HUMAN RESOURCE PLANNING AND POLICY DEVELOPMENT: STRATEGIES FOR SMALL BUSINESSES Erin Thomas, Highlander Environment Corporation

Geralyn McClure Franklin, The University of Texas of the Permian Basin Peter Rainsford, University of Denver Abstract Small business owners and managers are notorious for their lack of human resource (HR) planning and policy development. But, it does not have to be this way. This paper outlines the steps small employers may take to develop an HR strategy and a Human Resources Policies and Procedures Manual. Spending time developing an HR strategy can reduce the overall amount of time spent when faced with human resource management (HRM) issues. The existence of a Human Resources Policies and Procedures Manual for managers to follow helps the small business maintain consistency in dealing with employee problems as they arise. Ultimately, being proactive in the HR strategy and policy development processes may lead to an effective and efficient organization. Introduction Human resource management (HRM) is the performance of all the managerial functions involved in planning for recruiting, selecting, developing, utilizing, rewarding, and maximizing the potential of human resources in an organization (Megginson, Franklin, and Byrd, 1995). Small and large employers often perform the HRM functions differently. This is primarily due to the size and nature of the firms. As a result, questions often arise relating to what is a small employer and what is a large employer? Depending on the context of the discussion, there are varying definitions for small employers and large employers. Under the standards established by the United States Small Business Administration (2002), businesses generally are classified as small if they have fewer than 500 employees, except that businesses in the wholesale trade industry are classified as small if they have fewer than 100 employees. For the purposes of this paper, the term small business implies organizations with fewer than 100 employees. One of the primary problems small businesses have with HRM is that most do not have staff members dedicated to developing and implementing HRM policies and procedures. It is at best an addition to an existing employees duties and may be split between the owner and several employees such as an office manager and first-line managers. It is also rare for owners and managers of small businesses to have formal training in HRM practices (Deshpande and Golhar, 1994; Amba-Rao and Pendse, 1985; McEvoy, 1984). As such, they do not value the impact of HRM on improving productivity, reducing turnover, and increasing overall employee satisfaction (Mathis and Jackson, 2001). Interestingly, a study by Hess (1987) reported that small firms ranked personnel management as the second most important management activity (next to general management). In addition, at least one study has found HRM practices to be the leading cause of failure for small businesses (McEvoy, 1984).

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No doubt, in small businesses, there is often little planning for future employment needs. But, should it be this way? With a proactive effort, the management of HRM functions can be streamlined and structured so that all employees who handle these functions are aware of company policies and procedures regarding employee behavior. New tools in the form of simple-to-use computer programs allow small business owners and managers to have the planning and management tools of larger companies. Developing a Human Resource Strategy The fast pace of business today demands small businesses must have flexible, well trained, and self-directed employees. Employee retention is essential for remaining competitive. Developing a human resource (HR) strategy can eliminate the redundant efforts that occur each time a hiring, promotion, training, compensation, or other HRM issue occurs. An HR strategy also helps management get a clear picture of what to expect from the firm and its employees, develop benchmarks for goal setting, and create a vision for employees. Ultimately, the development of an HR strategy should lead to the development of a Human Resources Policies and Procedures Manual (to be discussed in more detail later). Accel-Team (2004), a well-recognized HRM consulting group, outlines a seven-step process for developing an HR strategy. A short, written summary of each of the steps should be prepared and placed in the Human Resources Policies and Procedures Manual. The first step is to look at the business strategy and decide what key forces affect the firm. These could be issues like new technology, competitors, or changing markets. How do these forces affect employees? How do the contributions of employees contribute to the success or failure of the business? Are some areas more important than others? Are there some skilled employees who would be hard to replace? The second step is to develop a mission statement. This does not have to be a long, involved description of what the company hopes to accomplish. Rather, it should be a statement about what the employees should accomplish. The third step is to conduct an analysis of the strengths, weaknesses, opportunities, and threats (SWOT) of the organization. This is an in-depth examination of the internal strengths and weaknesses of the firm, particularly the employees, along with an analysis of the external opportunities and threats that exist. For example, create a list of the opportunities and threats to the company as a result of employees strengths and weaknesses. As opportunities are identified, detail how they might be realized. As threats are discovered, prepare a plan to eliminate them, such as overcoming skill shortages, training employees for new business areas, adding additional staff to provide faster service to current customers, and preparing advertising materials to advise current and potential customers of new or expanded capabilities. The fourth step is to prepare an analysis detailing the culture, organization, people, and systems (COPS) of the firm. Defining the culture of the organization means looking at the way employees view the company and how tasks are performed in the organization. It also entails reviewing the business strategy identified in step one and deciding whether or not there is a

