Hiring your first employee is always a conundrum.
One one hand, you can continue laboring for 12 hours a day while keeping all the profits and reinvesting into the business, or you can hire someone to take some of the more time-consuming tasks off your plate so you can focus on growing your business.
As if this question weren’t perplexing enough, you also have to consider the benefits and drawbacks of each proposition. For example, if you were to hire someone, are you prepared to offer them a concrete job description?
Many entrepreneurs are so overwhelmed with work that they make a hire without really thinking through the details. This can result in wasted time, wasted energy and wasted money.
Speaking of money—do you really understand all the costs associated with hiring your first employee? The general rule of thumb is that you will pay the employee’s salary, plus another 20 percent for various payroll-related expenses, which can add up fast.
Throw in the costs of recruiting, hiring and training a new worker, as well as the infrastructure and equipment necessary to ensure the success of that new employee, and your first-year costs could balloon to 25, 30 or even 35 percent of the new employee’s starting salary.
None of that even takes into account the federal requirements necessary to hire an employee. This includes filing an SS4 Form with the IRS to obtain your Employer Identification Number (EIN), set up records for withholding taxes and obtaining workers compensation insurance. The Small Business Administration has excellent information on all the required paperwork that’s necessary before making a hire.
So, while it’s tempting to hire your first employee when you’re feeling overwhelmed, the costs and time associated with adding an employee should be well thought out. Be sure to ask these questions first:
1. Will Your New Hire Have Enough to Do?
If you’re sure you need help—beyond contract labor or outsourcing (which should be your first consideration)—take a look at whether there is truly enough work to bring that person on board.
If you can reasonably fill 30 to 35 hours of the new hire’s time every week, it might make sense to hire full-time. The employee’s remaining five to 10 hours each week can be used to focus on branding, marketing and bringing in more leads.
2. Is There Enough Money to Hire Comfortably?
There are several ways to determine whether you can afford to hire a full-time worker. Generally speaking, you should have about three to six months’ worth of payroll available to you at any given time.
This can come in the form of cash on hand in your bank, open credit lines (that can be paid without carrying balances month-to-month) or accounts receivable. Remember, just being able to pay that person each month isn’t enough.
Benefits should be part of the equation, as should infrastructure. You’ll probably need to provide a computer, a phone, and a workspace (complete with a desk and chair). While these last items are all initial costs that can be paid down, it is still real money you’ll need to factor into your overall hiring plan.
3. Have You Thought About Personnel Policies?
Policies may not sound very appealing to the hip, new startup that wants to stand out as a beacon of workplace freedom, but policies can be your best friend when it comes to the humdrum personnel issues that inevitably arise.
- Will you offer paid holidays?
- What if your new hire seems to be sick a lot?
- What if your new employee posts something on social media that is completely inappropriate?
- What if he or she is frequently late for meetings or appointments?
A handbook of policies can be useful in addressing all of these issues.
4. What Kind of Work Culture Do You Want to Create?
Hiring your first employee will be one of the most important decisions you ever make. Your new employee will become a permanent part of your company’s history, however long or short that may be.
Choose well, and your business will flourish; choose poorly and you may not recover. Your first pick will also determine the kind of culture you foster. It sends a message about the kind of people you want to be in your organization and the kind of culture you want to create.
- Team player? Check.
- Customer friendly? Check.
- Diligent, committed, and willing to learn? Check, check and … check!
Before making a decision about whether to hire, you’ll need to take a hard look at your organization’s numbers. The old adage that you can’t manage what you can’t measure is certainly true.
- How much can you spend on a new hire and still turn a profit?
- How are you spending the bulk of your time?
- How can you be more efficient?
These are a few of the many questions that can help you identify not only whether you need an employee, but also what you’ll need from that person if you do decide to hire.