by Dennis E. Powell
“Business would be easy if it weren’t for people,” W.L. Lyons Brown III, founder and CEO of Altamar Brands, has famously said.
Human resources management can be a lot like a minefield: From outside, it doesn’t seem very remarkable, but unseen danger lurks there. And as with a minefield, the rewards of successfully navigating the field of human resources come largely through the bad things that don’t happen. But getting client companies to acquire the necessary skills and pay proper attention to personnel matters can be one of the toughest tasks facing an incubator manager. “The issue of how to start and maintain an effective HR function from the first hire and beyond is, in my experience, totally ignored,” says Bill Schutters, entrepreneurial support director at the Kentucky Highlands Business Innovation and Growth Center in London, Ky. “Yet, payroll costs typically are the largest expenditure of the business.”
Schutters explains to entrepreneurs that success is dependent upon achieving competency in five areas: finance, marketing, products and/or services, organizational management (including human resources) and entrepreneurial – how the entrepreneur fits in to the picture. “Under HR, there are many rich areas of knowledge such as building a people culture; recruiting, hiring and motivating; managing benefits; how to use subcontractors; and the list goes on. Paying attention to this area can have huge impacts.”
Because entrepreneurs are often highly motivated with clear expectations of how their companies should function, many do not see the need for human resources training. “Those who need it the most tend to be unwilling to hire anyone, since no one would be as good as they are in all 52 jobs they are performing,” says Michel M. Bitritto, director of New Jersey Meadowlands Commission Business Accelerator of Lyndhurst, N.J. But unless an entrepreneur is truly running a one-person business, the HR aspects of business operation must be learned, she says, because sooner or later, the company will have to hire employees. And how they do that can make or break a company.
Even unwitting mistakes can have grave consequences for a start-up. Federal, state and local requirements and regulations make it possible for new – or even existing – companies to violate the law and face enormous penalties without having the slightest idea there’s anything the matter. “I can’t point to a single business that wasn’t doing something so horribly wrong that it could have been a door-closer,” says Belinda Waggoner, president and founder of HR Haven in Overland Park, Kan., who has provided training and program planning at several incubation programs in the region.
Human resources is more than just hiring people, notes Kelley Rexroad, a consultant who provides HR advice to clients of the Tampa Bay Innovation Center in Largo, Fla. “I hate seeing small businesses get into trouble because they don’t know what they don’t know,” she says.
As an example, Rexroad describes the rules surrounding U.S. federal employment eligibility verification. She says businesses must obtain and file the I-9 document (which specifies that an individual is legally authorized to work in the United States) for each employee within 72 hours of employment, but they cannot keep this document in the employee’s personnel file. Failure on either count can result in a fine of up to $1,100 per worker and could preclude the company from receiving federal contracts.
As they start to hire employees, start-ups must determine how to structure a workforce that meets their needs, but also fits their tight budget. Will they hire full-time employees or part-time employees? Are the positions exempt or nonexempt? Can they hire independent contractors, subcontractors or seasonal employees? Navigating the rules of employment to best suit the employee and employer can be difficult. “So many times, they [new companies] will hire people as independent contractors and they’re not,” Rexroad says. “The IRS is coming down on that.”
The costs of making even a small, innocent mistake in this area can be very high. In addition to federal penalties, which can include back withholding, Social Security, and fines and penalties, there are state laws that exact even more draconian costs: fines of up to $100,000 in California, for instance, or 30 days in jail in New York.
Once the company has determined its workplace structure, the real work begins. Advertising positions, interviewing applicants, offering positions and establishing employee roles all require advanced planning to ensure equality and transparency. Even seemingly harmless, friendly questions asked of an interview applicant – such as “Do you have children?” – can create legal trouble down the road. “You want to be sure that you interview applicants properly and not interview them for the answers you want,” Rexroad says.
In her work with the Tampa Bay Innovation Center, Rexroad speaks to large groups of incubator clients, but she also holds office hours twice a month at the incubator’s Mentors Corner program, where clients can receive private consulting. “A lot of people don’t want to ask their questions in front of a crowd,” she says.
Purdue Technology Center in West Lafayette, Ind., employs its Human Resources Services Program to help clients solve HR issues. The program, begun in 2005, acts as an interface between potential job candidates and Purdue Research Park firms. With a full-time staff of six, HRS assists firms to screen potential candidates and provides counsel on HR matters related to employment law, mediation, handbooks, and HR training and development.
It operates within the Purdue Research Foundation, the parent organization of the research park, says Judith Hall, assistant vice president and director of human resources at the Purdue Research Foundation. “We provide services free of charge to research park companies, including incubator clients.”
“We let companies know that we’re available to provide training to their employees,” Hall explains. This training covers areas such as developing new managers, providing counseling and mediation, giving performance reviews, communications skills, developing policies and procedures, interviewing and termination. The programs take different formats, but HRS typically provides individualized training. “Sometimes it’s an entire department. Sometimes it’s over lunch. We’re flexible,” she says.
Many incubators make use of mentors and HR specialists in their region to provide training to client companies that complements the assistance they provide in house.
For example, the Rocky Mountain Innosphere in Fort Collins, Colo., partnered with a regional professional employer organization, Employer Solutions Group, to provide HR training for incubator staff and clients via its Advisors in Residence Program. The ESG representative coaches entrepreneurs individually and gives about four presentations a year on more general topics, says Maggie Flanagan, special projects manager at RMI. Flanagan also capitalized on a regional resource, the New Belgium Brewery, a company known for its culture and unique employee-ownership structure. “We enlist their HR mavens to periodically present how their unique company has become one of the most desirable places to work,” she says.
