"Perfection isn’t the goal. Progress with purpose is."

That line came up in a recent conversation with a founder of a mid-sized company. He was trying to scale his team and improve retention without adding headcount to his HR team. It was a familiar challenge, and one that reflects where many small and mid-sized businesses (SMBs) find themselves in 2025.
 

The HR function in these organizations is no longer about just keeping things running. It’s become a strategic force that directly impacts growth, stability, and culture.

And yet, the pressures are real. Talent markets remain volatile. Regulatory requirements are increasingly complex. Employees want flexibility, clarity, and a sense of belonging. And in many cases, SMBs are navigating it all with lean HR teams and limited tech infrastructure.

Let’s explore how SMB HR leaders, particularly CHROs and senior decision-makers, are stepping up to this challenge with creativity, focus, and adaptability.

1. Talent Acquisition: Less Chasing, More Choosing

Hiring has become both urgent and unpredictable. According to data from the U.S. Chamber of Commerce (Q1 2024), the labor market is still tight, with nearly 9.5 million openings and fewer job seekers than needed to fill them.

What are smaller companies doing differently?

Looking beyond the resume
Many hiring teams are shifting focus from rigid experience requirements to values alignment and coachability. PwC’s 2023 “Future of Recruiting” report backs this up; three out of four candidates said they prioritize culture and mission over title or salary.

Speeding up the process with the right tools
SHRM’s 2024 small business survey noted a jump in tech adoption: 61% of SMBs now use at least one automated hiring solution, up 20% in just four years. This includes everything from resume screening to interview coordination.

Getting strategic with fractional roles
SMBs are leaning into flexible staffing models; that is, contract-based specialists, part-time experts, and interim leaders. It's not just a stopgap. It's a model that helps scale without overcommitting.
 

Advisor’s reflection: Forget competing on salaries alone. The best small businesses are winning by hiring people who care about the “why” behind the work, not just the “what.”

2. Retention: Making It Harder for Great People to Leave

Recruiting someone is only half the battle. Keeping them engaged, productive, and committed over time is where HR earns its strategic seat.

What’s driving better retention in 2025?

Flexible work isn’t optional anymore
A 2023 McKinsey study found that 87% of U.S. employees who were offered hybrid or remote work took it. And once it’s offered, pulling it back can cause waves. Smart SMBs are treating flexibility as a baseline expectation, not a perk.

Career conversations—not just annual reviews
LinkedIn Learning’s 2024 report emphasized that companies with strong internal mobility see employees stay nearly twice as long. This doesn’t require elaborate L&D programs. In some cases, it starts with a simple, “What do you want to grow into?”

Personal meaning matters
Deloitte’s recent Human Capital Trends report noted that employees who feel a sense of purpose are four times more likely to stick around. Smaller teams often have a natural advantage here: work feels less transactional and more human.
 

Advisor’s reflection: Retention isn’t about adding more perks. It’s about listening, adapting, and showing people that they matter—consistently and sincerely.

3. Compliance: More Moving Parts, Higher Stakes

Let’s talk about risk. Compliance has quietly become one of the most time-consuming (and costly) challenges facing SMBs, especially those with remote or multi-state teams.

Here’s what’s rising to the top:

Classification clarity
In 2024, the Department of Labor reintroduced a stricter test for deciding who counts as a contractor. This reversed prior loosening under the Trump administration. Misclassification penalties are no joke. Even well-intentioned businesses are getting caught out.

ACA-related audits on the rise
BenefitsPro (2024) reports a 22% increase in Affordable Care Act audits, particularly among companies hovering near the 50-employee threshold. Keeping up with eligibility rules and reporting obligations is now a proactive, not reactive, task.

State-by-state complexity
With remote work here to stay, SMBs with out-of-state hires face overlapping requirements for taxes, leave laws, and employment rights. Regular compliance audits and digital documentation are becoming baseline needs, not luxuries.
 

Advisor’s reflection: Even small compliance mistakes can snowball. Take the time now to review policies, revisit classifications, and lean on external legal guidance where needed. Prevention beats penalties.

4. The Modern CHRO: Less “Head of HR,” More “Co-pilot to the CEO”

In the past, the HR leader in a smaller company might have been focused on hiring, onboarding, and handling issues as they came up. Not anymore.

What’s changing in the CHRO’s role?

Business fluency is a must
According to Gartner’s 2024 data, 67% of CHROs in top-performing companies use HR metrics, like engagement and retention to influence broader business decisions. Not just HR ones. That shift from operational to strategic is crucial.

Proactive talent planning
Some SMBs are adopting quarterly “people audits”—short, focused reviews of team capacity, skill gaps, and succession risks. This kind of cadence helps leaders plan for growth, not just react to turnover.

Leading cultural change
Whether you’re merging teams, entering new markets, or managing scale, the CHRO’s role increasingly involves leading people through uncertainty. It’s part storytelling, part coaching, part operational strategy.
 

Advisor’s reflection The best HR leaders aren’t waiting to be invited into the conversation. They’re bringing insights to the table and connecting the dots between people's decisions and business outcomes.

5. Culture: Less Poster, More Practice

Everyone talks about culture. Few shape it deliberately. In SMBs, culture can shift quickly, sometimes for the better, sometimes not. The organizations that get it right are doing a few things differently.

What makes the difference?

Simple rituals that stick
According to Harvard Business Review (2023), small rituals, like weekly team wins or storytelling during onboarding, help reinforce values far more effectively than a generic mission statement ever could.

Behavior over branding
Employees don’t judge culture by what’s written on the wall. They watch what happens when someone misses a target, pushes back in a meeting, or makes a mistake. Culture is built in the response, not the rhetoric.

Real two-way communication
Whether it's open feedback sessions, skip-level meetings, or anonymous surveys, the companies with healthy cultures are building listening into their leadership habits.
 

Advisor’s reflection: Culture doesn’t scale automatically. You either design it intentionally or risk letting it evolve by accident.

Final Thoughts: A Call to Senior HR Leaders in SMBs

If you're a CHRO or senior HR leader in an SMB, this is a defining moment. You're balancing real operational pressures, such as hiring, compliance and turnover, with a broader strategic mandate: build something resilient, scalable, and human-centered.

And you're doing it without the deep benches or big budgets of a Fortune 500 HR team.

But here’s the truth: your ability to influence the trajectory of the business has never been greater. You're closer to the heartbeat of the organization. You see the gaps early. You understand what people need before the spreadsheets do.

So, the question is:

Are you carving out time to work on the people strategy, not just in it?

Now is the time to step fully into that role. Because when business and people strategy align, everything changes for the better.

Suggested Reads:

• Practical HR Tips For Small Business Owners
• What Small Businesses Should Know About HR Trends In 2025

Author Bio

Ali Jafri is the Director of the Trusted Executive Network (TEN) at HR.com, where he brings senior HR leaders together to exchange ideas, tackle real challenges, and build strong professional connections. With a background in leadership and community-building, he’s focused on creating spaces where meaningful conversations lead to real progress.

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