Human Resources Management Guide


All small businesses must staff their opera-
tions. This involves bringing new people into
the business and making sure they are produc-
tive additions to the enterprise. Effective
human resource management matches and develops
the abilities of job candidates and employees
with the needs of the firm. A responsive per-
sonnel system will assist you in this process
and is a key ingredient for growth.

Human resource management is a balancing act.
At one extreme, you hire only qualified people
who are well suited to the firm’s needs. At
the other extreme, you train and develop employ-
ees to meet the firm’s needs. Most expanding
small businesses fall between the two extremes-
i.e., they hire the best people they can find
and afford, and they also recognize the need
to train and develop both current and new em-
ployees as the firm grows.

The first section of this publication explains
how to hire and train the right people and ad-
dresses the characteristics of an effective per-
sonnel system, such as

– Assessing personnel needs.
– Recruiting personnel.
– Screening personnel.
– Selecting and hiring personnel.
– Orienting new employees to the business.
– Deciding compensation issues.

The second section of this publication addresses
the training and development side of human re-
source management. The third section discusses
how the personnel system and the training and de-
velopment functions come together to build employ-
ee trust and productivity. These three sections
stress the importance of a good human resource
management climate and provide specific guidelines
for creating such a climate. The appendixes include
a self-assessment questionnaire to assist you in
evaluating the effectiveness of your personnel sys-
tem and a list of general information resources.


Assessing Personnel Needs

The small business owner should base the firm’s
personnel policies on explicit, well-proven prin-
ciples. Small businesses that follow these prin-
ciples have higher performance and growth rates
than those that do not follow them. The most im-
portant of these principles are

– All positions should be filled with people
who are both willing and able to do the job.
– The more accurate and realistic the specifi-
cations of and skill requirements for each
job, the more likely it is that workers
will be matched to the right job and, there-
fore, be more competent in that job.
– A written job description and definition are
the keys to communicating job expectations
to people. Do the best job you can! is ter-
rible job guidance.
– Employees chosen on the basis of the best
person available are more effective than
those chosen on the basis of friendship or
– If specific job expectations are clearly
spelled out, and if performance appraisals
are based on these expectations,
performance is higher. Also, employee train-
ing results in higher performance if it is
based on measurable learning objectives.

The first step in assessing personnel needs for
the small business is to conduct an audit of fu-
ture personnel needs. Ask yourself

– Can the workload you visualize be accomplished
by the present work force? Will more or fewer
employees be needed? Consider seasonal patterns
of demand and probable turnover rates.
– Can any jobs be eliminated to free people for
other work?
– What balance of full-time or part-time, tempo-
rary or permanent, hourly or salaried personnel
do you need?
– What does the labor supply look like in the
– Will you be able to fill some of the jobs
you’ve identified? How easily?
– What qualifications are needed in your

Develop a method to forecast labor demand based
on your answers to these questions. Once your
needs are estimated, determine strategies to
meet them.

The process of selecting a competent person for
each position is best accomplished through a
systematic definition of the requirements for
each job, including the skills, knowledge and
other qualifications that employees must pos-
sess to perform each task. To guarantee that
personnel needs are adequately specified,
(1) conduct a job analysis, (2) develop a
written job description and (3) prepare a
job specification.

Job Analysis

Job analysis is a systematic investigation
that collects all information pertinent to
each task performed by an employee. From
this analysis, you identify the skills, know-
ledge and abilities required of that employee,
and determine the duties, responsibilities and
requirements of each job. Job analysis should
provide information such as

– Job title.
– Department.
– Supervision required.
– Job description-major and implied duties
and responsibilities.
– Unique characteristics of the job including
location and physical setting.
– Types of material used.
– Types of equipment used.
– Qualifications.
– Experience requirements.
– Education requirements.
– Mental and physical requirements.
– Manual dexterity required.
– Working conditions (inside, outside, hot,
cold, dry, wet, noisy, dirty, etc.).

Job Description

The job analysis is used to generate a job
description, which defines the duties of
each task, and other responsibilities of
the position. The description covers the
various task requirements, such as mental
or physical activities; working conditions
and job hazards. The approximate percentage
of time the employee should spend on each
activity is also specified. Job descriptions
focus on the what, why, where and how of the

There are two excellent resources the small
business owner can use to develop job descrip-
tions. First, ask employees themselves to de-
scribe their jobs. A good employee may know
more about the job than anyone else. Second,
consult the Dictionary of Occupational Titles,
published by the Government Printing Office,
which contains over 20,000 job descriptions.

Job Specification

The job specification describes the person
expected to fill a job. It details the knowl-
edge (both educational and experiential), qua-
lities, skills and abilities needed to perform
the job satisfactorily. The job specification
provides a standard against which to measure
how well an applicant matches a job opening
and should be used as the basis for recruiting.


As a small business owner-manager, you should
be aware of the legal environment in which you
operate. This is especially true when it comes
to recruitment. Being aware of legislation that
will affect your business is extremely important
to efficient recruiting.

Congress has passed several laws that deal with
discrimination in the workplace. The Civil Rights
Act of 1964 and the Equal Employment Act of 1972
are two that small businesses owners should be
especially aware of. The Equal Employment Oppor-
tunity Commission (EEOC), is charged with enforc-
ing federal law against discrimination based on

– Race.
– Color.
– National origin.
– Sex.
– Age (between 40 and 70).
– Disability.
– Veteran status.
– Handicap.
– Religion.

Another law to be aware of is the 1963 Equal Pay
Act, which requires that men and women receive
equal pay for equal work.

Box 1 is a list of illegal questions that are
often asked during the recruitment process.
Review them carefully to ensure that you avoid
asking them when interviewing applicants.

