When To Hire an Employee

Kelly Spors, Alexander Huls, Julie Bawden-Davis, Kathy Simpson

For most small business owners, the decision to hire more employees is not a quick or easy one. In fact, while the labor market has made a huge comeback in recent years, many business owners struggle to find qualified employee or are reluctant to add employees to quickly.

The hesitation to take on new employees is understandable: It’s a big decision, and can be a significant cost to the business—once you factor in the salary and extra costs. Moreover, someone will need to spend time training a new employee on the company’s practices and how to do their job. Before you hire another employee, it’s worth asking yourself a few key questions:

Is there enough work to justify it?

You don’t want to spend a full-time salary on an employee who doesn’t actually have enough work to be busy full-time. As a small business owner, it’s important to make sure every cent you pay is worth it. Take a moment to think about what and how much work this hire would be doing. Is it enough to keep them busy for the number of hours you plan to have them work?

Some signs that you might need a new employee including missing deadlines or if you and your employees feel overworked. Also, if you’ve seen an uptick in customer complaints, it may mean that your current staff is stretched too thin. Look closely at the nature of the complaints. Are customers upset about issues that indicate a backed up workflow, such as calls returned in a tardy manner or slow customer service? If so, it might be time to hire a few extra hands.

How much will an employee cost me in total?

Employees cost more than just their salary. There are expenses like computers and office supplies to factor in. There’s also employment insurance and Social Security and Medicare taxes. That all adds up. To understand the real cost, a good rule of thumb is to add anywhere from 18% to 26% to an employee’s potential base salary. At that point, you need to ask yourself, “Can I afford this?” before hiring someone.

What do you want a new hire to bring to your business?

When deciding to hire an employee, don’t do it based on a vague sense of need or a feeling of “Wouldn’t it be nice?” Make very clear to yourself why you need an employee and what you expect them to do for your business. Write it down. This will help confirm (or not) that you really do need an employee. It also has the added perk of outlining the job description that you might have to eventually write. Spelling out very specifically what your expectations are for your new employee, will then help you find your dream candidate.

Considering All Your Options

Once you’ve determined that you need to hire someone, the next step is deciding what type of employee to hire. You shouldn’t automatically assume that you need a new full-time employee. In fact, many companies today rely on various types of workers to fill their talent needs and manage costs. Here’s a look at the types of employees you could hire:

Salaried employees. These workers are paid a fixed amount of compensation per year—such as $50,000—and cannot have that pay reduced for quality or quantity of work. They are generally classified as “exempt,” meaning they are not entitled under federal law to overtime pay for working more than 40 hours per week or breaks for lunch and rest. That said, every state has their own employment laws which override federal law and most employers do allow their salaried employees to take the same breaks as other types of employees. Salaried employees typically work full time—meaning 40 hours a week—and thus are entitled to the full employee benefits package offered by the employer, such as health insurance, retirement plan, and vacation time.

Pros: Salaried workers are committed to working for you and performing their duties regardless of how long it takes them—and you typically don’t have to pay them overtime for working more than 40 hours per week.

Cons: You have less flexibility when it comes to scaling back hours or pay in order to adjust to your company’s ongoing workflow changes.

Hourly employees. These workers are paid by the hour rather than guaranteed a specific amount per year. There is no minimum number of hours they must work—it could be one hour; it could be 40. These workers are generally classified as nonexempt under federal law, meaning they receive overtime pay (at least one-and-a-half times their salary) for working more than 40 hours per week and also must be given a lunch break. Full-time hourly workers generally receive the full range of employee benefits the company offers.

Pros: You can tailor an hourly employee’s schedule to your needs—which may fluctuate—and thus only pay them when you have enough work for them.

Cons: Hourly employees, especially those who don’t work full-time, may feel less invested in the business since they are paid for their time versus their overall output. As nonexempt employees, they are eligible to receive overtime pay.

Part-time employees. These workers work less than 40 hours per week, which is considered full-time. There’s no standard definition of a part-time employee, so employers can determine what qualifies as part-time versus full-time. That might be an employee who works less than 40 hours, or less than 30 hours per week. An employer can also decide how to distinguish between full-timers and part-timers. For example, full-timers often receive the full employee benefits, while a part-timer may receive fewer or no employee benefits. A part-time employee might be salaried, but often they are paid hourly.

Pros: Hiring a part-time employee is usually best when you need to hire someone but can’t easily fill 40 hours per week of their time. Moreover, you may not have to pay them all of the employee benefits that often come with full-time pay. Some people prefer to work part-time in order to balance other priorities in their life, such as family.

Cons: A part-time employee may not feel as invested in the business as a full-time—especially if they’d rather want to work full-time and need to find a second part-time job.

Temporary employees. These workers are only commissioned to work for a business for one year or less, with a specific expiration date—whether that’s in two weeks or eight months. They are eligible to earn leave and are covered by unemployment compensation and Social Security, but are not typically eligible to receive the other employee benefits that permanent employees receive. Many “temps” today are lined up through third-party temp agencies that serve as their direct employer, vetting and paying them on your behalf.

Pros: By taking on temporary employees, you aren’t making a long-term commitment to an employee. If the person doesn’t work out, you can easily let them go and find another temp. You can also use temporary positions to “audition” people for potential more permanent positions in the future.

Cons: Because temporary employees don’t receive a commitment for long-term work, they are more like to quit an assignment early if they find a better job offer.

Independent contractors/freelancers. These aren’t employees at all. They are self-employed and provide their services to companies for usually a set rate—whether that’s by the hour or the project. Because they aren’t employed by you, they are not entitled to any of the benefits of employment—such as unemployment compensation. You do not have to withhold or pay taxes for them as you do with other types of employees. They are must handle estimating and paying their own income taxes and pay all of their own payroll taxes such as Social Security and Medicare. They also typically must buy and use their own equipment and supplies. On the other hand, the federal government has rules and guidelines distinguishing between the treatment of independent contractors and employees. You can’t, for example, require an independent contractor to work certain hours or treat them too similarly to employees.

Pros: You don’t have to pay the costs associated with employment and you can more easily stop working with an independent contractor than a permanent employee. You also have the flexibility to pay them on an as-needed basis, versus committing to providing them with a certain number of hours per week or month.

Cons: Many independent contractors work remotely and thus may not be as ingrained in your company culture and practices as employees. They may not be the right fit if you need someone to work specific hours or want great influence over how work is done.

Interns. These are typically college or high school students—or recent graduates—who want real-world experience working in their chosen field. These positions are considered temporary and may be paid or unpaid. (However, there have been lawsuits from unpaid interns claiming they were unlawfully treated too much like employees—so many employers choose to pay interns at least minimum wage in order to avoid such concerns.) Some employers have just one intern; others hire many at time through an established summer internship program. Many interns expect some form of education wrapped into their work, whether that’s shadowing other employees or having an on-the-job mentor.

Pros: Interns may have valuable fresh perspective and education they can provide to a business or role. And while their job is temporary—meaning no long-term commitment from you—they could end up being future hires.

Cons: For internships to be win-win situations, they require some additional thought and time from the business to ensure the interns receive the enriching experience and on-the-job training and experience they’re looking for.

The decision to hire a new employee shouldn’t be taken lightly, but know that you have many options for filling your workplace talent needs. It makes sense to think about the value of hiring an employee versus the costs involved, while also considering the many types of work arrangements available to you.

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