliance

Human Resources& Compliance

Human Resources & Compliance

During my time as a HR Consultant, I’ve completed several audits predominately on SME’s. In review, I have noticed that there is consistently an issue with compliance and structure in regard to Human Resources and often this doesn’t appear to be a primary concern for the business. However, it should be.


According to Mayers, the three major areas that small and medium-sized firms neglect (until it’s too late) are technology, insurance and Human Resources.  As published by Kitching, in their survey of 9700 small firms, Pleasance and Balmer found the following:

  • 3% of micro-employers & 7% of small employers (employ a qualified, or suitably trained, HRM professional.
  • 2% of small and medium-sized enterprise (SME) employers had retainer agreements for HRM/ employment services and 9% for legal services.

The general consensus seems to be that Human Resources tends to take the backseat when it comes to managing SMEs in spite of some legitimate HR-related issues.  According to Cardons and Stevens, ‘new’ and ‘small’ firms in particular tend to face key challenges around firm identity, staff attraction and retention, skills development, and lack of legitimacy.  They also noted, although with particular reference to newer firms, that companies lacking legitimacy and formalised processes etc. also have a tendency to rely on ‘potentially haphazard employee management systems’. (Cardon & Stevens)


Whilst it would seem that ‘cutting edge’ (Baruch & Peiperl) approaches to employment management are much more difficult to introduce into small organisations, there are strong arguments to suggest that the informal nature of the SME actually facilitates some commonplace, sophisticated employee management approaches.  (Brand & Bax; Coetzer, Redmond & Bastian) For example, in a study of organisation-lead adult learning in SMEs, Ahlgren and Engel found that most SMEs engaged in some form system in which the educational and training needs to the employee were discussed.


Having worked in both SMEs and larger companies, I have found this to be true; I’ve either witnessed or experienced management that could be perceived as the more sophisticated side of people management, such as: greater flexibility; better person-job fit and/or job redesigns; career progression opportunity; ad-hoc skills development and career development; well-being interventions etc.  However, one oversight that I have noticed across all the SMEs I have worked at, is with very basic HR administration – the nitty gritty of employing people! There have been issues with out of date contracts, blank spaces around procedures and policies, lack of knowledge regarding employment law, slapdash (or sometimes non-existent) employment handbooks etc.


In my own experience, I’ve pertained this to two reasons in particular. Firstly, as Kitching has noted, there tends to be a general belief that SMEs suffer from ‘regulatory burdens’ to a greater extent due to resource constraints in terms of both time and finance. (Kitching)  The entrepreneurial nature of management tends to mean that the majority of time and resources are focused around precuring capital and/or meeting client/customer demand.  Employee manuals, pay monitoring, absence monitoring, updating contracts as per new legislation etc. tends to get lost amongst the everyday running of the business.  Cardons and Stevens suggest that in some cases SMEs are so overly consumed with their core services/business management that they become ‘amazingly ignorant of basic labour law’ (Cardons & Stevens).  Although this is a justifiable explanation, lacking knowledge and/or compliance around employment law does leave an employer to becoming a ‘loosely run and vulnerable target’ (Cardons & Stevens) to, in a worst case scenario, potential litigation.


Secondly, somewhat linked to Cardon and Stevens suggestion of ‘amazing ignorance’, that basic HR administration is simply unnecessary and overly complicated.  If we are to assume that most SMEs function fairly informally then it is somewhat understandable as to why this is often the case.  Indeed, Saridakis note that a firm that has developed with flexibility and informality will not take well to what it perceives to be unnecessary bureaucracy.  As published in a recent CIPD report, in a 2016 survey the former Department for Business, Innovation and Skills (BIS) found that employment regulation is low priority for SMEs and that only 13% of small firms found employment regulation (lack of) as an obstacle to success as a company.  The CIPD noted a ‘perception-reality gap’ (CIPD) among small and micro firms regarding legislation and compliance, denoting employers to have ‘either confident ignorance or anxiety about risk’. (CIPD)


As previously suggested, neglecting basic HR functions can have negative implications on the smooth running of everyday HR tasks such as recruiting, onboarding, disciplining, and dismissing.  Furthermore, this issue is particularly prevalent due to the recent changes regarding tribunal fees.  For those still in the dark, as of July 2017 the supreme court ruled the employment tribunal fees were ‘unlawful’ as essentially they prevented justice from being carried out.  Tribunal fees were introduced in 2013, after which the amount of tribunals reduced by a staggering 70%. (The Guardian) With the reintroduction of a free claims system, it is not unlikely that over the coming years the amount of tribunals are likely to fluctuate back up.  With it now easier for an employee to make a claim against an employer, and justly so in a lot of cases, there is now incredible pressure on employers to be employment law compliant and furthermore, provide proof of that compliance.  Even something as simple as an employee handbook can go a long way in terms of taking a positive step towards compliance and lowering risk.  As McGinnis suggests, a handbook not only ensures law compliance but also helps to reduce management confusion regarding employment laws/policy enforcement and provides employees with a helpful resource which can, in turn, be utilised as a ‘time-saving training and onboarding tool.’ (McGinnis)   Ultimately, implementing clear, concise, and legally compliant policies and procedures will not only help mitigate risk of tribunal when it comes to dismissal or discipline, for example, but also ensures that your employees are treated respectfully and fairly, as they should be.


Although it may seem like additional bureaucracy, a strong and consistent HR policy offers value and security both for the employer and the employee and is consistent with a positive and productive workplace. It allows both parties to have a clear understanding of processes and creates a transparency and understanding which will minimise conflict within the professional setting. Human Resources and compliance are no longer simply an option for successful businesses – they are a necessity.


If you have any questions or would like any advice about compliance and HR within the workplace, I am available to have a confidential and impartial conversation. You can reach me on 0392 349 011 or email

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