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sufficient base of leadership and skills to accomplish the strategy. The culture of the organization also has to do with team work and employees personal pride in their performances. The organization of the company is just that, how the company is structured. In reviewing the structure, it is important to ensure the structure is flexible enough to deal with future demands and simple enough to change quickly. It is also important that all members of the staff have a clear picture of their roles in the organization. Problem resolution is also a part of organization. In an efficient organization, problems are resolved where they occur, not automatically sent to senior management. Analyses of the people in the organization entails making sure the employees have the skills and knowledge to meet organization goals. This review should gauge whether personnel understand their jobs and how each position contributes to the success of the company as a whole. During this step, a process should be developed for identifying potential members of management and ensuring they are groomed for future leadership needs. It is also important to review the amount of encouragement employees receive for a job well done including any bonus programs. Analyses of the companys systems would include the hiring and promotion systems, planning systems, management information systems, and control systems. In a small business, some of these systems may be combined. The hiring and promotion systems may be informal. During the analysis of this function, a simple, step-by-step process should be prepared for hiring new employees. In a small business, promotions are not generally given on a set schedule. Employees may receive increases in compensation without receiving an actual promotion in the level of the organization. The maintenance of the information system may be outsourced to a third party. Management often designs the information and accounting systems, and then hires a specialist to install the system and perform any updates or corrections to the system. Small businesses generally do not have a large management team. All management and planning decisions are handled by the same group of people. Therefore, this step would mainly consist of firming up the hiring and promotion processes and preparing a written procedure for this system. Preparing written job descriptions provides both employees and management with definition and focus. Many employees have never seen a written description of their position and may be unaware of what is truly expected of them. Creating these descriptions, with feedback from employees currently in the positions, can help put management and employees on the same page as far as what is required of that position. The description should include day-to-day responsibilities and occasional tasks, levels of authority with an explanation of reporting structure, necessary qualifications for the position such as required licenses, education, or training, and the mandatory skills for the position. Technical skills required should be detailed including what types of software or specific machinery the employee should be able to operate (Cain and Kleiner, 2002). The fifth step is to determine critical people issues. This means using the information developed in terms of the organizations business strategy, SWOT analysis, and COPS analysis and

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comparing these for patterns or emerging issues. The review should identify weaknesses in HRM including planning, recruiting, training, compensation, and supervision. For each weakness identified, a plan to eliminate the weakness should be prepared. Then, the issues should be prioritized in the order that is critical to address. Critical issues would be those items that directly impact the health of the organization and its ability to remain competitive. For example, if hiring and maintaining skilled employees in a particular area is a necessity for the organization to operate and prosper and it has become increasingly more difficult to hire and maintain such workers, this issue must be addressed. Each solution should be thoroughly analyzed and all consequences examined. Step six involves the development of consequences and solutions, or an HR action plan to be specific. Each critical HRM issue identified in step five should be prominently noted. Possible solutions should be outlined, keeping in mind that all existing assumptions should be challenged before a course of action is determined. Targets and dates should be set for accomplishing all objectives. Typically, the action plan is translated into these broad objectives for HRM (AccelTeam, 2004): manpower planning, employee selection and recruitment, employee training and development, management development, organization development, performance appraisal, employee rewards, and communication. Finally, the seventh step is pulling steps one through six together to identify the firms HR strategy. This, of course, involves the implementation of the action plan and ultimately an evaluation of the action plan. Using the HR Strategy to Develop a Human Resources Policies and Procedures Manual Based on experiences of the authors and reports in the literature, we contend written HRM policies and procedures are lacking in most small organizations. Fortunately, this can be addressed with brief memos for managers and employees detailing employee behavior, dress code, work hours, and benefits. Spending a small amount of time developing an HR strategy for managing employee performance and behavior can reduce the overall amount of time small employers spend when faced with HRM issues. Information accumulated during the HR strategy development process should be included in the Human Resource Policies and Procedures Manual. The creation of such a resource guide for handling HRM functions will help to standardize the HRM practices throughout the organization. Before discussing the development of a Human Resources Policies and Procedures Manual, there are a few assumptions that should be addressed. First, we believe that sound HRM policies and procedures are necessary for the growth of any organization. As such, some HRM policies and procedures exist in organizations, regardless of size. These should be written (Uschamber.com/sb, 2004; Ellman, 1999; Carey, 1995). If they are not written, they should be. Having a written policy in place prior to a problem is the key to lowering employer liability (Ellerman and Kleiner, 2000; Farr, 1999). The existence of policies and procedures for managers to follow helps the company to maintain consistency in dealing with HRM problems as they arise. Thus, we advocate the formal development and use of a Human Resources Policies

