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Human Resources

When to Hire Your First Employee

As a business owner and entrepreneur, you’re probably pretty comfortable being a lone wolf, the one with all the answers, all the control and all the responsibility. But hopefully there will come a time when your business’ needs require hiring some help. How can you be sure it’s the right move? Bringing on an employee will cause changes in your business and working life that you may not be prepared for, so it isn’t a step to be taken lightly. Here are some basic guidelines for knowing when it’s time to hang the “Help Wanted” sign in the window.

Supply v. Demand

In short, you just can’t keep up anymore. In the beginning, you probably had very little trouble keeping up with the demand for your products or services. It wasn’t necessarily easy to handle everything yourself, but in the course of a 50- to 60-hour work week, it was doable. Then comes the tipping point, when your working days stretch longer and longer and your to-do list never seems to end. You may have even been in a few scenarios where you lost money because you couldn’t fulfill an order or take on an interested client.

This is the first sign that you’re ready for some help. In order for your business to continue to grow and for you to stay financially solvent, you’ll need to increase your client list while simultaneously marketing your business to a larger audience. This will of course bring more opportunity and more work your way.

Know When It’s Time

The key to making this first hire is to not wait too long. It’s easy to be so wrapped up in doing business that you forget about the ongoing success of the business. If you wait too long to hire, you may be forced to hire in a time crunch, and that can result in bringing on an employee who is not the right fit. Studies have shown that a bad hire can cost you tens, if not hundreds, of thousands of dollars over time.

Spend some time forecasting upcoming business and your goals for your company. Take a look at your growth over the past six months to a year. Has it been steady? Are there ebbs and flows? Make a few financial projections of future earnings, and determine the increase in manpower required to sustain this growth. Doing this quick review will give you a good idea if your current and projected level of work will justify an employee.

Cost v. Reward

The next thing to truly examine is the cost of adding an employee versus the reward (or increased revenue) of bringing them on board. Remember that the cost of an employee goes beyond just salary. Other expenses to consider are:

  • Employment taxes

Aside from federal taxes, which include social security and Medicare, you’ll also need to account for state taxes as well. The Bureau of Labor Statistics offers a great breakdown of how much it costs per hour for an employee, as well as the difference in costs between salary and benefits. The chart also shows the difference in costs, generally speaking, based on where in the country you’re located.

Of course, the most important factor relating to costs is if you can afford to pay an employee an ongoing salary. If you’re unsure whether or not you could consistently make payroll, it might be best to speak with an accountant.

One way to avoid a long-term commitment upfront is to hire a consultant or freelance employee. Regulations relating to compensation for freelancers are a little more lax and allow you to avoid paying benefit expenses, for example. Hiring a freelancer also allows you to have less responsibility for managing their work, but that also means you have less control over how the work gets done. If you’re looking for someone to handle administrative tasks or data entry, a freelancer might be best. Similarly, if you’re looking for someone to help with advertising or marketing strategy, you might want to work with a consultant, but if you really feel you need someone eight hours a day, five days a week, you’ll probably need to hire a full-time employee.

While their availability may be more limited, there are benefits to hiring a freelancer, namely getting to see someone’s work without having to make a commitment. Often, successful freelance partnerships can lead to finding full-time employees. Also, freelancers are typically tasked with having their own equipment (i.e. computer or other tools to do the job), which may allow you to hold off on making any large investments in more materials.

Set Clear Expectations

Another important factor to consider when looking at hiring is having a clear understanding of what you want the new employee to do. What will the job description look like? How will their performance be evaluated? What are the benchmarks for success you’ll be keeping track of?

Not only will this help immensely during the hiring process, but having an overview of the role, the responsibilities and the requirements will allow you to more accurately develop fair compensation for the employee. To research average salaries for various job titles, check out Glassdoor or Salary.com.

Laying out goals and expectations will also help you to determine how the addition of the employee will impact your bottom line. If he or she is directly responsible for business development or sales, then obviously their impact on your overall revenue will be greater than if they are coming on as a support person. This will further help you decide if you can sustain a full-time employee with a regular paycheck.

Hiring an employee is an exciting and nerve-wracking time for any business owner. With forethought and planning, it can easily be one of the best decisions you’ll ever make.