Chances are as the owner of a small business, you’ve taken on a lot of tasks all on your own. That makes sense, but you’re probably also aware that road leads to exhaustion. As your business grows it may make sense to hire employees, which would allow you to increase productivity, help more customers, or bring in new revenue.
Hiring employees requires serious consideration and planning, to ensure your finances can handle the cost of a new worker.
In this guide, we explore financial and non-financial signs your business is ready for an employee, steps you can take to find skilled workers, and tips on determining how and what to pay them. We also go into ways to manage your payroll.
Signs you need extra help
Is any of this familiar to you as a business owner?
- You struggle to keep up with demand
- You’re missing out on opportunities or revenue streams
- You’re having difficulty managing all the work you have to do
- You need someone with special skills beyond your capabilities
- You have no personal time
- Your current team is asking (or begging) for more help
- People are overworked, overwhelmed, or burning out
If you find yourself relating to a few of the above scenarios, it’s time to think about your future.
Honestly evaluate your business
It’s tempting to hire someone new just because your business is busy, but before you do take a look at why you’re busy. It’s possible you’re busy because you have a lot of clients, so you have the revenue to bring people in. But you might also be busy if your processes are inefficient or you have productivity issues.
If you only have one sign or two signs that your business is ready to hire someone, ask whether there are other ways to address the situation before deciding that the answer is to hire someone new.
Using technology or automation to handle regular processes, working with a third party, or hiring someone temporarily could all help you cover the gap until you’re ready for someone permanent.
That said, you may reach a time when you need to explore hiring full-time help, especially if you want your business to grow.
Weigh the costs against the potential benefits
It might be daunting to think about the cost of hiring someone new, but you have to weigh that against the cost of not having them. If you’re missing out on opportunities you could otherwise take advantage of, or simply not able to keep up with demand, then you’re missing out on potential revenue already.
When you first consider whether or not to bring someone else on, don’t just look at their hourly wage or their salary as a marker for whether it’s worth it. Consider what you’re missing out on by not having the right people working for you.
Now that you’ve determined it’s worth it to bring in an employee or two, it’s time to make sure you can afford them.
- Create a budget
You need to ensure you can actually pay an employee, otherwise you’re setting yourself up for disaster. The first step is to create a budget based on your finances as though a new employee has been hired. Factor in their wages and other costs such as benefits, onboarding expenses, and taxes.
- Forecast your revenue
Determine the revenue that could potentially be gained from hiring this new employee. Remember, sales aren’t the only roles that can bring in revenue–although that is a big one. A new hire who frees up your time to take on more sales calls is still helping your revenue, even if they aren’t doing it directly.
Factor in the direct revenue (such as sales this person will make or new partnerships this person will bring in) and the indirect revenue (such as revenue generated when others on your team are freed up to focus on sales).
- See if the new employee would cut other expenses
You don’t have to slash your budget, but does hiring the new employee free up finances that would otherwise go to outside contractors or other service providers? Can they take on tasks that you often outsource?
- Check that your expected revenue covers your expenses
Now review your projected revenue and expenses to ensure the revenue you’ll gain from hiring the employee outweighs any additional costs. If that’s the case, you’re ready to move forward.
- Test setting aside the extra expense
Before you go out and hire someone, decide what you would like to pay them, then set aside that amount on the same schedule that you would be paying them. Let’s say you’re going to pay the new hire $1,500 every two weeks. Set aside $1,500 every two weeks in a special account and do so for at least two months. Doing so will show that you can afford the hire and it means you have a bit of money set aside in case you need it.
Find skilled staff
Skilled staff are very much in demand. That’s great news for them, but it means you may have to be creative when it comes to developing your employee pipeline.
Here are four unique ways to find qualified staff for your business.
- Establish a mentorship program
Mentorship programs take a bit of time to set up, but they are worthwhile in the long run. Not only do you build a solid reputation by giving back to the community, you have access to newly qualified graduates and students to foster relationships with. When you’re ready to hire, they’ll likely be looking for work, and you’ll already have a built-in talent pool to draw from.
Even better, you’ll have trained them so you’ll know what experience they already have, and where they could use additional support.
When you set up a program, encourage your most experienced staff to sign on as mentors. This may be easier to do if you offer an incentive for participation. Next, reach out to nearby colleges and universities that offer relevant training programs to sign up as a mentorship or practicum program.
- Encourage employee referrals
An employee referral program gives you access to top talent, and that talent comes with an already-established level of trust. You trust your staff and they’re likely to refer people to you that they genuinely believe will work well with you and your team.
