Strategic HR

The biggest HR challenges for small businesses in 2025

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HR is a complex discipline, covering many different areas of expertise and legislation. Larger organisations often have dedicated HR teams and significant resources to manage everything from compliance to recruitment, ensuring smooth operations and a consistent approach. However, navigating HR challenges can be difficult for small businesses, where limited resources and competing priorities make processes more complicated.

In 2024, key small business HR issues ranged from compliance risks to evolving workforce expectations, and understanding how to tackle these effectively will be key to staying competitive in 2025. Without efficient strategies and tools to address current HR trends and challenges, businesses may struggle with critical tasks like hiring, retaining talent and ensuring compliance with regulations. This can lead to inefficient processes, missed growth opportunities, and reduced employee satisfaction.

In this guide, we’re going to explore the biggest HR challenges of 2024, offering actionable insights into key HR challenges and solutions to tackle them. We’ll also advise you on adopting targeted solutions and leveraging technology, helping your businesses to prepare for the future.

Common small business HR issues

Without dedicated HR teams or expansive budgets, small businesses can feel the impact of challenges like compliance, recruitment and retention much more acutely than larger organisations. Limited resources make it crucial to adopt efficient strategies and tools to address these common HR challenges for small businesses.

Maintaining HR compliance

HR compliance is one of the most significant challenges that small businesses face. Laws and regulations surrounding employment are constantly evolving, covering areas such as contracts, working hours, pay, health and safety, and data protection. Ensuring compliance requires meticulous attention to detail – something that many small businesses find hard to achieve without dedicated resources.

Non-compliance doesn’t just result in fines and legal complications. It can also damage a company’s reputation, making it harder to attract top talent or maintain employee trust. Over time, this can have a significant negative impact on business performance and growth.

Solution

Conducting regular HR audits allows businesses to stay ahead of compliance requirements. These reviews help you to identify potential risks, ensure that current policies are up to date, and create a consistent framework for ongoing compliance practices.

Recruiting top talent

Competing with larger organisations to attract skilled professionals is an ongoing issue for small businesses. These challenges are often exacerbated by limited budgets for advertising roles, fewer resources to screen applications, and lower brand recognition.

Attracting top talent requires more than just offering competitive pay; it’s about creating a compelling brand and providing candidates with an engaging experience from their very first contact with your company. Without effective recruitment techniques, small businesses may face prolonged vacancies that disrupt operations and stunt growth.

Solution

Modern recruitment techniques and tools like applicant tracking systems (ATS) can transform the hiring process. By automating tasks such as application screening and interview scheduling, ATS solutions help small businesses to create a professional and efficient recruitment process that appeals to top candidates.

Increasing employee retention rates

High staff turnover rates can be costly. The expense of hiring, onboarding and training new employees can quickly add up, putting a strain on small businesses with tight budgets. Additionally, frequent staff changes can be disruptive, harming team morale and productivity.

Retaining employees requires more than just meeting basic expectations. Businesses should aim to foster a sense of belonging and purpose by offering development opportunities, recognising achievements, and maintaining a positive workplace culture.

Solution

Working to optimise the employee lifecycle helps businesses to create a structured approach to employee retention. From onboarding to career development, investing in employees’ long-term growth fosters loyalty and reduces turnover.

Plugging skills gaps

The fast pace of technological and industry change often leaves businesses struggling to find employees with the right skills to meet their needs. For small businesses, these shortages can greatly limit their ability to innovate, compete and grow.

Relying on external hires to fill skills gaps is not always a viable option for small businesses due to budget constraints or limited candidate availability. Instead, upskilling staff is often the most cost-effective and sustainable solution, but not all businesses have the resources and processes in place to do this effectively.

Solution

E-learning at work provides employees with the opportunity to acquire new skills at their own pace. Online training platforms are affordable, flexible and scalable, making them ideal for small businesses looking to address skills gaps without overextending resources.

Managing HR with limited resources

Many small businesses operate without a dedicated HR department, leaving these responsibilities to owners or managers who are already juggling multiple roles. This can lead to oversights, inefficiencies and increased stress, especially when dealing with complex HR tasks such as payroll, compliance and recruitment.

Without the right tools, even routine HR tasks can consume valuable time, diverting focus from strategic business activities. This is why many small businesses struggle to manage HR effectively, despite HR’s critical role in their ongoing success

Solutions

Adopting employee self service platforms empowers employees to take control of certain HR tasks, such as updating personal information, requesting time off or accessing payslips. This reduces the administrative burden on managers and allows them to focus on higher-priority activities.

2024’s key HR challenges and solutions

Current HR trends and challenges are heavily influenced by technological advancements, evolving workforce expectations and broader societal shifts. Small businesses must navigate these changes carefully to stay competitive and future-proof their operations. There are some of the main HR challenges in 2024 that businesses have had to face.

