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Updated Feb 01, 2024

8 Hiring Challenges Facing Small Business Owners

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Skye Schooley, Senior Lead Analyst & Expert on Business Operations

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Whether it’s labor shortages or competitive labor markets, small businesses must have an effective recruitment process if they want to attract and retain top talent. Here are a few reasons why hiring sought-after employees might cause a headache for small businesses in today’s market, and how to help your business stand out in the hiring process.

Small business hiring challenges

Here are some of the biggest challenges small businesses must overcome when trying to stay competitive in the hiring process.

1. It’s a tight market.

Since the unemployment rate is below 4 percent, the pool of unemployed job candidates is smaller than in recent years. Often, your ideal hire works elsewhere, meaning they need a reason to quit their job and work for you. When a promising talent is not looking for work, you must identify and attract them to your company.

Solution: With more open jobs than available quality candidates, employees can choose where they want to work. The first thing you need to do is create a clear message for attracting talented candidates. If your team can’t answer the question “Why should I quit my job and work for you?” then you need to revisit your message, and potentially your team members. The answer can’t be “Because we are nice people.” Your message needs to be clearly defined.

You also need to offer competitive employee benefits and work perks. For example, remote work and flextime have become highly desirable to many job seekers. Create an employee benefits package that goes above and beyond what your competition offers.

2. Other employers have built inclusive cultures.

Working for a company that prioritizes diversity, equity and inclusion (DEI) has become a top priority for many job seekers. In tandem, many companies have placed an emphasis on DEI initiatives. If your company doesn’t foster a diverse and inclusive environment, expect your pool of job applicants to drastically diminish.

Solution: Create a diverse and inclusive workplace that celebrates all types of employees. It is imperative that you do this in a thoughtful and genuine way that comes across as sincere.

3. Other employers are prioritizing mental health.

In addition to diversity and inclusion, many professionals are prioritizing their mental health. They want to work for organizations that care about (and aid in) their mental well-being. Large companies are often at an advantage in offering a comprehensive benefits package that prioritizes mental health.

Solution: Provide employee benefits that show job prospects that you care about your team’s mental health. This can include benefits like flexible work schedules, employee assistance programs (EAPs) and unlimited paid time off policies.

TipBottom line

If you want to offer competitive benefits, consider partnering with a top professional employer organization (PEO). Read our review of TriNet to see if it has the benefits you are looking for.

4. The skills you want reside in larger firms.

In the past, small companies could attract talent from larger firms by emphasizing work flexibility and a family-like atmosphere. But, over the years, most large companies have invested a fortune in work-life balance alternatives as well as other bells and whistles. Don’t expect a candidate to take a pay cut to work at a smaller firm just because you won’t make them use a vacation day for a child’s doctor’s visit. Realistically, is that worth $10,000 less in salary and a cut to their 401(k) match?

Solution: If larger companies are stealing away the talent you are seeking, get creative about what you offer. In addition to offering standard employee benefits and competitive pay, consider offering unique fringe benefits to make your company stand out. You can also emphasize your company mission statement and how your business differs from the rest.

5. Candidates have options.

The traditional mindset is that a candidate applies for a job – basically asking an employer to consider them. For many, the balance of power has now shifted. Employers ask the candidate to join them. Many small companies let their egos get in the way of this newfound practice. They think the candidate needs to show they want the job and make some type of sacrifice. This is a self-defeating philosophy, especially when a candidate is considering multiple employers. The choice is not between a candidate’s existing employer and your company. It is between the existing employer and any of two, three or five companies that will appear over the next few months.

Solution: Accept that the candidates you seek may not need you as much as you need them. With the labor shortage, employers are at the mercy of job seekers. Focus on how you can benefit your employees, and make sure that emphasis shows throughout your recruitment process.

6. Hiring employees can be costly.

Employees are the most expensive cost of any organization. Large organizations often have more capital to spend and can offer more competitive salaries and employee compensation plans. This can make it difficult for smaller organizations to compete for top talent.

Solution: When determining employee compensation for an open position, you are restricted by how much you can spend. But you can make your offer more competitive by supplementing employee salaries with competitive benefits that don’t cost as much.

Did You Know?Did you know

Wage and salary account for nearly 70 percent of worker compensation costs in private industries, while benefits account for roughly 30 percent.

7. You are posting inaccurate job descriptions.

A job description is often a candidate’s first interaction with your organization. It tells the job seeker about your company and the role they may be applying for. Unfortunately, many businesses get it wrong by creating inaccurate and vague job descriptions. This can lead to qualified candidates passing you over or, worse, having the wrong candidates apply for (and get) the job. A bad hire can cost your business 30 percent of the employee’s first-year earnings.

Solution: Before posting a job description, determine the scope of the role and the type of person you want to hire for that position. Consider attributes like experience level, job title and purpose, education, salary, skills, and competencies. Select and define the factors most important to your business, and create a job description to match.

8. You have a poor recruitment process.

Many businesses struggle with implementing an engaging and effective recruitment process. This can play a major role in the type of employees who get through the screening and interview process. Without a well-thought-out recruitment process, you risk deterring the very employees you seek to hire.

Solution: Make your recruitment process candidate-friendly. Don’t make a candidate leave work in the middle of the day for a half-hour screening interview. Don’t have an interviewer who thinks it is their job to ask questions but not answer them. Engage with the candidate. If you don’t, they will project any standoffish behavior onto their potential futures as your employees and stop the hiring process before it gets started.

FYIDid you know

If you’re creating a new recruitment process – or revamping your current one – here are some recruitment process best practices to follow.

The best HR software for hiring

High-powered HR software can help organize your employee recruiting by automating the process for you and serve as a place to store and manage recruitment information. Here are some of the best HR software options:

  • BambooHR: BambooHR posts and tracks job openings, manages applicant information, and remotely onboards new hires. It also has features for employee benefits administration, time and attendance tracking, payroll processing, performance management, and risk mitigation. Read our BambooHR review for more on how this software can help with employee recruitment.
  • Gusto: Gusto has a built-in applicant tracking system (ATS) with standard tools to help you recruit new workers. It also offers onboarding features, software provisioning, time and attendance tools, benefits administration services, payroll processing, and compliance assistance. Check out our review on Gusto to learn more about this HR solution.
  • Paycor: Most Paycor plans automatically include essential recruitment and onboarding features like candidate statuses, interview-calendar integration and background check services. It also offers critical HR features for tracking time, processing payroll, administering benefits and managing performance. Read our review on Paycor for more information.
  • Paychex: Paychex is a comprehensive HR solution, offering features like payroll processing, employee benefits, legal compliance assistance and performance management. It also offers recruitment and onboarding features like background check service integration, electronic HR documents, e-signature capabilities and direct deposit options. Learn more about this HR solution in our Paychex review.

Jeff Zinser contributed to this article.

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Skye Schooley, Senior Lead Analyst & Expert on Business Operations
Skye Schooley is a human resources writer at and Business News Daily, where she has researched and written more than 300 articles on HR-focused topics including human resources operations, management leadership, and HR technology. In addition to researching and analyzing products and services that help business owners run a smoother human resources department, such as HR software, PEOs, HROs, employee monitoring software and time and attendance systems, Skye investigates and writes on topics aimed at building better professional culture, like protecting employee privacy, managing human capital, improving communication, and fostering workplace diversity and culture.
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