Ensure your employees understand that anyone they refer to you must have the necessary skills, qualifications, and work experience. Offer an incentive for referring someone who stays with your business for a set amount of time, such as six-months. For example, you could offer the referrer an additional week of paid vacation for the year, or a financial bonus, available after the person referred has worked with you for the minimum period.
- Use your website
Create a careers page on your site, where you include vacancy notifications, application deadlines, and job descriptions. Advertise vacancies on your social media accounts, with links that go back to your careers page.
If you want to create a pool of potential candidates for the future, use the careers page to encourage people to submit their resume even if there are currently no vacancies available. When the time comes for you to hire, you already have a list of people who have shown interest in your business.
- Recruit graduates from local programs
Although new graduates may not have the years of experience you might be looking for, they likely make up for it by having learned the most up-to-date techniques and technologies. That knowledge can be hugely beneficial for your business.
Reach out to people who run or teach in nearby training programs. They may know of recent graduates to recommend for a job, and those graduates will come with the proper certifications and qualifications.
Choose how to compensate employees
There are a few different methods that employers use to pay their employees, and while they may have similarities, they each also have their own implications for your business and its employees. On top of that, there may be a blended model at play, in which you offer two types of compensation at once, such as a wage and bonuses.
How you pay your employees will impact your finances and your reporting requirements.
Read on to learn the differences between the main ways of earning money in the workplace.
- Wages
Most entry-level positions offer an hourly wage in exchange for work. An hourly wage might be $10 per hour. So if the employee works 8 hours that day, they would be compensated $80 for that day (not counting any deductions).
There are minimums set by law which vary depending on where your business operates. Typically, the minimum wage is directly related to the cost of living in that area.
Generally, there are a set number of hours that can be worked in a week, and working beyond that maximum entitles the employee to a higher rate of pay. There may be premiums associated with working undesirable shifts, or an even higher rate of pay that employees are entitled to for working on holidays.
Because of the number of hours worked, the specific days worked, and overtime, the amount an employee will potentially earn each year can vary widely when paid with hourly wages.
- Salary
A salary is the standard compensation for management and upper-level positions. It is an agreed-upon annual total, where a certain number of hours worked per week is expected – typically 35 to 40. There will be other requirements outlined, such as how many days per week are expected.
Depending on the schedule, the total salary is divided into equal payments for each pay period. Often, a salary is agreed to as an annual figure, with the annual salary equally divided by the number of payments. If you pay an employee a salary of $60,000 a year once a month over 12 months, you would pay $5,000 each payment, not accounting for any deductions.
- Commission
Commission is typically a calculated percentage of the value of goods or services sold. It is meant as an incentive to drive employees to make sales. For example, you may offer to pay $1,000 as a commission for each car sold. An employee who sells 10 cars in the pay period would receive $10,000 commission. The amount an employee receives can vary drastically, depending on how well they perform in a pay period.
All earnings made by commission are counted as taxable income.
Some salaried or hourly positions offer a commission on top of regular earnings. However, some positions, especially those in sales, can be based solely upon commission. This means that if the employee doesn’t sell anything, they don’t get paid.
- Bonuses
The idea behind a bonus is to create an incentive to meet a specific goal. It is awarded when a goal has been reached, or evaluated at specific times. Bonuses are offered on top of a wage, salary, or commission, and may be given on an individual basis or for a team or other work group.
Bonuses can be incredibly motivating, but it’s important to keep the goals achievable and ensure employees feel supported in reaching them.
Determining How Much to Pay Your New Hire
Now that you know the different pay structures and have decided on the best structure for your hire, it’s time to determine how much to pay them.
Rather than arbitrarily choosing a number and deciding that’s what the role is worth, do some research to determine how much you should pay, and what you can afford to offer.
You’ll need to know
- what responsibilities the new hire will have
- how much you can afford to pay
- what the competitive rate of pay is
- what value they’ll bring to your business
- what they would reasonably expect to be paid
- Set a clear job description
A clear job description makes it easier for you to set the pay. Write a list of responsibilities you’ll expect the employee to undertake, including a percentage of their time that they should spend on each task. Research similar roles to see what activities are commonly associated with this job at other companies, and how they assign duties. Once you know the activities required, write a job title.
Look at your current business and see where there are gaps that are holding your company back, or activities that you just don’t want to undertake. Conduct a talent gap analysis to determine if there are skills you absolutely need to hire for.
