This article examines human resource management (HRM) practices in small and medium-sized enterprises (SMEs). In particular, by examining the issue of causal order, it addresses a significant gap in the extant HRM–performance literature within the context of such firms. Significant simultaneous and longitudinal relationships between HRM practices and specific performance indicators are found. Controlling for past performance and thus, testing for the potential for reverse causality does not eliminate the significant relationship between human resource practices and performance. In sum, the use of human resource practices is found to positively enhance sustained competitive advantage. By explicitly examining the issue of causality in the human resources –performance relationship, this article makes a contribution to both the human resource and SME literatures.