≥ Box 1 – Often Asked (but illegal) ≥
≥ Questions in the Recruitment Process ≥
≥ ≥
≥ – How old are you? ≥
≥ – Are you married? ≥
≥ – Do you have any children? ≥
≥ – How will you care for your children ≥
≥ during work hours? ≥
≥ – Where do you attend church/synagogue? ≥
≥ – How old are your children? ≥
≥ – Do you receive alimony or child support? ≥
≥ – Are you Puerto Rican? (etc.) ≥
≥ – Are you pregnant? ≥
≥ – Send in a picture with your job application. ≥
≥ – How much do you weigh? ≥
≥ – What is your maiden name? ≥
≥ – What is your father’s surname? ≥
≥ – Where were you born? ≥
≥ – What clubs do you belong to? ≥

Sources of Employees

Effective recruiting requires that you know where
and how to obtain qualified applicants. It is dif-
ficult to generalize about the best source for
each business, but a description of the major
sources follows.

– Present employees – Promotion from within tends
to keep employee morale high. Whenever possible,
current employees should be given first consid-
eration for any job openings. This practice sig-
nals your support of current employees.
– Unsolicited applicants – Small businesses re-
ceive many unsolicited applications from quali-
fied and unqualified individuals. The former
should be kept on file for future reference.
Good business practice suggests that all appli-
cants be treated courteously whether or not
they are offered jobs.
– Schools – High schools, trade schools, voca-
tional schools, colleges and universities are
sources for certain types of employees, espe-
cially if prior work experience is not a major
factor in the job specification. Schools also
are excellent sources for part-time employees.
– Public employment offices – The Employment Ser-
vice of the U.S. Department of Labor works with
state employment offices to provide no-cost
brokerage of applicants who are seeking employ-
ment. Local offices will provide small busines-
ses with applicants who have been screened on
the basis of workexperience, education and some
psychological testing. They also have an up-to-
date file on potential employees who possess a
wide range of skills.
– Private employment agencies – These firms pro-
vide a service for employers and applicants by
matching people to jobs in exchange for a fee.
Some fees are paid by the applicants, and there
is no cost to the employer; for highly quali-
fied applicants in short supply, the employer
sometimes pays the fee.
– Employee referrals – References by current em-
ployees may provide excellent prospects for
the business. Evidence suggests that current
employees hesitate to recommend applicants
with below average ability. Word of mouth is
one of the most commonly used recruiting
sources in the small business community.
– “Help Wanted” advertising – Letting people
know that the business is hiring is a key
element in gaining access to the pool of
potential employees. At its simplest, this
type of advertising may take the form of a
Help Wanted sign in the window. More sophis-
ticated methods involve using local media,
primarily print sources such as daily and
weekly newspapers. The classified pages of
newspapers are frequently consulted by ac-
tive job seekers, including currently em-
ployed individuals who may be tempted by a
more attractive position. Other advertising
media include radio and television. These
tend to have a wider appeal than the news-
paper; however, the price of an advertise-
ment is correspondingly higher.

Specialty media publications, such as trade as-
sociation magazines and newsletters, may also
produce quality job applicants. There are ef-
forts in some parts of the country to offer
small business employers access to cable tele-
vision community bulletin boards. Another high-
tech opportunity is to list positions on compu-
ter network bulletin boards.

Prices for help wanted advertising vary and the
small business owner approaches them with cau-
tion. A well-placed, high-quality advertisement
will attract good people, whereas, an expensive
advertisement in the wrong medium may get no
results. Some experimentation is worthwhile to
most small businesses. Another suggestion is
to ask other small business people in the area
about their success with help wanted advertising.
Learn from others’ successes and mistakes.


The screening process provides information about
an individual’s skills, knowledge and attitudes,
enabling a potential employer to determine whe-
ther that person is suited to, and qualified for,
the position. Experience has shown that hiring
an overqualified person can be as harmful as hir-
ing an underqualified person.

The application form is the place to begin screen-
ing candidates for a job. It provides information
on the person’s background and training and is the
first means of comparing the applicant with the
job description. This will ensure that you don’t
waste time on applicants who clearly do not meet
the minimum requirements for the job.

Generally, the following information is asked on
an employment application form: name, address,
telephone number, social security number, kind of
work desired, work experience, military service,
education and references. See the sample applica-
tion form in Box 2.

≥ Box 2 – Sample Application Form ≥
≥ ≥
≥ Date: ≥
≥ Name: ≥
≥ Social security number: ≥
≥ Address: ≥
≥ Telephone number: ≥
≥ Position desired: ≥
≥ Education: ≥
≥ ≥
≥ ≥
≥ Name and address of company, position, dates employed ≥
≥ and reason for leaving: ≥
≥ ≥
≥ ≥
≥ ≥
≥ Branch: from: to: ≥
≥ Rank achieved: Type of discharge: ≥

The personal interview is the second step in the
screening process. During the interview, the man-
ager learns more about the applicant through
face-to-face contact, including observation of
personal appearance. The interview should be
guided, but not dominated, by the manager as it
is important to let the candidate speak freely.
Whenever possible, the interviewer should ask
questions that are directly related to the job.
Devise a list of questions that will adequately
assess the applicant’s qualifications while meet-
ing the specifications for the job. Three major
errors often committed in the personal interview

– Failure to analyze the requirements of the
job in sufficient detail to generate valid
– Failure to ask candidates the right ques-
tions to determine their strengths and weak-
nesses, and their fit with the job.
– Too much reliance on gut reaction instead of
objective evaluation of candidates based on
criteria established in the job specification.

Interviewing makes the selection process more
personal and gives the interviewer an overall
idea of whether the applicant is appropriate
for the job. The following list of techniques
in Box 3 will help you select the right appli-
cant for the job.