Implementing automation and AI

The rise of automation and AI in HR is changing the way that businesses manage processes like recruitment, payroll and performance tracking. AI-powered tools enable companies to automate repetitive tasks, analyse large sets of data and make informed decisions based on actionable insights, such as identifying trends in employee satisfaction surveys.

For small businesses, the appeal of AI lies in its ability to streamline workflows and reduce manual labour, allowing HR teams to focus on strategic or people-centric tasks. Despite the benefits, concerns over cost, implementation and data security often make smaller organisations hesitant to adopt these technologies.

Solution

Starting with smaller, more manageable solutions like AI chatbots can provide immediate benefits without overwhelming business resources. These tools can address repetitive queries, schedule interviews and even assist with onboarding processes, offering small businesses an accessible entry point into the world of AI and automation.

Adapting to hybrid working conditions

The hybrid working model has become a fixture in the modern workforce, with many employees expecting the flexibility to split their time between home and the office as standard. While this approach offers benefits like improved work-life balance and access to a wider talent pool, it also introduces challenges such as ensuring productivity, maintaining team cohesion, and addressing unequal access to resources.

Without proper systems in place, communication breakdowns and reduced collaboration can impact both employee satisfaction and overall business performance. Additionally, hybrid arrangements may unintentionally create disparities between in-office and remote workers, leading to feelings of inequality or exclusion.

Solution

Investing in digital communication and collaboration tools is a great way to keep employees connected, no matter where they work. Platforms that facilitate real-time messaging, video conferencing and project management can bridge the gap between remote and in-office teams by improving communication and enhancing teamwork. For hybrid working to succeed, businesses must also foster a culture of inclusivity, where all employees – regardless of location – feel equally valued and engaged.

Optimising the employee experience

One of the biggest current HR trends and challenges is the importance of the employee experience. Modern employees increasingly expect their workplaces to offer more than just a paycheck; they want an environment that prioritises their wellbeing, provides growth opportunities and aligns with their values. For small businesses, a positive employee experience can be a key differentiator in attracting and retaining talent – particularly when competing with larger organisations.

However, creating a supportive and engaging environment requires intentional effort. Without adequate resources, small businesses may struggle to provide the perks, career development opportunities or wellbeing programmes that employees expect.

Solution

By investing in tools that track employee satisfaction and introducing initiatives like flexible working arrangements, wellness programs and regular feedback cycles, small businesses can work to improve the employee experience. These efforts signal to employees that their contributions are valued and that the business is committed to their personal and professional growth.

Ensuring equality, diversity and inclusion

In the modern workforce, equality, diversity and inclusion (ED&I) initiatives are a must for businesses of all sizes. Companies that prioritise ED&I benefit from greater innovation, better decision-making and a stronger employer brand, giving them a competitive edge and helping to increase employee satisfaction. However, achieving meaningful progress in this area requires a consistent ongoing effort.

For small businesses, the challenge often lies in lacking the resources or expertise to develop and implement robust ED&I policies. Additionally, unconscious biases and indirect discrimination can hinder progress, even when there’s a genuine desire to create an inclusive workplace.

Solution

Adopting blind recruitment practices can help to mitigate biases in hiring. By focusing solely on skills and qualifications, this technique ensures that hiring decisions are based on merit, not on personal characteristics. This approach supports diversity and inclusion while giving small businesses access to a broader and more qualified talent pool.

Giving employees the benefits they want

Benefits play a critical role in attracting and retaining talent, but workers are no longer satisfied with generic employee benefits packages that fail to address individual needs. Instead, they’re looking for tailored benefits that align with their personal circumstances, whether that’s additional parental leave, mental health support or flexible working arrangements.

For small businesses, meeting these expectations can be particularly challenging due to budget constraints or a lack of understanding about what employees truly value. Failing to provide meaningful benefits risks disengagement, higher turnover rates and difficulty attracting top talent, particularly as larger organisations often have the resources to offer more comprehensive packages.

Solution

Implementing flexible benefits packages gives employees the freedom to select perks that suit their lifestyle and priorities. This approach not only enhances employee satisfaction but also demonstrates that the business values individuality. Additionally, surveying employees to understand their preferences ensures that the benefits offered are genuinely impactful, maximising the return on investment.

Tackle the biggest HR challenges in 2024 with PeopleHR

Addressing HR challenges is essential for small businesses looking to thrive in 2025. From improving compliance to adopting technology and enhancing the employee experience, proactive strategies are key to overcoming current HR trends and challenges.

PeopleHR offers innovative HR software solutions, helping businesses like yours streamline processes and achieve more. To find out how we can support you and your workforce, explore our demo or contact our experts today.

Gareth Moss
By Gareth Moss New Business Sales Team Leader

Gareth Moss is a New Business Sales Team Leader with nearly a decade of experience in the Access PeopleHR product. Gareth specialises in serving those within the SMB market, and his passion lies in helping businesses streamline their HR operations. Before transitioning into his current role, Gareth was a HR software product trainer, making him your ‘go to’ guy for all things PeopleHR.