Growing A Small Business: HR Mistakes To Avoid

Oct 27, 2026

When you’ve started your own business, hiring employees marks a major milestone on your growth path. Just don’t be so busy enjoying the moment that you make the wrong moves. Small businesses can easily get tangled up in employment disputes, and unlike large businesses, tend to not have expertise or protections in place. Misclassifying employees. Sloppy records. An inadequate employee handbook. These are examples of small business mistakes that ttorneys counsel avoiding. Read on for pointers.

Aren’t We Just One Big Happy Family?

No. Though work at a small business may involve lots of teaming up to meet the moment, do not fall into the trap of treating employees casually. To that end, it’s essential to have an up to date employee handbook—and actually stick to the protocols it lays out, as David Harmon and Mariya Gonor, employment strategists at Norris McClaughlin Law advise:

The handbook is your company’s playbook, outlining all the dos and don’ts for your team. Without it, you’re playing a risky game of “employment law roulette” – and really, no one wants to be in that situation.

As important as it is to have a handbook, more important still is knowing what’s in it. Many small business owners incorrectly view the handbook as just an unimportant checklist item; they either do not bother to read it, or do not tailor it to their specific business and workplace. A better and safer strategy is to create a customized guide for your business that spells out expectations, company rules, and legal requirements.

Not having a handbook, or having one that is outdated or irrelevant to your specific business, can lead to disputes, misunderstandings, and claims of unfair treatment. A comprehensive, well-tailored handbook is an essential tool for protecting your business from potential liabilities.

When preparing to hire or contract with anyone to work for your small business, always be sure you are correctly classifying the type of work they will do. Is it an independent contractor role? Hourly worker? Salaried, exempt employee? Misclassification is a common mistake at small businesses, and can lead to serious and significant penalties under both state and federal law. If you are unsure, visit the Department of Labor and review the Fair Labor Standards Act (FLSA). It’s worth the effort: clarity on employment classifications will serve you well at every step of growing your business.

Of course pay-day is a big deal for everyone you hire–and handling it properly is a big deal for you as a small business owner. So is record keeping, and properly addressing conflicts and complaints. Human resource pointers on these matters from attorneys include:

While Wage and Hour laws address how much to pay, a different set of laws, Wage Payment Laws, address when to pay. Paying your employees should be as straightforward as feeding your pet – do it regularly and without fail….A review of your state’s and city’s particular laws is critical, because these laws are extremely nuanced.

Maintaining detailed employment records is not just good practice; it’s often a legal requirement. These records are vital in the event of disputes, or if you need to justify employment decisions. Remember, our memories fade, but good records are forever.

Properly addressing complaints brought by coworkers or those to whom they report…is essential. Informal, ad-hoc approaches to investigations or conflict resolution can lead to policy violations, violations of law…and lead to further complications. Establishing formal, fair, and consistent procedures for handling such complaints is key to maintaining a lawful and harmonious workplace.

Good To Know: EPLI?

Even with great diligence around employment practices at your business, human resource problems can easily arise and escalate into costly disputes. That’s why

attorneys at McKenna-Storer underscore the importance of employment practices liability insurance (EPLI) for small business owners:

All employers should have employment practices liability insurance, otherwise known as an EPLI insurance policy. This is different from a workers compensation policy or a commercial general liability policy, or even a property or auto policy.

The EPLI policy provides coverage for wrongful acts arising from the employment process. While most large companies have employment practice liability insurance, few new, smaller, and medium-sized companies have EPLI….

Compounding the problem, the smaller and newer the company is, the less likely it is to have a department prepared to handle employment matters, the less likely it is to have an attorney who can advise on their employment preventative practices, and the less likely they are to have an updated employee handbook detailing the policies and procedures regarding hiring, disciplining, and terminating an employee.

As a result, smaller and newer companies are more vulnerable to employment-related claims.

Unfortunately, many small business owners forgo important protections like EPLI, because they find insurance decisions complicated and coverages expensive. Colonial Surety Company solves these challenges by offering effective and efficient protections for businesses of every size. Armed with our Employee Practices Liability Insurance (EPLI), if an employee or former employee sues your company, you’ll have coverage for legal defense and monetary damages or settlements related to alleged violations of employment rights and unfair workplace practices, including:

Wrongful termination.
Discrimination.
Sexual harassment.
Failure to promote.

Get your instant quote, here now: Employee Practices Liability Insurance

Affordable Insurance for Small Businesses

Although risks are inherent to being open for business, Colonial Surety Company makes protection efficient and affordable. In addition to Employee Practices Liability Insurance, our other business insurance policies include:

Professional Liability (E&O) Insurance to shield you from allegations that your professional services or advice caused a client financial harm. For consultants, accountants, real estate agents, notaries, and countless others, professional liability insurance is a non-negotiable layer of protection.
General Liability Insurance covers everyday risks like third-party bodily injury or property damage that occurs on your business premises or as a result of your operations. Think of a client tripping on your property or an employee accidentally damaging a client’s equipment.

Business Owner’s Policy (BOP) conveniently combines liability and property insurance to protect against many of the risks commonly associated with running a business, such as property and equipment damage, customer injuries, and defense in the event of a related lawsuit. If a fire, theft or other covered disaster strikes, BOP provides coverage for computers, furniture and other property damages too.

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At Colonial Surety Company, we make it easy and speedy for business owners to obtain insurance coverages as well as the surety and fidelity bonds required in many fields. Just choose your coverage, get an instant quote, then complete your information, purchase, and download your digital policy in minutes.

Protect your growing business with overage from Colonial Surety Company today:

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