≥ Box 3 – Interviews ≥
≥ ≥
≥ 1. Review the job description before ≥
≥ the interview. ≥
≥ 2. Break the ice – establish a friendly ≥
≥ atmosphere. ≥
≥ 3. Develop an interview time plan and ≥
≥ stick to it. ≥
≥ 4. Keep an open mind, i.e., don’t form ≥
≥ an opinion too early. ≥
≥ 5. Give the candidate time to tell his ≥
≥ or her story; don’t talk too much. ≥
≥ 6. Present a truthful picture of the ≥
≥ company and the job. ≥
≥ 7. Listen carefully, concentrate and ≥
≥ take notes. ≥
≥ 8. Avoid detailed discussion of salary ≥
≥ too early in the interview. ≥
≥ 9. Be courteous. ≥
≥ 10. Don’t leave the candidate hanging – ≥
≥ discuss the next step in the hiring ≥
≥ process and the timing. ≥

Other screening techniques include employment
tests and physical examinations. Some employ-
ment tests measure aptitude, achievement, in-
telligence, personality and honesty. A physi-
cal examination determines if the applicant
meets the health standards and physical de-
mands of the job.

Selecting and Hiring

If the screening process is thorough, select-
ing the best applicants for the job is easy.
However, before making the final selection,
one last step should be taken: the top candi-
date’s references should be checked for accu-
racy and input. You should be aware of the ten-
dency of references to give a rose-colored pic-
ture of applicant’s character and ability. De-
spite this potential bias, a careful check with
former employers, schools and other references
can be most constructive. At a minimum, check-
ing can determine whether or not the applicant
was truthful about his or her employment his-

Orienting New Employees to Your Business

An employee handbook communicates important in-
formation about the company to the employee. The
handbook should cover topics such as company ex-
pectations, pay policies, working conditions,
fringe benefits and the company philosophy toward
customers (see Box 4).
≥ Box 4 – Employee Handbook Topics ≥
≥ ≥
≥ Welcome from the Personal appearance ≥
≥ owner ≥
≥ Use of telephones ≥
≥ History of the company ≥
≥ Prohibited acts ≥
≥ Introduction to the ≥
≥ company Absence from work ≥
≥ and reporting policies ≥
≥ Company products and ≥
≥ services Weather emergencies ≥
≥ ≥
≥ Hours of work Pay policies ≥
≥ ≥

≥ Holidays Safety ≥
≥ ≥
≥ Insurance Disciplinary procedures≥
≥ and appeals ≥
≥ On-the-job injury ≥
≥ Termination ≥
≥ Jury duty ≥
≥ Vacation policy ≥
≥ Military leave ≥
≥ Sick leave ≥
≥ Parking rules ≥
≥ Parental leave ≥

Once an individual is hired, he or she should
receive a comprehensive orientation on the gen-
eral policies of the company and on the speci-
fic nature of the job. Rules should be explain-
ed in detail, job expectations agreed upon and
any questions answered before the new employee
begins work. New employees should be introduced
to other employees and made to feel welcome.

Compensation Issues

Compensation takes two forms: (1) direct com-
pensation (wages and salaries) and (2) indi-
rect compensation (fringe benefits).

Direct Compensation

Wages and salaries are the compensation people
receive on a regular basis (monthly, biweekly
or weekly). Workers are paid on the basis of
time (by the hour, day, week or month) or on
the basis of output (an incentive plan).

Some of the legal issues regarding wage and
salary compensation include

– Wages and hours – The Fair Labor Standards
Act of 1938 introduced the minimum wage
and the 40-hour work week. As of April 1,
1991, the minimum wage is $4.25 an hour.
The law also specifies that workers must
receive time-and-a-half pay for time spent
on the job in excess of 40 hours. (Not all
employees are covered by this act; mana-
gers, professionals and sales personnel may
be excluded.)
– Eligibility to work – The Immigration Re-
form Control Act of 1986 was intended to
reduce the number of illegal immigrants
seeking jobs in the United States. Under
the law, employees hired after November 6,
1986, must show proof of their identity and
eligibility to work. There are sanctions
against employers who do not comply with
this act.
– Child labor – The minimum age for children
in most jobs is 16 years old. Fourteen- and
15-year-olds are restricted to a few jobs,
such as filing and sales. Persons under 14
years of age may work only under certain
– Social Security – The Social Security Act
passed in 1935 provides a minimum guaranteed
income to retired and disabled persons. This
system is funded by a tax on both employees
and employers. In 1990 employees were re-
quired to pay the system an amount equal to
7.65 percent of the first $51,300 earned.
Employers are required to match that amount.
– Unemployment benefits – Each state has a
program for providing protection for those
who lose their jobs (usually through no fault
of their own). While programs vary from state
to state, each program must comply with cer-
tain federal guidelines. Employers pay a tax
to the state, which maintains these funds for
use by the unemployed.

Indirect Compensation

Fringe benefits are an important part of the over-
all compensation package in most small businesses.
Employee benefits now account for about 40 per-
cent of payroll costs. The profitability of the
small firm is one of the primary determinants of
what benefits are offered by the firm.

Box 5 is a list of options to consider when decid-
ing which fringe benefits to offer employees.
≥ Box 5 – Fringe Benefits ≥
≥ ≥
≥ Old age payments Paid vacations ≥
≥ ≥
≥ Survivor payments Payment for jury duty, ≥
≥ National Guard or ≥
≥ Disability and health reserve duty ≥
≥ insurance ≥
≥ Profit sharing ≥
≥ Pension plans ≥
≥ Bonuses ≥
≥ Life insurance ≥
≥ Education payments ≥
≥ Dental insurance ≥
≥ Worker’s compensation ≥
≥ Accident insurance ≥
≥ Unemployment compensation≥
≥ Discounts on goods/ ≥
≥ services purchased Child care ≥
≥ from the company ≥
≥ ≥
≥ Employee meals ≥

Cafeteria Planning

One successful approach to providing benefits
to employees of a small business is to allo-
cate a certain amount of money per employee
for benefits. Each employee then chooses the
package of benefits that suits his or her cur-
rent needs. This approach is called cafeteria
planning because it is similar to going down a
cafeteria line, where each customer chooses
what he or she wants to eat. It has been sug-
gested that employees perceive this approach as
highly equitable because it (1) allows freedom
of choice and (2) does not impose a single pack-
age of benefits on all employees.

