10 Reasons It’s Time Hire a New Employee
When is the right time to hire an employee?
A natural part of growing as a small business is the expansion of your workforce, bringing in new people to help growth and drive the business forward to where you want it to be. And there’s only so much you as a business owner can do on your own, before you’ll have to consider hiring a new employee to help with the workload. But how do you know when it’s the right time to bring in someone new?
There’s a fine balance to be struck when considering taking on a new employee, and timing is everything. If you hire someone too soon, you might see your cash flow quickly dry up, but if you wait too long, you might find that unfinished work starts to pile up. The key things to consider when finding the right time to hire an employee is that there’s enough work to demand additional support and your financial situation is stable enough to take on the additional cost of a new employee.
Five main factors to think about when hiring a new employee
Strong growth – This is the very first thing to look at when thinking about hiring someone new. Is your business growing enough of its revenue to accommodate a new employee and their costs? If so, then this is a good sign that you need to scale up your business by hiring new people.
Limited employee capacity – To help make your decision around hiring someone new, it’s best to talk to any existing employees about their workload to understand if there’s a need to bring in a new employee to help. If employees are struggling with their current workloads, it might be time to bring in additional support.
Increases in overtime – This is similar to the previous one in that by looking at how much your existing employees are logging in overtime will give you a good picture around their workloads. It could be that by bringing in a new employee, it works out as more cost effective than paying all that overtime, and supports your employees with stress or fatigue from working too much.
New opportunities – If your business is experiencing new opportunities, for example offering new services or products to customers, this could also be a good indication that it might be time to bring in someone new to support these new ventures.
New skills are needed – And with new opportunities comes the need for new talents and skills within the business. Skills that may not already exist in the business. If you’re looking at your business and finding there’s a prominent skill set that’s missing, then this is also a good sign that it might be time to hire a new employee with the skill set you’re missing.
How do you know if you can afford to hire an employee?
As well as establishing whether it’s the right time to hire a new employee, you also need to consider whether your business can afford to bring in someone new. The financial side of hiring a new employee is one of the most important things to consider when thinking about expanding your workforce. So, it’s worth sitting down with your accounts and putting together a budget, factoring in a new hire, to see what your cash flow could potentially look like before and after hiring a new employee.
After pulling together a budget, you’ll also want to look at forecasting your revenue to see what kind of impact a new employee could have on the growth of the business financially. It’s also worth looking at what additional expenses you could cut or reduce to accommodate for a new employee, especially if the business is in need of the additional support.
Costs involved with hiring a new employee
So, what are the costs of hiring a new employee? Well, there are certain costs that you have to pay, and if you aren’t able to cover these then it might be worth postponing the idea of a new hire for now.
Gross wages – These are fixed and regular payments made to the employee, before taking into account taxes. Wages can be an hourly rate or a salary.
Payroll taxes – You’re required to pay federal and state employer payroll taxes every time you run your payroll. These cover half of your employee’s FICA taxes, which are their Social Security and Medicare costs. The employer FICA rate is 7.65% of an employee’s wages. You will also have to pay FUTA taxes, which is 6% of each employee’s first $7000 in wages. Employers are also required to pay state unemployment insurance (SUI) and any relevant local taxes.
Payroll service expenses – It is possible to process payroll manually, but the majority of business owners tend to opt for a payroll provider that processes everything for them. They can save you heaps of time, but they also come at a cost, which would have to be factored in to budgeting for a new employee. These expenses can range from $30 to $100 per month.
Employee benefits – These aren’t essential or required by law, but they are great for attracting the best talent to work for your business, especially if your business sits in a highly competitive industry. The most common types of employee benefits are: health insurance, life insurance, and retirement plans.
Recruitment & training – Placing job ads or hiring a recruiter can also incur additional fees that need to be taken into account when setting out to find a new employee. And once you’ve hired a new employee, that person needs to be adequately trained in their role and the wider business, which can also be a costly investment.
Hiring a new employee can add up to being quite the costly investment, and for many businesses this may not be a viable option right now. But when the workload is still piling up and you’re struggling to keep everything in the business going, there needs to be another option when it comes to bringing in additional help. And there is!
One thing to consider is whether you need a person to commit to working for you full-time, especially if the need for additional help may just be a short-term need for now. Flexible options, such as part time or temporary contracts, could be something to pursue instead and allows you to increase bandwidth gradually, in line with the growth of your business.
Another alternative option to consider when you don’t have the budget to hire a new employee is the use of freelancers or independent contractors. The advantages with this option is that you can avoid many of the extra taxes, insurance, and payroll processing costs when hiring these types of individuals or organizations. They’re likely to come with a higher rate than what you’d typically pay an hourly employee, but it avoids a lot of the costs and hassle of payroll.
The right time?
Whether you’re looking to bring on your very first employee or your 100th employee, Simple Startup is here to help and support you in making that all important decision. We can help you figure out the ins and outs of hiring a new employee, and whether it’s the right time for your business. We can forecast your future demand for employees and the financial investment involved, with our accounting, fractional support, and financial modelling services. If you’re thinking about hiring a new employee but are still not 100% confident, then grab some time on our calendar and we can support you in the whole process.