by Jessica Donahue
As a small business owner, you’re used to juggling sales, marketing, and customer service without much help. That leaves little time for HR, even though it’s just as important to get right and just as costly to get wrong. Here are the mistakes I see most often as an HR Consultant, and what you can do instead.
Skipping Written Employment Agreements
You may be running your business on trust and handshake agreements, especially with early hires. That works fine until it doesn’t. The moment someone leaves unexpectedly or a pay disagreement comes up, having nothing in writing becomes a problem.
Every employee should have a written agreement covering the role, the pay, the pay schedule, and whether the job is at-will, which in Wisconsin it is by default. This isn’t about being cold with early employees you trust. It’s about establishing a shared record that protects you and them if something changes down the line.
What to do instead: Put together a simple offer letter template before your next hire. Have an employment attorney review it once, then use it every time you onboard someone. Get it signed by both parties and keep it on file.
Misclassifying Employees as Contractors
This is often the costliest mistake, and it usually starts with the same thinking. It seems easier to bring someone on as a contractor than deal with payroll and benefits. Sometimes that classification is genuinely correct. But often what’s really happening is you’re trying to avoid the cost of a proper employee.
The IRS and Wisconsin’s labor agencies care about the actual working relationship, not your intentions. If you’re setting someone’s schedule, directing how they do the work, and supplying their tools, that person is likely an employee no matter what the contract says. Getting this wrong can mean back taxes, penalties, and interest, plus a painful cleanup later.
What to do instead: Review the IRS worker classification guidelines and think through this carefully before the person starts or signs anything. When in doubt, ask an HR professional or employment attorney. It’s far cheaper to get right up front than to fix later.
Making Pay Decisions Without a Plan
Making Pay Decisions Without a PlanA lot of small business owners make pay decisions reactively. A candidate names a number, you check Glassdoor or salary.com to get a rough sense of the market and make a call, then repeat that process with no consistency for the next hire. Over time this creates pay gaps between people doing similar work, and those gaps eventually cause resentment and turnover.
What to do instead: Set a simple pay philosophy early. Are you paying at, above, or below market rate, and why? Can you explain how and when raises happen? You don’t need anything complicated, just a consistent approach applied from the first hire forward.
Promoting Someone Into Management With No Support
Maybe someone on your team is a great individual performer, has been around a while, and gets moved into a leadership role because it seems like the natural next step. Suddenly they’re managing people with no training and no coaching, because nobody at your business has done this before either. Some people figure it out on their own. Many don’t, and the employees under them start to disengage or leave.
What to do instead: Before you promote anyone into management, have an honest conversation about what the role really requires. Pair the promotion with real support, whether that’s coaching, a clear framework for how you want managers to operate, or regular check-ins on how it’s going.
Handling Terminations Without a Process
Terminations tend to get messy when there’s no paper trail. Performance issues drag on for months with no formal conversation or documentation, then something egregious happens and the termination gets rushed with no plan behind it.
What to do instead: Build a simple termination process before you need one. Know who needs to be involved, what documentation should exist, and what you’ll tell the rest of the team. Treat the conversation as the final step of a documented process, not the first time anyone hears there’s a problem.
Not Running a Basic HR Checkup
Most owners only take a hard look at their HR setup after something has already gone wrong, like a lawsuit threat, a surprise resignation, or an audit notice. By then, you’re reacting instead of preventing.
A basic checkup once or twice a year catches problems while they’re still cheap to fix. Look at whether every employee has a signed offer letter and I-9 on file, whether your job descriptions and pay bands still match what people actually do, whether you have a simple handbook covering things like time off and conduct expectations, and whether anyone classified as a contractor still fits that definition.
What to do instead: Block an hour on your calendar twice a year to run through this list yourself, or have an HR consultant do it for you to make sure you’re staying on top of things.
The Bottom Line
The most expensive version of any of these mistakes is discovering it after it’s already caused damage. If you avoid these pitfalls, it’s usually not because you’re more careful by nature. It’s because you built a few basic practices before you needed them and executed them consistently.
Jessica Donahue, PHR, is a Milwaukee-based HR consultant and founder of Adjunct Leadership Consulting, with 15 years of HR experience helping small businesses build and scale their people operations.
Learn more at jessicadonahue.com.
Have a question for Jessica? She welcomes questions from Small Business Milwaukee readers about HR, people operations, and building strong teams. Contact her at [email protected].