For example, a young employee with several small
children may be interested in dental insurance
for his family. He is not really interested in
or motivated by a pension plan at this time in
his life. Another employee in this same company
is in her late forties, has no dependent child-
ren and is planning for retirement. To force the
same benefit on these two employees is not an ef-
fective use of benefit money. To allow some choice
on the part of participants is a major advantage
of the cafeteria approach to benefit planning.

Small businesses face difficult challenges when
they try to match benefits with big firms. Never-
theless, the small firm can enjoy the benefits of
greater flexibility and innovativeness by offer-
ing a cafeteria plan.


An Effective Training Program

The quality of employees and their development
through training and education are major fac-
tors in determining long-term profitability of
a small business. Hiring and keeping good em-
ployees is the key to the first factor. (Hiring
has been discussed in the first section and re-
taining employees will be discussed in the third
section.) If you hire and keep good employees,
it is good policy to invest in the development
of their skills, so they can increase their pro-

Training often is considered for new employees
only. This is a mistake because ongoing training
for current employees helps them adjust to rapid-
ly changing job requirements.

Purpose of Training and Development

Reasons for emphasizing the growth and develop-
ment of personnel include

– Creating a pool of readily available and
adequate replacements for personnel who
may leave or move up in the organization.
– Enhancing the company’s ability to adopt
and use advances in technology because of
a sufficiently knowledgeable staff.
– Building a more efficient, effective and
highly motivated team, which enhances the
company’s competitive position and improves
employee morale.
– Ensuring adequate human resources for ex-
pansion into new programs.

Research has shown specific benefits that a
small business receives from training and de-
veloping its workers, including:

– Increased productivity.
– Reduced employee turnover.
– Increased efficiency resulting in finan-
cial gains.
– Decreased need for supervision.

Employees frequently develop a greater sense
of self-worth, dignity and well-being as they
become more valuable to the firm and to soci-
ety. Generally they will receive a greater
share of the material gains that result from
their increased productivity. These factors
give them a sense of satisfaction through the
achievement of personal and company goals.

The Training Process

The model in Chart 1 traces the steps neces-
sary in the training process.

∫ Chart 1 – Steps in the Training Process ∫
∫ ∫
∫ ⁄ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒø ∫
∫ ≥ Organizational Objectives ≥ ∫
∫ ¿ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒŸ ∫
∫ | ∫
∫ | ∫
∫ ⁄ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒø ∫
∫ ≥ Needs Assessment ≥ ∫
∫ ¿ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒŸ ∫
∫ | ⁄ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒø ∫
∫ | ≥Is There a Gap?≥ ∫
∫ —————–¿ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒŸ ∫
∫ | ∫
∫ ⁄ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒø ∫
∫ ≥ Training Objectives ≥ ∫
∫ ¿ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒŸ ∫
∫ | ∫
∫ ⁄ƒƒƒƒƒƒƒƒƒƒƒƒø | ∫
∫ ≥ Select the ≥———— ∫
∫ ≥ Trainees ≥ | ∫
∫ ¿ƒƒƒƒƒƒƒƒƒƒƒƒŸ | ∫
∫ ⁄ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒø ∫
∫ ≥ Select the Training Methods ≥ ∫
∫ ≥ and Mode ≥ ∫
∫ ¿ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒŸ ∫
∫ | ∫
∫ | ⁄ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒø∫
∫ ——————-≥ Choose a Means ≥∫
∫ | ≥ of Evaluating ≥∫
∫ | ¿ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒŸ∫
∫ ⁄ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒø ∫
∫ ≥ Administer Training ≥ ∫
∫ ¿ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒŸ ∫
∫ | ∫
∫ | ∫
∫ ⁄ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒø ∫
∫ ≥ Evaluate the Training ≥ ∫
∫ ¿ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒŸ ∫
∫ ∫

Your business should have a clearly defined
strategy and set of objectives that direct
and drive all the decisions madeespecially
training decisions. Firms that plan their
training process are more successful than
those that do not. Most business owners want
to succeed, but do not engage in training de-
signs that promise to improve their chances
of success. Why? The five reasons most often
identified are

– Time – Small businesses managers find
that time demands do not allow them to
train employees.
– Getting started – Most small business
managers have not practiced training
employees. The training process is un-
– Broad expertise – Managers tend to have
broad expertise rather than the special-
ized skills needed for training and de-
velopment activities.
– Lack of trust and openness – Many mana-
gers prefer to keep information to them-
selves. By doing so they keep information
from subordinates and others who could be
useful in the training and development
– Skepticism as to the value of the train-
ing – Some small business owners believe
the future cannot be predicted or control-
led and their efforts, therefore, are best
centered on current activities i.e., mak-
ing money today.

A well-conceived training program can help your
firm succeed. A program structured with the com-
pany’s strategy and objectives in mind has a
high probability of improving productivity and
other goals that are set in the training mission.

For any business, formulating a training strate-
gy requires addressing a series of questions.

– Who are your customers? Why do they buy
from you?
– Who are your competitors? How do they
serve the market? What competitive ad-
vantages do they enjoy? What parts of
the market have they ignored?
– What strengths does the company have?
What weaknesses?
– What social trends are emerging that
will affect the firm?

The purpose of formulating a training strategy
is to answer two relatively simple but vitally
important questions: (1) What is our business?
and (2) What should our business be? Armed with
the answers to these questions and a clear vi-
sion of its mission, strategy and objectives,
a company can identify its training needs.

Identifying Training Needs

Training needs can be assessed by analyzing
three major human resource areas: the organ-
ization as a whole, the job characteristics
and the needs of the individuals. This analy-
sis will provide answers to the following

– Where is training needed?
– What specifically must an employee learn
in order to be more productive?
– Who needs to be trained?

