One hire or fire, more or less, in a business with 250 employees does not have the impact it does on a business with five employees. Needless to say, small business owners need to make early hiring decisions very carefully. Careful hiring is important enough to build it in to your start-up plan.

For one thing, hiring goes beyond the obvious the cost of wage. Every hire has two payrolls: (1) the rate you pay the worker and (2) the extras you pay because of the worker.

  1. For each dollar in payroll, the employer pays 6.2% of the Social Security tax on the first $106,800 of earnings, and Medicare taxes run another 1.45% of all wages. (State taxes are additional and vary from state to state.)
  2. Employers bear the complete cost of Worker’s Compensation insurance, as well as the cost of sick time, vacation time, personal time, and holidays – if offered at all.
  3. The Department of Labor reports line-by-line on costs to employers from region to region. It is a worthy guide to what to expect; for example, even if you share expenses on insurance retirement benefits, the employer will be paying the significantly larger part.

This “second” payroll eludes the employee unless you communicate it. When hiring a new employee, outline the benefits that are contained in this second payroll.  Make sure your paychecks spell out the extras you pay as a way of reminding of these benefits each pay period. Make sure you communicate the second payroll regularly in meetings and bulletins.
However, employer costs in payroll are not the only burden to the employer. Hiring new employees could involve uniforms, or there could be mileage. But, more immediately, hiring will require space, equipment, phones, and office supplies. This is where strategic advice comes in.

  1. Strategic Business Plans for small business should think well enough in advance to include a hiring plan. While it does not etch things in stone, it makes things real and tangible enough to budget accordingly.
  2. Estimate a date for your first hires. Solo entrepreneurs can really manage well independently for quite some time. Technology and software bring many office tasks within hands’ reach, real or virtually. A good date to set for the hiring of your first employee is in advance of the day you can no longer multi-task effectively. This could be when you are threatened with loss of customers or when you can no longer move forward in sales and service. Don’t let that date creep up on you.
  3. Plan early what you want later. You need to visualize your personnel needs. For example, hiring a temp or a low paid clerk may not be the smartest start. Starting on the cheap with someone to tend to your business and answer the phones may be shooting yourself in the foot. You would be smarter to number the tasks you need juggled and, then, price that ability in the market. For example, the hiring needs to be in synch with your equipment, software, and phone applications. You can and will train to product knowledge and customer needs, but it’s worth the cost to recruit to the middle rather than to the bottom. And, you need to have that payroll and its second payroll in your expense plan.

These needs vary from busy sector to business sector, business purpose to business product, but these needs require advice early on.  I like to believe the strategic plans prepared for my clients include flexible, concrete, and achievable personnel projections from day one.

 

By Steven Schlagel