At BizWorks Enterprise Center in Richmond, Va., the client advisory board works with incubator staff to provide hands-on HR assistance. “Our members have the vision but maybe not the business acumen – but that is what we are here for,” says Shirley E. Crawford, office manager at BizWorks. “Our office staff, which has experience and knowledge in these things, will help write job descriptions, organization charts, job ads, interview questions, educate on what is legally acceptable for interviews, as well as work the client through any employee issues or firing.” The staff sometimes even conduct first-round interviews to shrink the candidate pool, with clients responsible for completing the final round.
In Paris, Texas, the Red River Region Business Incubator offers comprehensive, personalized training that focuses on HR when necessary, says Fred Green, the program’s director. “In addition, I have monthly lunch seminars that clients are required to attend,” he says. “There is a session on employee evaluation using the balanced scorecard, required and optional information in employee records, provisions of the Fair Labor Standards Act and the art of delegation.” This is all crucial, he says, because “I have seen too many small businesses without I-9s, no employee manual, no policies, zero knowledge of the FLSA and so on.”
Programs adding or expanding a human resources component to their service offerings might consider the broader aspects of the subject, beyond employment laws, says Alan D. Lish, clinical assistant professor at C.T. Bauer College of Business at the University of Houston. “I agree that HR is probably the least taught – or least effectively taught – program at most incubators,” he says. Based on his analysis of NBIA’s 2006 State of the Business Incubation Industry data, Lish says, “Training – specifically in business etiquette, business presentation, comprehensive business training and HR training – was the second most significant resource that influences graduation rates. I agree that HR, as one of what I call the ‘Big Four,’ is essential.”
HR training is so important that some practitioners include it in their plans for new programs. Rene Stephan, business development specialist at the Economic Development Alliance of St. Clair County in Port Huron, Mich., hopes to employ methods learned in dealing with individual businesses in her group’s planned incubator. “We have a local HR association we partner with that will volunteer to work with small businesses on HR procedures and issues,” she says. “One of the biggest challenges our HR professionals seem to deal with is conflict resolution. We are developing a training class to address that challenge specifically.”
Many entrepreneurs and even incubator managers overlook how human resources shapes a company’s culture, although it should be part of any business incubator’s HR training, say both Rexroad and Waggoner. “If they [entrepreneurs] get it wrong, it can take business growth right off the track,” says Rexroad. “I’ve seen it over and over.”
Rexroad explains that entrepreneurs sometimes treat their business like a hobby instead of a business. She says effective HR policies help protect the business culture and put mechanisms in place to separate the personal and the professional so that the former – the hobby aspect – doesn’t interfere with professional practices.
“Practiced well, HR is an art,” Waggoner says. “And it can be a game changer. Entrepreneurs are really great at creating things, but not always great at creating cultures.” HR experts agree, aligning the company culture with strategic goals can lead to highly successful workplace environments.
Much of HR centers on meeting legal regulations, but employee training and reference documents that guide day-to-day operations need to be engaging and easy to understand. “Lawyers can tell you whether it’s legal, but they can’t tell you how to do it,” says Waggoner. “Interpersonal development, cultural development – those are important things, and lawyers can’t do that. Things need to be written in human, not legalese. The legal parts are still legal, but your employee handbook should be the Book of You.”
Human resources training also should cover how to apply other business and personal skills to the HR realm, says Rexroad. For instance, incubator clients are generally good at networking to find vendors and potential customers. That’s a good way for them to find employees too. “LinkedIn is a great source,” she says. “Incubators themselves are great connectors. But you have to know how to define what you’re looking for to fill a position. Sitting down and establishing the requirements needed for an employee is itself an important skill and one that’s necessary for any successful company.”
A written employee handbook is crucial, as this is where businesses define much of the company culture. “It [the handbook] needs to be in writing and applied across the board,” says Rexroad. Important, too, is familiarity with the application of and exemptions from the FLSA. Even big companies have gotten into deep trouble, she says, by calling an employee a supervisor just to avoid paying overtime.
In warning, she cites a free mobile application from the U.S. Department of Labor Wage and Hour Division that allows employees to record when they begin and end work then send the data to the DOL. “The entrepreneur needs to be on top of all this,” Rexroad says. “Wage and hour compliance is a very big deal.”
A good HR training program includes practical advice beyond compliance with labor laws. Experience in dealing with individual employees can give managers the confidence and compassion to identify and make use of employee strengths – and work around employee weaknesses.
“It [HR training] should also include how to be a good boss,” says Rexroad. “Help them understand why their employees are not as passionate as they are, and how to stop driving their employees crazy.”
Lest it seem daunting, Waggoner offers a final bit of advice: “HR is fun; it really is. It goes beyond hiring a few people without getting into trouble. Start-ups or even those at the three- to five-year mark need something sexier than that.”
Says Purdue’s Hall, “Part of our job is to help a company know what they need to do at each stage of the game. They don’t know what they need. We help them in the best way we can.”
Michel M. Bitritto, director, New Jersey Meadowlands Commission Business Accelerator, Lyndhurst, N.J.
Shirley E. Crawford, office manager, BizWorks Enterprise Center, Richmond, Va.
Maggie Flanagan, special projects manager, Rocky Mountain Innosphere, Fort Collins, Colo.
Fred Green, director, Red River Region Business Incubator, Paris, Texas
Judith Hall, assistant vice president and director of human resources, Purdue Research Foundation, West Lafayette, Ind.
Alan D. Lish, clinical assistant professor, C.T. Bauer College of Business, University of Houston, Houston
Kelley Rexroad, founder, krexconsulting, Largo, Fla.
Bill Schutters, entrepreneurial support director, Kentucky Highlands Business Innovation and Growth Center, London, Ky.
Rene Stephan, business development specialist, Economic Development Alliance of St. Clair County, Port Huron, Mich.
Keywords: Human resources – client, Client services – general, Client handbook, Legal issues
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