Begin by assessing the current status of the
company how it does what it does best and the
abilities of your employees to do these tasks.
This analysis will provide some benchmarks
against which the effectiveness of a training
program can be evaluated. Your firm should
know where it wants to be in five years from
its long-range strategic plan. What you need
is a training program to take your firm from
here to there.

Second, consider whether the organization is
financially committed to supporting the train-
ing efforts. If not, any attempt to develop a
solid training program will fail.

Next, determine exactly where training is need-
ed. It is foolish to implement a companywide
training effort without concentrating resources
where they are needed most. An internal audit
will help point out areas that may benefit from
training. Also, a skills inventory can help de-
termine the skills possessed by the employees in
general. This inventory will help the organiza-
tion determine what skills are available now and
what skills are needed for future development.

Also, in today’s market-driven economy, you
would be remiss not to ask your customers what
they like about your business and what areas
they think should be improved. In summary, the
analysis should focus on the total organiza-
tion and should tell you (1) where training is
needed and (2) where it will work within the

Once you have determined where training is
needed, concentrate on the content of the
program. Analyze the characteristics of the
job based on its description, the written
narrative of what the employee actually does.
Training based on job descriptions should
go into detail about how the job is performed
on a task-by-task basis. Actually doing the
job will enable you to get a better feel for
what is done.

Individual employees can be evaluated by com-
paring their current skill levels or perfor-
mance to the organization’s performance stand-
ards or anticipated needs. Any discrepancies
between actual and anticipated skill levels
identifies a training need.

Selection of Trainees

Once you have decided what training is neces-
sary and where it is needed, the next decision
is who should be trained? For a small business,
this question is crucial. Training an employee
is expensive, especially when he or she leaves
your firm for a better job. Therefore, it is im-
portant to carefully select who will be trained.

Training programs should be designed to consider
the ability of the employee to learn the material
and to use it effectively, and to make the most
efficient use of resources possible. It is also
important that employees be motivated by the
training experience. Employee failure in the pro-
gram is not only damaging to the employee but a
waste of money as well. Selecting the right train-
ees is important to the success of the program.

Training Goals

The goals of the training program should relate
directly to the needs determined by the assessment
process outlined above. Course objectives should
clearly state what behavior or skill will be
changed as a result of the training and should re-
late to the mission and strategic plan of the com-
pany. Goals should include milestones to help take
the employee from where he or she is today to where
the firm wants him or her in the future. Setting
goals helps to evaluate the training program and
also to motivate employees. Allowing employees to
participate in setting goals increases the proba-
bility of success.

Training Methods

There are two broad types of training available
to small businesses: on-the-job and off-the-job
techniques. Individual circumstances and the
“who,” “what” and “why” of your training program
determine which method to use (see Box 6).

≥ Box 6 – Training Techniques and Activities ≥
≥ ≥
≥ Creative Sales ≥
≥ technical administrative, ≥
≥ Orienting Special and supervisory ≥
≥ new skill professional and managerial ≥
≥ employees training education education ≥
≥ ———————————————————————– ≥
≥ On-the-job ≥
≥ Orientation X ≥
≥ Apprentice X X X X ≥
≥ Internship X X X ≥
≥ Job rotation X X ≥
≥ ≥
≥ Off-the-job ≥
≥ Lecture X X X X ≥
≥ Films X X X X ≥
≥ Television X X X X ≥
≥ Conferences X X ≥
≥ Role playing X ≥
≥ Simulation X X X ≥
≥ Programmed X X X X ≥
≥ Laboratory X ≥
≥ ———————————————————————– ≥
≥ Source:Adapted from B. M. Bass and J. A. Vaughan, Training in ≥
≥ Industry: The Management of Learning, Copyright 1966. ≥

On-the-job training is delivered to employees
while they perform their regular jobs. In this
way, they do not lose time while they are learn-
ing. After a plan is developed for what should
be taught, employees should be informed of the
details. A timetable should be established with
periodic evaluations to inform employees about
their progress. On-the-job techniques include
orientations, job instruction training, appren-
ticeships, internships and assistantships, job
rotation and coaching.

Off-the-job techniques include lectures, special
study, films, television conferences or discus-
sions, case studies, role playing, simulation,
programmed instruction and laboratory training.
Most of these techniques can be used by small
businesses although, some may be too costly.
Box 7 shows the range of costs for different
types of training. Choose the techniques that
meet your needs and fit your budget.

≥ Box 7 Relative Expense of ≥
≥ Various Training Techniques ≥
≥ (from least to most expensive) ≥
≥ Range* ≥
≥ —————- ≥
≥ Low High ≥
≥ Orientation $0 $5 ≥
≥ Lecture (in house) 0 10 ≥
≥ Role playing 0 25 ≥
≥ Films 5 25 ≥
≥ Television 5 50 ≥
≥ Job rotation 25 500 ≥
≥ Simulations (computer) 125 1000 ≥
≥ Apprenticeships 350 1500 ≥
≥ Internships 350 2500 ≥
≥ Programmed instruction (computer) 100 3500 ≥
≥ Conferences (off site) 500 3500 ≥
≥ Laboratory training 1000 5000+ ≥
≥ ≥
≥ *Per participant per period. ≥
≥ Note:The range of expenses should be taken as ≥
≥ examples only and were obtained by a telephone ≥
≥ survey of small businesses and trainers in a ≥
≥ large metropolitan area. Costs vary widely by ≥
≥ the content of the training, the location and ≥
≥ the source. ≥

Orientations are for new employees. The first
several days on the job are crucial in the suc-
cess of new employees. This point is illustra-
ted by the fact that 60 percent of all employ-
ees who quit do so in the first ten days. Orien-
tation training should emphasize the following

– The company’s history and mission.
– The key members in the organization.
– The key members in the department,
and how the department helps fulfill
the mission of the company.
– Personnel rules and regulations.

