9 Hot-Button HR Issues Every Small Business Needs to Work on for 2023

As a small business owner, I know how easy it is to feel overwhelmed with everything on your plate. New items are always appearing on your to-do list, especially right now with year-end tasks like budget and workforce planning, end of year reporting, performance review season and more. It might feel like your only option is to put your head down and power through as best you can to get everything done.

But, with the old year ending and the new year ahead, it might be wiser to hit the pause button and assess the state of your business, especially when it comes to your workforce. With no end in sight for the war for talent, is there anything you could have or wish you had done differently in 2022?

“It’s tempting to focus on forging ahead rather than stopping to assess and adjust for the missteps you made this year,” says Jen L’Estrange, Founder and Managing Director of Red Clover, an outsource HR firm. “Skipping this step would be a big mistake.”

I asked L’Estrange to share her insights on the key items that should be on every small business leader’s end-of-year checklist. Here’s what she shared.

Learning from missteps

A trap many business owners can fall into is to start working on your plans for next year rather than taking the time and assess what you did well, or not so well, in the year coming to a close. At times, planning ahead can feel easier than looking back.

“We tend to think in future tense,” says L’Estrange, “and closing out processes is less gratifying than planning for the new and different in the year to come. However, the consequences of not addressing open items and issues before year end can be problematic. Sometimes the mental energy we use to avoid that which we don’t enjoy doing costs us more than actually getting it done.”

Put another way, whatever we don’t finish this year inevitably comes back to haunt us in the next. That’s especially true with issues related to managing your cash and, increasingly, people and human resources or HR.

One issue many business owners continue to struggle with, for instance, is payroll. Faced with a talent shortage, many raced to increase pay considering where they wanted to position themselves in the market and what the business could really afford. That’s a lesson learned, along with the potential to put in a more variable pay structure for the coming year. “Variable pay usually achieves the same goals but with much more flexibility to move—up or down—in line with the needs of the business,” says L’Estrange.

With every business fighting for talent, you can’t afford to be anything less than at the top of your game as you head into 2023.

Focusing on hot-button issues

L’Estrange points to nine key areas related to people and human resources that should be top of mind for every small business owner as they wrap up the year:

1. Employee benefits: Review your benefits package and gauge how competitive it is compared to your market. If you plan to make additions, make sure you budget appropriately. If you are considering adding health benefits, for example, a 25% gross up on base salary costs is a good starting point for budgeting purposes.

2. Handbook review: Employee handbooks should be reviewed every year to ensure compliance with new rules and regulations. It’s also critical to ensure that policies remain aligned with company values and culture, as well as the needs of the business and its employees.

3. Bonuses and Deferred Profit Sharing: Year-end and the related financial analysis also means it’s a good time to look at employee bonuses. “For businesses that have a retirement planning in place,” says L’Estrange, “we usually recommend a portion of that bonus money be paid as deferred profit sharing, as it can be tax efficient for the business and the owners.”

4. Compensation structures: With ongoing turbulence in the talent market and pay transparency laws going into effect in a number of states, you should review your salary structures for internal equity and market position. “If compensation is clearly understood and perceived as equitable, employees will continue to be engaged and contribute actively to organizational goals,” says L’Estrange.

5. Merit (salary) reviews: Every business should conduct merit reviews at the end of the year. In the tightest labor market in decades, you need to ensure your employees feel that their contribution is valued. “If your people believe that going ‘above and beyond’ will be rewarded,” says L’Estrange, “then they will respond positively to stretch goals; if they don’t, then they won’t.”

6. Promotions: “Promotions meet an organizational need as well the individual need—and readiness—for career growth,” says L’Estrange. Look at promotional opportunities first through the lens of business operations. What roles do you need in place in order to be successful next year? Then look at who you have who is ready to take on additional responsibility.

7. Performance development conversations: Managed separately from salary or merit reviews, performance development conversations are an opportunity to connect with employees and exchange feedback on how things are going in their current role. “These reviews are more forward looking—focusing on what needs to change to facilitate learning, career growth, and as a result, increased contribution to the organization,” says L’Estrange.

8. Employee feedback: Conducting employee surveys, focus groups or even 1:1 conversations are great ways to gather feedback on what’s working and what’s not inside the organization. “However, if you ask the question, be ready for the answer,” says L’Estrange. “A successful employee survey always has an action plan behind it, where the issues raised are addressed candidly with a roadmap to resolution if appropriate.”

9. Workforce planning: This is part of the budgeting process and includes estimates of required headcount, assessing new vacancies and any organizational changes needed to fuel the growth of the business. “It includes promotions that create a vacancy and new products or services that will require manpower to deliver,” says L’Estrange. Workforce planning begins at the same time as the overall financial budgeting process and continues to be updated throughout the year in response to business needs.

Prepping for 2023

Even as you do the work to assess how the past year went, it’s also critical to be asking yourself important questions to better prepare for the coming year. L’Estrange suggests tackling topics like:

• Do I have a budget and workforce plan that guides my hiring decisions? Do we have updated, accurate job descriptions in place?

• What safeguards do I have in place to protect profit? How do those specifically relate to how I pay my employees?

• How am I continuing to build and grow a workforce where employees feel safe and valued for the work that they do?

A wild ride

Nobody knows what will happen in 2023. But it seems like a good bet that the economic turbulence we’ve seen this year will continue—which means it’s time to get your ship in order when it comes to how you hire, reward and reorganize. “Setting up good business metrics for decision support on all things related to employment is critical to navigating the storm,” says L’Estrange.

Finally, while it’s vital to address any mistakes left over from 2022, it can be equally valuable to stop and celebrate any victories from this past year. 2023 promises to be a wild ride, so strap in, get set—and make it a great one.

^{This article was written by Mark C. Perna from Forbes and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].}