- Research competitive offers
You need to make sure your offer is competitive so you attract the right people while remaining profitable. These days, there are many places you can look to make sure you’re on the right track when it comes to setting wages and salaries.
- The legal requirements
Depending on the job and what you plan to offer, there could be legal requirements that affect how much you must pay. Make sure you’re aware of those rules and are compliant with them.
- Online
The Internet has a lot of information about what to pay your employees. You could look at job websites, which give you the market rates for jobs in your area. You can also do a job search online to see what similar businesses in your area are currently offering–or have offered in the past–for roles similar to the one you’re hiring for.
- Candidates
Job candidates likely have an opinion about how much they should get paid for working with you. This will be based on their education and experience, the local market, and their needs. Before you make an offer, ask about their current salary (including whether they receive a fixed salary or wages), what benefits they receive, and what they would like to earn working for you.
- Know how much you can afford
Outside research is great, but you also need to know if you can afford to pay the new employee. After all, an offer is only good if you can back it up.
You’ll need a calculator–or a trusted bookkeeper or accountant–to determine if you have the profits to pay this employee.
Among the questions to ask:
- How much revenue is the new employee likely to generate?
- What is the anticipated return on your investment?
- How much time will they save you?
- Will it affect how much money you put back into the business annually?
- Will there be enough room in your profits to give this person a raise in a year?
Remember, you may need to factor benefits into their salary, to determine the total cost to you. This might include pension contributions and insurance expenses. As an estimate, take their potential salary and multiply it by 1.4 to get a better sense of the true cost of hiring the person.
- Explore alternatives
Although income is an important factor in any employment decision, it’s not the only thing people consider. Employees may be willing to accept a lower salary if there are other benefits or opportunities for bonuses.
Some employees might be fine taking a lower salary if they have a flexible work schedule, such as working four days a week, or having shorter days. Others might take less in regular income if there’s an opportunity for shares or bonuses. Still others value professional development and would appreciate the chance to take courses and learn new skills.
Manage your payroll process
Payroll management is one of those activities that starts out simply enough. You start your business, hire a few employees, and things move along fairly smoothly. It’s straightforward enough to keep everything in line at first, but what happens to most companies is… they grow!
This is a great thing, but as you add employees your payroll becomes more complicated. No matter how complex it is, it’s vital your payroll is done properly and accurately, otherwise you could wind up facing stiff penalties for not paying employees correctly, for misclassifying workers, or for not remitting government deductions properly.
Here are some tips to manage your payroll administration effectively:
1. Simplify
Many companies, especially small and medium-sized ones, have their own unique ways of managing their payroll, and often those quirks make their payroll more complex or difficult than necessary.
Keep things as simple as possible wherever you can. Among the ways you can do this are keeping all records in one location, and collecting and storing information digitally.
2. Schedule
At least once per year, and preferably more, it’s important that your payroll manager take time to create a payroll calendar. This will allow them to highlight any dates that may cause a lag in your employees getting paid and plan for them.
It will also allow you to plan for any potential shortcomings or other issues that may arise from holiday closures or oddities in the calendar. Making a mistake is a surefire way to lower employee morale, so it’s important to be aware of these dates ahead of time.
3. Automate
The computer can be your best friend. Finding the right software to help with payroll administration will free up valuable time for your team. If your business involves several job sites with workers constantly coming and going, as well as contractors milling about, it gets tough to track everyone manually. An automated system makes the process easier and more efficient.
It also eliminates the potential for human error in payroll processing, and creates a crystal clear picture of your finances.
4. Brush up
Payroll rules and regulations change frequently and for any number of reasons. It’s important to stay informed on any changes in your region and proactively plan for them.
A lot of time can go into correcting a payroll error, so know what’s happening ahead of time to avoid this. With more employees being hired remotely, it’s also important to be aware of any regulations that may pertain to those that are located in a different area from your business.
5. Outsource your payroll
There comes a point for all growing businesses where they have to outsource their payroll processing. If this is you, congratulations! It is truly a milestone.
There are many options out there as far as hiring a payroll firm is concerned. Choose the one best suited to you. This takes the pressure off of you to know all of the nitty gritty details about payroll administration. By outsourcing payroll, you can be sure that your employees will be paid correctly and on time.
Final thoughts
If you’re taking on new employees, you’re at an exciting stage in your business. By following a few tips, you can set yourself up to build your dream team and more effectively manage your payroll.
If you’re looking for payroll solutions, we have the answers. Contact us today to take the first steps toward stress-free payroll management.