Some companies use verbal presentations while
others have written presentations. Many small
businesses convey these topics in one-on-one
orientations. No matter what method is used,
it is important that the newcomer understand
his or her new place of employment. The impor-
tance of an employee handbook for imparting
rules and culture was discussed earlier, with
specific suggestions for what should be inclu-
ded in the employee handbook.

Lectures present training material verbally
and are used when the goal is to present a
great deal of material to many people. It is
more cost effective to lecture to a group
than to train people individually. Lecturing
is one-way communication and as such may not
be the most effective way to train. Also, it
is hard to ensure that the entire audience
understands a topic on the same level; by tar-
geting the average attendee you may undertrain
some and lose others. Despite these drawbacks,
lecturing is the most cost-effective way of
reaching large audiences.

Role playing and simulation are training tech-
niques that attempt to bring realistic decision-
making situations to the trainee. Likely prob-
lems and alternative solutions are presented for
discussion. The adage there is no better trainer
than experience is exemplified with this type of
training. Experienced employees can describe
real world experiences, and can help in and learn
from developing the solutions to these simula-
tions. This method is cost effective and is used
in marketing and management training.

Audiovisual methods such as television, video-
tapes and films are the most effective means of
providing real world conditions and situations
in a short time. One advantage is that the pre-
sentation is the same no matter how many times
it’s played. This is not true with lectures,
which can change as the speaker is changed or
can be influenced by outside constraints. The
major flaw with the audiovisual method is that
it does not allow for questions and interac-
tions with the speaker, nor does it allow for
changes in the presentation for different audi-

Job rotation involves moving an employee through
a series of jobs so he or she can get a good
feel for the tasks that are associated with dif-
ferent jobs. It is usually used in training for
supervisory positions. The employee learns a
little about everything. This is a good strategy
for small businesses because of the many jobs an
employee may be asked to do.

Apprenticeships develop employees who can do
many different tasks. They usually involve sev-
eral related groups of skills that allow the
apprentice to practice a particular trade, and
they take place over a long period of time in
which the apprentice works for, and with, the
senior skilled worker. Apprenticeships are es-
pecially appropriate for jobs requiring produc-
tion skills.

Internships and assistantships are usually a
combination of classroom and on-the-job train-
ing. They are often used to train prospective
managers or marketing personnel.

Programmed learning, computer-aided instruc-
tion and interactive video all have one thing
in common: they allow the trainee to learn at
his or her own pace. Also, they allow material
already learned to be bypassed in favor of ma-
terial with which a trainee is having difficul-
ty. After the introductory period, the instruc-
tor need not be present, and the trainee can
learn as his or her time allows. These methods
sound good, but may be beyond the resources of
some small businesses.

Laboratory training is conducted for groups by
skilled trainers. It usually is conducted at a
neutral site and is used by upper- and middle-
management trainees to develop a spirit of team-
work and an increased ability to deal with man-
agement and peers. It can be costly and usually
is offered by larger small businesses.


Who actually conducts the training depends on
the type of training needed and who will be
receiving it. On-the-job training is conducted
mostly by supervisors; off-the-job training, by
either in-house personnel or outside instructors.

In-house training is the daily responsibility
of supervisors and employees. Supervisors are
ultimately responsible for the productivity
and, therefore, the training of their subordi-
nates. These supervisors should be taught the
techniques of good training. They must be aware
of the knowledge and skills necessary to make a
productive employee. Trainers should be taught
to establish goals and objectives for their
training and to determine how these objectives
can be used to influence the productivity of
their departments. They also must be aware of
how adults learn and how best to communicate
with adults. Small businesses need to develop
their supervisors’ training capabilities by
sending them to courses on training methods.
The investment will pay off in increased pro-

There are several ways to select training per-
sonnel for off-the-job training programs. Many
small businesses use in-house personnel to de-
velop formal training programs to be delivered
to employees off line from their normal work
activities, during company meetings or indivi-
dually at prearranged training sessions.

There are many outside training sources, in-
cluding consultants, technical and vocational
schools, continuing education programs, cham-
bers of commerce and economic development
groups. Selecting an outside source for train-
ing has advantages and disadvantages. The big-
gest advantage is that these organizations are
well versed in training techniques, which is
often not the case with in-house personnel.

The disadvantage of using outside training
specialists is their limited knowledge of
the company’s product or service and custo-
mer needs. These trainers have a more general
knowledge of customer satisfaction and needs.
In many cases, the outside trainer can develop
this knowledge quickly by immersing himself or
herself in the company prior to training the
employees. Another disadvantage of using out-
side trainers is the relatively high cost com-
pared to in-house training, although the higher
cost may be offset by the increased effective-
ness of the training.

Whoever is selected to conduct the training,
either outside or in-house trainers, it is
important that the company’s goals and values
be carefully explained.

Training Administration

Having planned the training program properly,
you must now administer the training to the
selected employees. It is important to follow
through to make sure the goals are being met.
Questions to consider before training begins

– Location.
– Facilities.
– Accessibility.
– Comfort.
– Equipment.
– Timing.

Careful attention to these operational details
will contribute to the success of the training

An effective training program administrator
should follow these steps:

– Define the organizational objectives.
– Determine the needs of the training program.
– Define training goals.
– Develop training methods.
– Decide whom to train.
– Decide who should do the training.
– Administer the training.
– Evaluate the training program.

Following these steps will help an administra-
tor develop an effective training program to
ensure that the firm keeps qualified employees
who are productive, happy workers. This will
contribute positively to the bottom line.

Evaluation of Training

Training should be evaluated several times
during the process. Determine these mile-
stones when you develop the training. Em-
ployees should be evaluated by comparing
their newly acquired skills with the skills
defined by the goals of the training pro-
gram. Any discrepancies should be noted and
adjustments made to the training program to
enable it to meet specified goals. Many
training programs fall short of their ex-
pectations simply because the administrator
failed to evaluate its progress until it was
too late. Timely evaluation will prevent the
training from straying from its goals.