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and Procedures Manual. Such a manual is for use by management and may then lead to the development of an Employee Handbook for use by employees. Why develop a Human Resources Policies and Procedures Manual? The manual provides a valuable means for disseminating important work-related information and policies to supervisors and managers. Why would you not develop a manual? It can be time consuming and will require frequent updates. Thus, is it better to be proactive and develop the manual than to be reactive to employee issues and then have a need for such a manual? We believe being proactive by preparing and utilizing a Human Resources Policies and Procedures Manual is the best alternative for all businesses and particularly small businesses. Based on our beliefs, we will now provide guidelines and suggestions for the preparation of such a manual. Upper management must be directly involved in the development of the Human Resources Policies and Procedures Manual and its presentation to managers throughout the business. However, lower-level and mid-level managers should provide input to the process. Developing HRM Policies and Procedures Figure 1 contains an outline for a Human Resources Policies and Procedures Manual. This section then provides a few sample policies. Please note that these are only sample policies, as they have not had a legal review and do not necessarily reflect the employment laws of all states. Such policies should be adapted to the specific organizations policies, practices, and culture. Most importantly, legal counsel should review all organization policies before implementation. FIGURE 1 Sample Table of Contents for Human Resources Policies and Procedures Manual Overview of Organization Overview of HR Strategy Purpose of the Manual Definition of Terms Organizational Values * Equal Employment Opportunity Policy * Nondiscrimination and Antiharassment Policy * Americans with Disabilities Act Policy * Conflict of Interest and Outside Employment Policy * Confidential Nature of Work Policy Employment * Recruitment Procedures * Selection Procedures * Reference Checks * Offer of Employment * Initial Employment Period * Employee Categories * Transfers and Promotions * HR Records and Confidentiality

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Employee Relations * Attendance/Tardiness * Dress Code Policy * Disciplinary Policies * Behavioral Expectations and Performance Evaluations * Dating Policy * Nepotism/Employment of Family Members * Use of Company Equipment and Computer Systems * Telephone Use * E-Mail/Internet Use * Employee Surveillance/Monitoring * Substance Abuse Policy * Smoking Policy * Violence in the Workplace Policy * Solicitations, Distributions, and Use of Bulletin Boards * Internal Complaint Procedures * Internal Investigations and Searches Safety and Security * Compliance * OSHA Requirements * Company-Specific Requirements * Reporting Problems and Concerns Compensation * Performance Management * Salary Payments * Overtime Payments * Time Records * Travel Reimbursements * Other Employee Reimbursements Time Off * Vacation * Personal Time * Sick Leave * Company Holidays * Bereavement Leave * Jury Duty * Military Leave * Time Off to Vote * Leave Under the Family and Medical Leave Act (FMLA) * Child Care Leave * Parental Leave * Formal Leave of Absence Benefits * Health Insurance * Dental Insurance * Flexible Spending Account

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* Life Insurance * Long-Term Disability Insurance * Retirement Plans * Workers Compensation Benefits * Educational Reimbursements * Employee Assistance Program (EAP) Employee Separation * Resignation * Termination * Post Resignation/Termination Procedures

Sample Equal Employment Opportunity Policy COMPANY NAME is an equal employment opportunity (EEO) employer. It is our policy to prohibit discrimination of any type and afford equal employment opportunities to employees and applicants without regard to race, color, religion, sex, national origin, age, disability, or veteran status. COMPANY NAME will conform to the spirit as well as the letter of all applicable laws and regulations. Sample Reference Checks Policy It is the policy of COMPANY NAME to check employment references on selected applicants prior to extending a job offer. This is necessary to ensure that individuals who join COMPANY NAME are well qualified and have a strong potential to be productive and successful employees. POSITION TITLE is designated to respond to reference check inquiries from other employers. All calls, contact, and written inquiries concerning current employees should be referred to the POSITION TITLE. Responses to such inquiries will confirm dates of employment, wage rates, and title(s) of position(s) held only. Sample E-Mail/Internet Use Policy Company computers, the e-mail system, and the internet access system are company property and should be used solely for company purposes. Personal use of company computers, the email system, and the internet access system is prohibited. COMPANY NAME reserves the right to access the e-mail system and the internet access system from time to time without notice. Failure to comply with this policy may lead to disciplinary action up to and including termination. Sample Safety and Security Compliance Policy It is the responsibility of each employee that all work tasks be conducted in a safe and efficient manner and in compliance with all local, state, and federal safety and health regulations and any other special safety concerns identified by COMPANY NAME. It is also the responsibility of the employee to identify and familiarize himself or herself with the Safety and Security Plan for

