15 October 2025
As an HR company that provides advice and support to businesses both big and small, we know the struggles of business owners from both ends of the spectrum. However, in this blog, we’ll focus on the unique challenges small business owners face.
SMEs typically don’t have an HR resource, much less a full HR department. We’ve worked with plenty of business owners who recognised that they needed to get their HR foundations set up early on—but weren’t sure how to go about it.
Below are the most common HR mistakes we see small businesses make, and how to avoid them.
The mistake: A common misconception is that the lack of a written employment contract means that there’s no contract in place at all. However, businesses need to understand that the moment an employee is engaged to work for a business, it means a contract is automatically in place. Having a written employment contract that is clear and compliant is what every business should have (as oppposed to a verbal agreement that can be open to interpretation).
Why it matters: An employment contract is one of the three essential foundation documents businesses should have. As they outline core elements like job details, compensation, work hours, terms of employment, and confidentiality and non-compete clauses, it’s a non-negotiable for any business that has employees.
How to avoid it: Ensure all employees have contracts. If there are none in place, consider an outsourced HR solution to create tailored contracts for your business and your people.
The mistake: Not being familiar with the applicable awards for your people and your industry is an HR pitfall that can snowball into costly situations. A common misconception for those who aren’t familiar with the modern awards is that paying above the award guarantees compliance. However, most employers aren’t aware that this isn’t enough. Awards must be used to accurately classify employees and comply with conditions that may be unique to specific awards.
Why it matters: Not complying with the modern awards runs the risk of underpayments, something Fair Work Australia takes seriously. Time and again, we’ve seen businesses suffer from even unintentional mistakes that resulted in underpayments.
Read about how the Fair Work Act classifies the intentional underpayment of employees as a criminal offence: Criminalising Wage Theft Fact Sheet.
How to avoid it: The easiest way to avoid this mistake is to understand the modern awards that apply to your business, as well as ensure that you use accurate timekeeping systems. You also have to make sure that you’re correctly classifying your employees, whether they’re full-time, part-time, or casual ones.
The mistake: Many small businesses see onboarding as a one-day process or skip it altogether. But onboarding is more than just a first-day checklist. It’s a structured plan that helps new employees integrate into the team early on.
Why it matters: A well thought out onboarding process benefits not just your new hire, but your business in the long run. Nothing says “Welcome to the team” more effectively than an onboarding program that’s tailored to your company’s culture and your new employee’s needs.
How to avoid it: Develop a structured onboarding plan that includes introductions, training, and clarity around expectations (especially during the probation period).
Read more in our article: Reviewing Your Onboarding Process.
The mistake: Australia’s employment law landscape is an ever-changing one. Businesses often struggle to keep pace with them, and this struggle is especially hard for those who don’t have a dedicated HR resource to check for updates. Missing critical updates can mean falling behind on compliance obligations.
Why it matters: Recent Fair Work amendments have introduced changes to wage theft laws, casual employment definitions, and positive duty obligations. Non-compliance can expose your business to penalties, even if you’re unaware of the changes in the law.
How to avoid it: Stay informed of legislative updates and seek professional advice to ensure your HR practices align with current laws. Our HR News and Fact Sheets pages are great resources to subscribe to for updates.
The mistake: Many businesses address performance concerns informally or not at all. Without proper documentation, it’s difficult to demonstrate that a fair and reasonable process was followed.
Why it matters: Poor or missing documentation can lead to disputes and potential unfair dismissal claims. Consistency and transparency protect both your business and your employees.
How to avoid it: Have a fair performance management process with clear expectations, regular feedback, and documented outcomes. We’ve written a Performance Management Guide for employers, as well as a checklist!
The mistake: Inadequate record-keeping is a widespread issue that occurs among small businesses. From keeping employee details updated to having accurate timesheets and leave records, small businesses that don’t have an HR person or a resource dedicated to keeping records often have a hard time with it.
Why it matters: Accurate records are a legal requirement under the Fair Work Act. Inadequate documentation can expose small businesses to claims of wage theft, unfair treatment, or non-compliance.
How to avoid it: Have a reliable system in place to manage records and keep files secure. Also make sure that access to those files is available only to authorised people in the business.
The mistake: Are your employees aware of your company policies? Small businesses sometimes fall victim to the mistake of not making company policies available to employees, creating uncertainty. If employees don’t know what’s acceptable behaviour (and what’s not), and managers don’t have a consistent reference point, this could create potential problems.
Why it matters: Clear policies and an Employee Handbook are what set behavioural expectations and demonstrate compliance. They also help businesses respond consistently to workplace issues when they arise.
How to avoid it: Make sure you have a comprehensive Employee Handbook that includes company policies in it. Regularly review your policies to ensure they’re still in line with current legislation and your own business’s needs
Read more: 3 Reasons Why You Need Employee Handbooks In Your Business
The mistake: Many small businesses don’t know or underestimate their obligations when it comes to preventing workplace bullying, discrimination, and sexual harassment.
Why it matters: Employers have what is called a “positive duty” to take reasonable measures to eliminate behaviours that could lead to bullying, harassment, and discrimination before they even occur. Not complying can be disastrous for a business in terms of dealing with claims and reputational harm.
How to avoid it: Make sure management and employees alike are educated when it comes to these issues. As well, you should have clear reporting procedures in place that the entire team know about.
The mistake: Classifying employees correctly is a key element in ensuring that pay, conditions, and entitlements are managed fairly and are compliant with the law. Misclassifying workers has significant penalties and damages for a business.
Why it matters: Incorrect classification can result in significant financial penalties, backpay, and employee disputes. Australia takes underpayments very seriously, and Fair Work Inspectors regularly audit businesses to ensure compliance. Even unintentional errors can lead to costly outcomes, particularly where employees have been incorrectly treated as contractors or casuals.
How to avoid it: Understand the distinctions between employment types and ensure classifications align with hours, duties, and award conditions.
We have a handy guide to help you correctly classify employees: Employment Types applicable under Australian workplace legislation
The mistake: Ending employment is an inevitable part of the employee lifecycle. It’s also one of the most sensitive aspects of HR. Many businesses mishandle terminations or redundancies by failing to follow due process or meet consultation obligations.
Why it matters: Not handling a termination or redundancy properly can expose a business to unfair dismissal claims, redundancy pay disputes, reputational damage, and more.
How to avoid it: While there are different ways of ending employment (like mutual separation agreements ) it’s still important to know how to follow procedure, ensure compliance with the law, and seek HR or legal advice if needed.
The mistake: Many small businesses employ a ‘Do It Yourself’ approach when it comes to HR. However, this can open them up to risk, as evidenced by the ten examples above. Trying to manage HR issues, even ones that aren’t complex, can lead to avoidable risks.
Why it matters: Even the most well-intentioned small business employers can still make costly mistakes when it comes to navigating employment law, performance issues, terminations, and compliance.
How to avoid it: Just as we’d advise any client to seek expert help when they need it, our best advice is to get HR support from professionals who understand both compliance and people. Having the right guidance means you can focus on running your business, confident that your HR practices are both people-first and compliant.
Want to avoid these mistakes? Contact the Now Actually team for outsourced or fractional HR solutions tailor-made for your small business. Book a Discovery Call with us now!