The most effective way to build trust in the
workplace is to work together. There are no
magic gimmicks or other simple solutions.
Trust cannot be created by excessive wages,
great company picnics or wonderful working
conditions; it can only be generated through
teamwork, honesty and fairness. Although trust
and productivity are complex issues and repre-
sent only part of the total fabric of inter-
personal relationships in small businesses,
three attributes appear to have a positive ef-
fect on trust in successful small businesses:

– The owner-manager of the small business
is open and honest about the day-to-day
business operations.
– The owner-manager of the small business
is consistent and fair about personnel
– The owner-manager spends a great deal of
his or her time concentrating on good
communications with those working in the


Secrecy breeds suspicion. Whenever information
is kept on close hold, the context becomes open
to misinterpretation. Total quality improvement
is based on the concept that workers care as
much about the success of the small business as
the owners do. Studies of small businesses indi-
cate that employees tend to overestimate profits
by substantial amounts. These same studies indi-
cate that when true financial information is
shared with employees, substantial cost controls
are voluntarily initiated by all members of the
work force.

Whenever in doubt concerning the amount of in-
formation to share with employees, experience
indicates that too much is better than not
enough. Never lie to workers about human rela-
tions issues. Institutional memory is long
term; any deceit will be remembered for many
years. Note that employees talk with each other
and inconsistencies will be quickly detected
and brought to the surface frequently to your
embarrassment. The following are suggestions
on how to avoid this dilemma:

– Take time to talk with your workers.
– Find out what they’re thinking.
– Find out what they’d like to know and
tell them whenever possible.
– Don’t tell only good things.
– Allow employees an opportunity to
provide you, the owner, with infor-
mation, questions and suggestions.
In this way, communications are two way.


Fairness ranges from consistency in personnel
actions and fair market practices to adherence
to the various laws governing the workplace.
The concept of due process requires that a small
business follow its own rules and policies. Em-
ployees must be treated the same when it comes
to personnel issues.

Each worker should have an equal chance to per-
form at his or her best. Decisions concerning
rewards, promotions and advancement should al-
ways be based on performance, and good perfor-
mance should be spelled out in the job descrip-
tion. When performance is equal among employees,
seniority should be used to break ties.

The key to healthy work relations is managing
communications within the firm. Most of the
communication will flow as orders and instruc-
tions to employees. Nevertheless, communicating
(and honesty and fairness) is a two-way process.
It is difficult for employees to be intelligent
and enthusiastic teamworkers if they do not know
the reasons behind orders and instructions. Per-
haps even more important is giving employees the
opportunity to contribute ideas and opinions be-
fore the manager-owner makes a decision. This
adds dignity and meaning to the job in the eyes
of most employees and their families.

Communicating includes telling employees where
they stand, how the business is doing and what
future plans are being developed. Negative feed-
back may be necessary at times, but positive
feedback should be the primary tool for estab-
lishing good human relations. Never forget that
employees are people, and that they will quickly
detect insincerity. They also will respond to
honest efforts to treat them as mature, respon-
sible adults. Some practical human relations
techniques that stimulate two-way communications

– Periodic performance review sessions
(every three months).
– Bulletin boards.
– Suggestion boxes.
– Newsletters.
– Regular open meetings.

The Legal Environment

Small businesses operate in a complex legal
environment that places many constraints on
recruitment, selection, placement and other
personnel practices. Laws may specify what
is required, what is acceptable or what is
prohibited. Every personnel system must con-
sider the statutes relating to these issues.
One of the most important laws the small
business owner should be aware of is the
Occupational Safety and Health Act (OSHA
1970). This law is aimed at reducing the
number of safety and health hazards in the
American workplace. Businesses must comply
with health and safety standards set by
the U.S. Department of Labor for individual

The past sixty years have been characterized
by laws that encourage collective bargaining
and that try to bring about a better balance
between management and labor. Many of these
laws apply to small businesses:

– Norris-LaGuardia Act (1932) – Protects
the rights of unions to organize. It
also prohibits “yellow-dog contracts”
an employment practice where the firm
requires employees to promise they will
not join a union if hired by the company.

– Wagner Act (1935) – Guarantees workers
the right to engage in union activities,
to organize and to bargain collectively
without interference from employers. A
small business manager may not prohibit
employees from union activity.

See the discussion of other applicable laws in
the first section under Recruiting and Compen-
sation Issues.

The Personnel Manager

Many small businesses cannot afford a full-
time specialist to deal with human resource
problems. However, as a business grows, its
structure becomes more complex and personnel
problems increase in number and potential
cost. At a certain point in the typical small
business, it becomes apparent that a full-time
or part-time personnel manager is needed. Con-
ditions that indicate the necessity of a per-
sonnel manager include

– The firm has more than 100 employees.
– Employees are represented by a union.
– Turnover is very high (and costly).
– The need for skilled or semiskilled
labor creates problems in recruitment
or selection.
– Employee morale is low.
– Competition for good personnel is es-
pecially keen in the market area.


All small businesses must staff their operations, by bringing in
new people and by training new and current employees. Effective
human resource management matches and develops the abilities of
job candidates and employees with the needs of the firm. A
responsive personnel system will help you manage this process and
is a key ingredient for your business’s growth.
Human resource management is a balancing act: hiring qualified
personnel who are well suited to the firm’s needs and training
and developing employees to meet the firm’s needs are the
endpoints of the continuum. Most expanding small businesses fall
in the middle of this continuumi.e., they hire the best people
they can afford, but they also recognize the need to train and
develop current employees as the firm grows.
This publication should provide you with an increased awareness
of the importance of creating a good human resource management
climate within the firm, and specific guidelines on how to create
such a climate.