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the work area. Failure to comply with this policy may lead to disciplinary action up to and including termination. Sample Travel Reimbursements Policy To be reimbursed for business-related travel expenses, employees must submit expense reports within 30 days after the expense is incurred. The forms are available from OFFICE NAME. Normal processing time for expense reports is 20 days. Forms that are incorrectly completed or that lack appropriate documentation will be returned and may have a longer processing time. Sample Jury Duty Policy Time off for mandatory jury duty or court appearances required as a result of a valid subpoena or court order is excused and paid at full salary, provided that proof of duty is verified to the employees supervisor. There will be no adjustment in the employees salary for receipt of jury duty pay, witness fees, or expenses. The employee is expected to report for work when court obligations do not conflict with work obligations. Failure to comply with this policy may lead to disciplinary action up to and including termination. Sample Flexible Spending Account Policy COMPANY NAME offers an employee-funded Flexible Spending Account to all regular fulltime employees. Plan participants may elect an annual amount of flexible dollars to be deducted on a pre-tax basis from each paycheck to pay for eligible health care expenses qualifying under federal guidelines incurred during the plan year. Eligible health care expenses may include medical or dental insurance deductibles and co-payments along with out-of-pocket expenses for vision care. Sample Termination Policy COMPANY NAME reserves the right under employment at will to terminate any employee at any time without cause when it considers the termination to be in the best interest of the company. When appropriate, employees will be given notice that they are in jeopardy of losing their jobs. Such involuntary terminations may occur as a result of lack of productivity, organizational restructuring, or for unacceptable performance and/or personal conduct. Implementing HRM Policies and Procedures It is beneficial to have knowledgeable assistance and support in preparing the Human Resources Policies and Procedures Manual, particularly when it comes to legal issues. Both small and large firms may hire a human resource expert, consultant, or lawyer for this task. This may be costly in the short run, but it will save time and money in the long run. Another option is to purchase books and software on writing manuals. Such guidance is often cheaper than employing an expert; however, there could be long-term consequences. Whether the organization decides to hire an expert or use guidance from books and other publications to develop and implement the

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manual, it is important that the ultimate outcome of the project is a clear, concise, and effective Human Resources Policies and Procedures Manual. Hoffman (2000) suggests that small businesses consult various resources for information on developing HRM policies and procedures. He specifically notes the Society for Human Resource Management (http://www.shrm.org) and his own companys website (http://www.hradvice.com). But, he strongly discourages the use of the off-the-shelf policies and manuals. Why? In Hoffmans opinion, it is crucial that an organizations policies are customized to reflect the industry and geographic location. And, even more important, policy development should be influenced by the companys culture. Thus, one policy does not fit all! Hoffman also emphasizes that the best way to minimize the negative effects of implementing new HRM policies and procedures is to introduce everything at once. This avoids highlighting specific issues while still sending the message that the company is trying to get across. In addition, Hoffman contends that it is important to give employees a reason for the new policies, such as setting higher standards and protecting employees rights and safety. He recommends making it clear to all employees that ethical behavior, equal opportunity for all employees, and respect for each other are the basis for the companys employment relationship. Although Hoffman cites concerns with a small firm relying on off-the-shelf policies and manuals, there are numerous software programs available to small businesses that will walk management through the processes mentioned above. If Hoffmans concerns are taken into account and managers custom tailor policies to their organizational cultures, such resources may prove valuable. A few of these providers include organizations like HRN Management (http://www.hronline.com), Knowledgepoint (http://www.knowledgepoint.com), and Template (http://www.templatezone.com). There are also companies that are willing to take over HRM functions for small employers. Services offered vary from documentation of HRM materials to creation of policies and procedures manuals and employee handbooks and complete services for the HRM area. Some companies offering this type of service include Innovative Employee Solutions (www.innovative-solution.com), Merit Resource Group (www.merithr.com), Peoplesmart, Inc. (www.peoplesmart.ca), and Resources Connection (www.resources-us.com). From the Human Resources Policies and Procedures Manual to an Employee Handbook In an ideal work environment, an Employee Handbook is the outgrowth of the Human Resources Policies and Procedures Manual. An Employee Handbook provides employees a reference source for organizational policies and rules and may be a positive tool for effective management of human resources (Mathis and Jackson, 2003). Specifically, it answers the employees most frequently asked questions and serves the needs of employees. All organizations should have an Employee Handbook, even if the company only has one or two workers (Carey, 1995). Although it may be time consuming and costly, especially for a small organization, to prepare and write, not having a handbook may be more costly in litigation and out of court settlements (Mathis and Jackson, 2003).

