What HR Needs to Look Like in a 5 Person Business
How Small Teams Can Leverage Fractional HR to Stay Compliant, Build Culture, and Focus on Growth
Running a business with just five people means every hire, every process, and every conversation has an outsized impact. While it’s tempting to think HR is only for bigger companies, the reality is that even the smallest teams need intentional HR practices to thrive, avoid legal headaches, and create a positive work environment. Here’s what HR should look like in a five-person business—lean, practical, and focused on what matters most.
Start with the Essentials: What Does HR Need to Cover?
For a five-person business, HR isn’t about bureaucracy—it’s about clarity, compliance, and culture. Here are the non-negotiables:
- Legal Compliance: Even with a tiny team, you must comply with employment laws—think payroll, taxes, labor posters, and safety regulations. This protects your business from costly penalties and builds trust with your employees.
- Payroll and Documentation: Set up a reliable payroll process and keep organized, confidential records for each employee. This includes contracts/offer letters, tax forms (like W-4s or I-9s in the US), and any health or benefits paperwork.
- Basic Policies and Procedures: You don’t need a 50-page handbook, but you do need clear, written policies on work hours, paydays, time off, conduct, and how to handle issues or complaints. A concise employee handbook can be a lifesaver when questions arise.
- Hiring and Onboarding: When every new hire is 20% of your workforce, you can’t afford a misstep. Define your process for recruiting, interviewing, and onboarding. Make sure new employees know what’s expected and feel welcomed into your culture.
- Performance and Feedback: Regular check-ins and feedback matter more than annual reviews. Set clear goals, talk about progress, and address issues early. This keeps everyone aligned and motivated.
How to Make HR Work—Without the Overhead
You don’t need a full-time HR manager. Here’s how to keep things simple and effective:
- Outsource or Automate: Use payroll services or HR software designed for small businesses to handle payroll, benefits, and compliance. Consider fractional or outsourced HR consultants for setup and occasional advice.
- Keep Records Secure: Maintain three separate files per employee: general employment, medical, and I-9/legal documentation. Store them securely and restrict access as appropriate.
- Train the Team: Make sure whoever handles HR tasks (often the owner or office manager) understands the basics of employment law and best practices. A little training goes a long way.
- Review and Adapt: As your business grows or laws change, review your policies and processes. What worked for five people may need updating at ten or twenty.
Why a Fractional HR Consultant Might Be Your Best Asset
For many small business owners, HR falls to the person wearing five other hats—or gets overlooked until there’s a problem. That’s where a fractional HR consultant can make all the difference.
A fractional HR expert brings the structure, compliance, and strategy of a full HR department—without the full-time cost. Whether it’s setting up compliant processes, building a mini employee handbook, conducting an internal audit, or providing on-call support for tricky employee issues, a fractional HR consultant can plug in exactly where you need help most.
They can also serve as a strategic partner—helping you plan growth, manage risk, improve employee retention, and stay ahead of employment law changes. It’s proactive, professional HR tailored to your business size and budget.
Culture Counts—Even with Five People
Culture isn’t just for big companies. In a small team, it’s everything. Define your core values, communication style, and expectations early. This shapes how you hire, how you work together, and how you handle challenges. Defining this vision from the start helps shape HR policies, guide decision-making, and set the tone for how your team will work together.
The Bottom Line
HR in a five-person business is about being proactive, not reactive. Get the basics right—compliance, documentation, clear policies, and regular feedback—and you’ll create a foundation for growth and a healthy team dynamic. Keep it simple, stay organized, and don’t be afraid to ask for expert help when you need it. Your future self (and your team) will thank you.