Leap, Terry and Michael Crino. Personnel/Human Resource
Management. New York: Macmillan Publishing Co., 1989.
Longenecker, Justin and Carlos Moore. Small Business Management.
Cincinnati: South-Western Publishing Co., 1987.
Roxe, Linda, A. Personnel Management for the Smaller Company. New
York: AMACOM, 1979.
Tate, Curtis, et al. Successful Small Business Management. Plano,
TX: Business Publications, Inc., 1985.
Wexley, Kenneth and Gary P. Latham. Developing and Training Human
Resources in Organizations. Glenview, IL: Scott Foresman and Co.,
Johnston, William B, et al. Workforce 2000: Work and Workers for
the 21st Century. Indianapolis, IN: Hudson Institute, 1987.


1. Does the business have a plan for fore-
casting long-term personnel needs?
2. Are there guidelines for hiring person-
nel, or are employees hired based on gut
3. Are there job descriptions for all posi-
4. What do employees like about their jobs?
5. What do employees dislike about their jobs?
6. Why do employees leave the organization?
7. Is there an active training program? Is it
based on an assessment of where the firm
is now or where it should be in the future?
8. Are a variety of training programs avail-
9. How is morale in the firm?
10. Do employees really believe what you have
to say?
11. Are all employees treated fairly?


U.S. Small Business Administration (SBA)

The SBA offers an extensive selection of
information on most business management
topics, from how to start a business to
exporting your products.

This information is listed in The Small
Business Directory. For a free copy con-
tact your nearest SBA office.

SBA has offices throughout the country.
Consult the U.S. Government section in
your telephone directory for the office
nearest you. SBA offers a number of pro-
grams and services, including training
and educational programs, counseling
services, financial programs and con-
tract assistance. Ask about

– Service Corps of Retired Executives
(SCORE),a national organization spon-
sored by SBA of over 13,000 volunteer
business executives who provide free
counseling, workshops and seminars to
prospective and existing small busi-
ness people.

– Small Business Development Centers
(SBDCs),sponsored by the SBA in part-
nership with state and local govern-
ments, the educational community and
the private sector. They provide as-
sistance, counseling and training to
prospective and existing business

– Small Business Institutes (SBIs), or-
ganized through SBA on more than 500
college campuses nationwide. The in-
stitutes provide counseling by stu-
dents and faculty to small business

For more information about SBA business
development programs and services call
the SBA Small Business Answer Desk at
1-800-8-ASK-SBA (827-5722).

Other U.S. Government Resources

Many publications on business management
and other related topics are available
from the Government Printing Office (GPO).
GPO bookstores are located in 24 major
cities and are listed in the Yellow Pages
under the bookstore heading. You can re-
quest a Subject Bibliography by writing
to Government Printing Office, Superin-
tendent of Documents, Washington, DC

Many federal agencies offer publications
of interest to small businesses. There is
a nominal fee for some, but most are free.
Below is a selected list of government
agencies that provide publications and
other services targeted to small busines-
ses. To get their publications, contact
the regional offices listed in the tele-
phone directory or write to the addresses

Consumer Information Center (CIC)
P.O. Box 100
Pueblo, CO 81002
The CIC offers a consumer information
catalog of federal publications.

Consumer Product Safety Commission (CPSC)
Publications Request
Washington, DC 20207
The CPSC offers guidelines for product
safety requirements.

U.S. Department of Agriculture (USDA)
12th Street and Independence Avenue, SW
Washington, DC 20250
The USDA offers publications on selling
to the USDA. Publications and programs on
entrepreneurship are also available through
county extension offices nationwide.

U.S. Department of Commerce (DOC)
Office of Business Liaison
14th Street and Constitution Avenue, NW
Room 5898C
Washington, DC 20230
DOC’s Business Assistance Center provides
listings of business opportunities avail-
able in the federal government. This ser-
vice also will refer businesses to differ-
ent programs and services in the DOC and
other federal agencies.

U.S. Department of Health and Human Services (HHS)
Public Health Service
Alcohol, Drug Abuse and Mental Health Administration
5600 Fishers Lane
Rockville, MD 20857
Drug Free Workplace Helpline: 1-800-843-4971.
Provides information on Employee Assistance
National Institute for Drug Abuse Hotline:
Provides information on preventing substance
abuse in the workplace.
The National Clearinghouse for Alcohol and
Drug Information: 1-800-729-6686 toll-free.
Provides pamphlets and resource materials on
substance abuse.

U.S. Department of Labor (DOL)
Employment Standards Administration
200 Constitution Avenue, NW
Washington, DC 20210
The DOL offers publications on compliance
with labor laws.

U.S. Department of Treasury
Internal Revenue Service (IRS)
P.O. Box 25866
Richmond, VA 23260
The IRS offers information on tax require-
ments for small businesses.

U.S. Environmental Protection Agency (EPA)
Small Business Ombudsman
401 M Street, SW (A-149C)
Washington, DC 20460
1-800-368-5888 except DC and VA
703-557-1938 in DC and VA
The EPA offers more than 100 publications
designed to help small businesses under-
stand how they can comply with EPA regula-

U.S. Food and Drug Administration (FDA)
FDA Center for Food Safety and Applied Nutrition
200 Charles Street, SW
Washington, DC 20402
The FDA offers information on packaging and
labeling requirements for food and food-
related products.

For More Information

A librarian can help you locate the specific
information you need in reference books. Most
libraries have a variety of directories, indexes
and encyclopedias that cover many business topics.
They also have other resources, such as

– Trade association information – Ask the li-
brarian to show you a directory of trade
associations. Associations provide a valuable
network of resources to their members through
publications and services such as newsletters,
conferences and seminars.
– Books – Many guidebooks, textbooks and manuals
on small business are published annually. To
find the names of books not in your local li-
brary check Books In Print, a directory of
books currently available from publishers.
– Magazine and newspaper articles – Business and
professional magazines provide information
that is more current than that found in books
and textbooks. There are a number of indexes
to help you find specific articles in periodi-

In addition to books and magazines, many libraries
offer free workshops, lend skill-building tapes
and have catalogues and brochures describing con-
tinuing education opportunities.

About author

SMB Reviews
SMB Reviews 469 posts

SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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