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The Employee Handbook should contain sections on the organization, specific policies and procedures, employee benefits, and grievance procedures. It typically begins with a section on the history, philosophy, and mission of the company. This is included in order for the employees to understand the companys goals and objectives. Additional sections often parallel the information found in the Human Resources Policies and Procedures Manual, written with the employee in mind. At times, this means summaries on policies and procedures with some detailed information for management being excluded. At other times, the policies and procedures completely parallel those found in the Human Resources Policies and Procedures Manual. These decisions are at the discretion of the small business owners(s) and manager(s). Conclusion Dealing with employees may be a dream or a nightmare for small businesses, depending upon the management of the HRM functions. Once an organization develops its HR strategy, management should create a Human Resources Policies and Procedures Manual, detailing organization values, hiring procedures, compensation and benefits, employee rules and regulations, disciplinary procedures, termination procedures, etc., for use by all managers. Fortunately, a variety of external resources exist to provide support for small employers. The important thing is not to ignore the creation of solid HRM policies and procedures until it is too late and the company becomes involved in litigation. A single employee lawsuit could mean the end to a small firm. Thus, being proactive in the HR strategy and policy development processes may lead to an effective and efficient organization.

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References Accel-Team, (2004) Human Resource Management: Developing a Strategy, retrieved on August 20, 2004, from http://www.accel-team.com/human_resources/hrm_08a.html. Amba-Rao, Sita C. and Dilip Pendse, (1985) Human Resources Compensation and Maintenance Practices, American Journal of Small Business, Fall, 19-29. Cain, Niko H. and Brian H. Kleiner, (2002) How to Hire Employees Effectively, Management Research News, 25.5: 30-38. Carey, Patricia M., (1995) Put Your Policies in Print, Home Office Computing, 13.10: 52-53. Deshpande, Satish P. and Damodar Y. Golhar, (1994) HRM Practices in Large and Small Manufacturing Firms: A Comparative Study, Journal of Small Business Management, 32.2: 4956. Ellerman, Jennifer S. and Brian H. Kleiner, (2000) How to Write Excellent Human Resource Policies, Management Research News, 23.7/8: 95-98. Ellman, Edgar S., (1999) Put Your Policies In Writing, Law & Order, 47.6: 146-147. Farr, John, (1999) Put Your Rules In Writing, Restaurant Hospitality, 83.1: 38. Hess, Dan W., (1987) Relevance of Small Business Courses to Management Needs, Journal of Small Business Management, 25.1: 26-34. Hoffman, Robert, (2000) How Do I Develop HR Policies for a Start-Up from Scratch?, Inc.com, August, retrieved on August 26, 2004, from http://pf.inc.com/articles/2000 /08/20024.html. Mathis, Robert L. and John H. Jackson, (2003) Human Resource Management, 10th edition, Cincinnati, OH: South-Western College Publishing. McEvoy, Glenn M., (1984) Small Business Personnel Practices, Journal of Small Business Management, 22.10: 1-8. Megginson, Leon C., Geralyn McClure Franklin, and M. Jane Byrd, (1995) Human Resource Management, Houston, TX: Dame Publications. United States Small Business Administration, (2002) Frequently Asked Questions: Size Standards, retrieved on August 20, 2004, from http://app1.sba.gov/faqs/ faqIndexAll.cfm?areaid=15. Uschamber.com/sb, (2004) Rules for Your Workers, U.S. Chambers Online Small Business Center, retrieved August 26, 2004, from http://www.uschamber.com/sb/business/P05/ P05_5100.asp.

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