“Employee Relations in Small & Medium Sized Enterprises”

Learning Objectives

√ Definition of a Small Firm

√ The importance of Small & Medium Sized

Enterprises

√ The necessity for a systematic approach to

the key aspects of human relations in small

firm.

“Employee Relations in Small & Medium Sized Enterprises”

Structure

11.1 Introduction

11.2 What is a small firm?

11.3 Importance of a small firm

11.4 A human resource plan

11.5 Summary

“Employee Relations in Small & Medium Sized Enterprises”

11.1 Introduction

We need to define a small firm first. Then we elaborate employee relations in small firms. The term employee relations is more suitable for small firms compared to industrial relations, as they are managed informally and rarely unionized.

The processes of recruitment, induction, training, issues of pay, communication, work place regulation and trade unionism form the crux of the relations.

“Employee Relations in Small & Medium Sized Enterprises”

11.1 Introduction

Employers neglect employee relations in small firms as their focus is on production & selling and accounting for them. This leads one to believe that small firms have harmonious employee relations.

But if you examine their labour turnover, health & safety records, pay and the number of unfair dismissal cases ; pattern of employee relations in small firms may be worse than many of their larger counterparts.

“Employee Relations in Small & Medium Sized Enterprises”

11.1 Introduction

Small firms are diverse, there are many styles of employment relationships that reflect personalities involved especially those of owner / managers.

Being small in number is not the only determinant of the pattern of employee relations. The industrial sub-culture is also important. The traditions of specific industries exert greater influence on the expectations of the owner / managers and workers.

“Employee Relations in Small & Medium Sized Enterprises”

11.2 What is a small firm?

Parameters that are used to define a small firm are

1} number of employees2} amount of capital invested3} annual turnover or sales4} amount of raw materials utilized and5} degree of mechanization and automation

Any single parameter alone cannot define a small firm.

“Employee Relations in Small & Medium Sized Enterprises”

11.2 What is a small firm?

The most important feature of small & medium sized firm is the personalized form of management, with the owners themselves actively participating in all the aspects of the management.

Unlike larger firms, small firms do not have a personnel department with experts in the field. One of the owners in his ‘spare time’ has to handle recruitment, induction, training, pay revisions, promotions, bonus etc.

“Employee Relations in Small & Medium Sized Enterprises”

11.2 What is a small firm?

It is natural that these important functions are often accorded low priorities. Further the owners are committed to the ‘success’ of the firm so much that it becomes almost an obsession.

In absence of any visible conflicts owners assume that these functions are somehow being carried out.

Some writers conclude that based on ‘close’relations between the owner & the workers, employee relations are better than the impersonal bureaucratic ones in larger firms.

“Employee Relations in Small & Medium Sized Enterprises”

11.3 Importance of a small firm

Small scale sector has emerged as a dynamic & vibrant part of the economy accounting for about 35% of output in the manufacturing sector & over 40% of country’s exports.

The wide sweep of economic reforms encompassing trade, fiscal & monetary policies is expected to have a major impact on small scale sector and will be known later.

“Employee Relations in Small & Medium Sized Enterprises”

11.3 Importance of a small firm?

There are various labour laws affecting small firms like

◘ Factories Act 1948◘ Industrial Disputes Act 1947◘ Industrial Employment [Standing Orders} Act 1946◘ Minimum Wages Act 1948◘ Payment of Wages Act 1936

“Employee Relations in Small & Medium Sized Enterprises”

11.3 Importance of a small firm?

There are various labour laws affecting small firms like

◘ Employees’ PF Act 1952◘ Payment of Gratuity act 1972◘ ESI Act 1926◘ Payment of Bonus Act 1965◘ Trade Unions Act 1926◘ State Shops & Establishment Act

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

The first step in establishing a small firm is to formulate a business plan for output, selling, finance etc. This be supplemented by a human resource plan. Owners are generally reluctant to involve their employees in the planning process, but such involvement assures commitment and enthusiasm from employees.

Such plan should specify the dimension of the workforce , both in terms of quality & quantity

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

RecruitingThe first step is to evaluate the precise

requirements of each job vacancy. This permits the owner to prepare a job description scripting the duties, responsibilities and authority of the position for which the person to be recruited.

This is followed by job specifications which list desired qualifications, experience and personal qualities in the prospective recruit.

While recruiting, help of non formal agencies for recruitment is sought by such firms.

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

Induction

Small firms normally neglect to induct recruits in a formal way. Details of work to be carried are explained to the new entrant and he/she is expected to start work.

However, a proper induction program covering technical & personnel aspects of the job does speed up smooth integration of the recruit into the operations of the small firm.

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

Training

Training assumes more importance in small firm as

there is less division of labour and individual has to carry multiple tasks in a small firm. potential for promotion there is limited

owner is more dependent on employees.Hence employee’s needs have to be identified and

appropriate training has to be imparted.

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

Pay

While as a rule pay levels in small firms are lower compared to larger firms ; there are few high tech small firms that offer salaries that are more than the levels offered by even MNCs.

Formal company level collective bargaining is rare in small firms.

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

Communication

Small firms should not assume that day to day frequent contacts with the employees automatically ensure satisfactory communication.

It is a good practice to set up systematic channels of communication to build high trust working relationships and improve employee commitment to the firm’s goals.

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

Rules & Regulations

With the informality which is the characteristic of a small firm rules & regulations are considered as redundant .

But, especially when there is a breakdown of relationship between owner & employees, rules in areas of discipline & grievance handling become significantly important. The rules should be simple and suit the needs of the individual firm.

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

Trade Unions

Individual membership and recognition of trade unions are less useful in small firms. Most owners see them as irrelevant.

But, if the right atmosphere is created, unions in small firms can play a rightful role & provide an effective channel for communication in the work place. Unions in foreseeable future are not likely to grow in small firm sector as a whole.

“Employee Relations in Small & Medium Sized Enterprises”

11.4 Human Resource Plan

The nature of employee relations in any organization can only be fully understood in the context of , and in relation to, wider socio economic , political and legal structures.

Inter organizational relations play an important part , especially in the case of small firms where their relationships with much bigger firms can have a major bearing on their own labour process characteristics.

“Employee Relations in Small & Medium Sized Enterprises”

11.5 Summary

An over reliance upon the informal or non-formal regulation of employee relations in small firms may yield only precarious harmony. Owners / managers should realize the importance of high trust employment relationships to avoid the pitfalls of the non-formal approach.

The first step, then, is to realize that a systematic personnel management and industrial relations function is necessary.

“Employee Relations in Small & Medium Sized Enterprises”

11.5 Summary

It is possible to develop personnel

practices which are not arbitrary,

nor too bureaucratic.

There should be a level of

informality and systematic

procedures.

“Employee Relations in Small & Medium Sized Enterprises”

The End!

In the next session we cover chapter twelve on

“Labour & the Constitution”

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