5 Costly HR Mistakes for SMEs (And How to Avoid Them)
Running a business in New Zealand is no small feat.
You’re juggling clients, cash flow, staff, compliance, and growth, often all before lunch. HR can quickly become something you “mean to get to”… until it becomes urgent.
The reality? Most costly HR issues don’t start as big problems. They start as small oversights.
Over the years, we’ve seen five common HR mistakes that repeatedly trip up small and medium-sized businesses. The good news? All of them are preventable.
Let’s break them down.
1. Non-Compliant Employment Agreements
This is the big one.
Many SMEs are unknowingly using outdated employment agreements that no longer reflect current New Zealand legislation. Often, they’ve been downloaded from the internet, copied from another business, or simply not reviewed in years.
That creates real risk.
If your agreements are missing required clauses or contain invalid provisions, you could find yourself exposed in the event of a dispute.
Employment agreements are not a “set and forget” document. They should evolve as legislation changes and as your business grows.
If you’re unsure what absolutely must be included, we’ve outlined the essentials in our blog: The 10 minimum clauses you must have in your Employment Contracts
At a minimum, agreements should:
Reflect current legislative requirements
Include clear, enforceable clauses
Align with how your business actually operates
Be reviewed regularly
It’s not about overcomplicating things. It’s about getting the foundations right.
Because when things go wrong, your employment agreement is the first document that gets pulled out.
2. Incorrect Use of 90-Day Trials
The reintroduction of universal 90-day trials has given employers more flexibility — but only if implemented correctly.
This is where many businesses come unstuck.
A trial period clause is highly technical. Even small administrative errors can invalidate it entirely. If the agreement isn’t signed before work starts? Invalid. If the wording isn’t compliant? Invalid.
And if it’s invalid, the employee may have full personal grievance rights from day one.
We’ve broken down the nuances in detail in our blog: Navigating the Ins and Outs of 90-Day Trials.
A few key reminders:
The agreement (including the trial clause) must be signed before employment commences.
Good faith obligations still apply.
Other grievance grounds (e.g., discrimination) still exist.
Notice periods must still be honoured.
A 90-day trial is not a shortcut around due process. It’s a tool, and like any tool, it only works if used properly.
3. Missing or Inconsistent Policies (No Employee Handbook)
Without clear policies, expectations become unclear.
And when expectations are unclear, decisions become inconsistent.
Inconsistent decision-making is one of the fastest ways to create frustration, disengagement, and potential legal risk.
An Employee Handbook doesn’t need to be a 200-page corporate document. In fact, it shouldn’t be. For SMEs, it should be practical, accessible, and aligned with your culture.
If you’re wondering whether you really need one, our blog Why You Need an Employee Handbook explains exactly how it protects both your business and your people.
A strong handbook helps you:
Set clear behavioural expectations
Ensure consistency across managers
Support fair performance management
Reflect your mission, values, and culture
Reduce ambiguity during conflict
Think of it as your “how we do things around here” guide.
Without it, managers make it up as they go. And that’s where risk creeps in.
4. Poorly Managed Performance and Conduct Issues
Performance and conduct issues are inevitable. Ignoring them is optional, but costly.
One of the most common mistakes we see is delaying action. Small issues get brushed aside until they become patterns. By then, they feel overwhelming.
On the flip side, some employers jump straight to formal processes without setting expectations clearly or attempting informal management first.
Managing performance well requires:
Clear expectations from the outset
Ongoing feedback
Early documentation of concerns
Fair and consistent process
If this is an area that feels daunting, we’ve covered it in depth in our three-part series:
These blogs walk through informal management, Performance Improvement Plans, formal warnings, and disciplinary outcomes.
When done correctly, performance management:
Improves productivity
Protects team morale
Reduces long-term risk
Strengthens leadership capability
When done poorly? It often leads to personal grievances, team resentment, and unnecessary stress. Burying your head in the sand rarely ends well.
5. Overlooking Psychological Health and Safety
Most businesses understand their obligations around physical health and safety. But fewer recognise their legal duty to protect psychological well-being as well.
Under New Zealand’s Health and Safety framework, employers must take reasonably practicable steps to protect both physical and mental health. This is not just about having an EAP brochure sitting in a drawer.
It’s about actively considering:
Workload and resourcing
Role clarity
Stress management
Workplace culture
Bullying and harassment prevention
Psychological safety
We explore this shift in detail in our blog: The Next Step for Health and Safety – Psychocentric Policies.
Modern workplaces must move beyond incident reporting and hazard registers. A proactive approach to mental well-being is now part of good business practice and good compliance.
Strong psychological health and safety measures:
Reduce burnout
Improve engagement
Strengthen retention
Protect against reputational and legal risk
It’s not a “nice to have.” It’s part of responsible leadership.
The Bottom Line
HR mistakes are rarely intentional.
They usually stem from:
Lack of time
Outdated templates
Uncertainty about legislation
Trying to handle everything in-house
And we understand that. SME leaders are wearing multiple hats every day. But the cost of getting HR wrong can be significant; financially, legally, and culturally. The good news? With the right foundations in place, HR becomes far less reactive and far more strategic.
Clear agreements.
Properly implemented trial periods.
Consistent policies.
Fair performance processes.
Psychologically safe workplaces.
When those pillars are in place, you can focus on what you do best: growing your business.
HR doesn’t have to be hard. But it does need to be done properly. If you’d like support reviewing your agreements, policies, or processes, our team is always here to help.