Many entrepreneurs struggle with the decision to bring on a new employee, whether it’s their first employee or an addition to current staff. That makes sense because it’s a decision with many factors to weigh. Taking the plunge without careful consideration can create more problems for a business than it solves. Below are key topics to consider before you begin the search for a new employee.
8 signs you need to hire
1. Too much work
Are you or your staff overburdened with the current workload? Steady growth can come at the expense of the existing team members, leading to them feeling overwhelmed, overworked, and nearing or at burnout.
Your business might be at this point if:
Your current employees are having trouble keeping up with their job responsibilities.
Breaks are being skipped and lunchtime is worked through.
You have to deny vacation time (including for yourself) due to workload.
Your current employees are taking more sick days or sustaining injuries on the job.
Turnover is high.
You have had to hire multiple contractors or freelancers to fill in (more on this below).
Each of these circumstances can undermine employee morale, productivity, and retention. With today’s tight labor market, you can’t afford to ignore sinking employee satisfaction and engagement.
2. Escalating overtime compensation
Overtime compensation is an easy metric to check and a flashing sign that your employees are overworked, despite appearances to the contrary. After all, some people welcome and thrive in high-stress situations; others don’t want to speak up for fear of seeming like a troublemaker or complainer.
If you’re seeing significant variances in your projected and actual figures for this budget line item, you want to get things back on track before your business starts to experience more repercussions. Look at the areas where overtime is climbing to see if a new hire is warranted, or if other problems are afoot.
3. High-level employees doing lower-level work
When everyone is busy, it can be easy to lose track of exactly what’s eating up their time. But examining how your highest-paid employees spend their days can reveal critical issues.
If you (the small business owner) or other highly-skilled employees are performing administrative tasks that are essential but require low-level skills, that’s counterproductive in the long run. It’s notable that when entrepreneurs launch a one-person business, their passion (and energy) is frequently high enough to fuel them while they necessarily function as a “jack of all trades.” But trying to maintain that status as the business grows can quickly erode both passion and quality of life.
4. Declining customer satisfaction
Pay close attention to the indicators of customer satisfaction—or dissatisfaction. Happy customers are critical for repeat business and word-of-mouth marketing.
The red flags that you’re nearing a danger zone in terms of customer satisfaction include:
Missing deadlines
Not returning phone calls or messages promptly
Deteriorating quality in your product or service
Surging complaints and negative online reviews
Increasing returns and requests for refunds
These are indicators you need more hands on deck.
5. Lost opportunities
Have you identified new business opportunities (whether new customers, new projects with existing customers, new markets, or products), but had to pass for lack of staff? Or perhaps you’ve taken them on and fallen behind (see the bulleted list above).
It’s understandable that a new hire can seem like a new cost center. But, when your limited staff is holding you back from increasing revenue opportunities, it could be time to hire.
6. Skillset gaps
Maybe you’ve taken on new work or have seen more and more lost opportunities that require skills your current staff doesn’t possess, even though they have the time in their schedules. Sometimes you might not notice these gaps until you start to get your business off the ground.
If you have a one-person business, you might soon realize that it’s not the best use of your time to acquire these new skills. You also may discover that you’re better at performing the service or making the product than glad-handing with potential clients or other important aspects of the business.
7. Stagnant revenue
Are you scrambling to maintain your revenue at the current level? Stable revenue is better than declining revenue, but it’s not enough to grow your business, especially when costs are rising. If your revenue has leveled off across the board or, more worrisome, in the areas that drive the greatest share of revenue, then more manpower might be the answer.
This is a sign that can be easy to ignore, particularly in a time of high inflation and uncertain economic trends. Don’t assume that stagnation is out of your hands, though. Dig deep to determine the real root cause(s).
8. Expansion plans
On the other hand, if you’ve seen your small business grow steadily for several periods, that also could signal the need for new staff. It probably means that your current team members are working effectively and efficiently.
If your success means that you’re now ready to launch a new product or service, you could disrupt your smoothly running machine. You may need to start the hiring process before you expand your offerings to avoid overtaxing your employees.
Questions to ask before hiring
Even if you’ve checked “yes” for one or more of the signs above, that doesn’t mean this is the right time for you to hire. Ask yourself the following make-or-break questions first.
Can you afford it?
It’s unwise to bring on a new employee if you can’t readily afford both the visible and the “hidden” costs of hiring (for example, payroll taxes).
You’re probably already aware of the visible costs, including salary or wages and employee benefits (health insurance, dental, vision, paid time off, and retirement plans). But the hidden costs can quickly add up. These include:
Federal Insurance Contributions Act tax (FICA): FICA has two components, Social Security and Medicare. The Social Security tax is 12.4 percent, or 6.2 percent for the employer and 6.2 percent for the employee. This rate is applied to the first $147,000 of your employee’s earnings. The Medicare portion is 2.9 percent of gross wages, again split between the employer and the employee, and it’s applied to every dollar your employee earns.
Federal Unemployment Tax Act (FUTA): The FUTA rate usually equals 0.6 percent of all taxable wages, up to the first $7,000 earned for each employee.
Recruitment costs (for example, background checks, advertising, and recruiters)
Training
Workers’ compensation
Computers and other supplies
When you hire before you’re in a position to comfortably cover all of these costs, you could hurt your cash flow, cut into your profit margins, and eventually be forced to make layoffs.
Note: Depending on your current staff size, a new hire could put your business over the threshold that triggers certain federal and state employment laws. Compliance with those laws may substantially add to your costs. An attorney can help you determine any new legal obligations a new hire might bring.
Do you have enough work?
Take the time to draw up a preliminary job description now, before you make the decision about whether or not to hire. It should include all of the duties, responsibilities, and expectations for the position.
Now ask yourself if it’s a coherent job description, or more of a mishmash of unrelated duties and tasks. Do you see similar positions on job websites? If not, it might be hard to find a person qualified (or willing) to fill your needs.
If it does seem to describe a legitimate, recognizable job, consider whether it constitutes a full-time job (more on this below). Estimate the time required to perform all of the tasks in the description to ensure it does. You don’t want to hire someone for a full-time job that’s really a part-time or temporary position and then have them scrolling their phone while others are working hard.
Would this position generate or save money?
There’s a maxim in business that you should only hire new employees if they will make or save your business money. Otherwise, you’re just assuming higher costs without a sufficient payoff.
So who fulfills this criterion? It generally translates to those positions that will boost your efficiency and productivity, bring in business, or provide critical support. Examples include employees who:
Make the product or provide the service (for example, designers, developers, assemblers, and content producers),
Market the product or service (for example, social media managers, marketing, and sales), or
Support the product or service (for example, customer service representatives and tech support).
Less obvious employees who nonetheless satisfy the test can be those who work in human resources, accounting, or payroll. Their work indirectly allows others to make money by letting them focus on revenue-producing activities. These roles can also save the business money by keeping you out of lawsuits or financial trouble. It’s worth noting, though, that much of this work can be done through automation these days, which saves a lot of time and money.
Where to look: in-house versus new hires
Once you’ve determined that you are indeed ready to add a position, you might wonder whether the best route is to hire externally or to promote from within.
Assuming you have the personnel, there are some obvious benefits to filling a new position by promoting from within. You already know the person and that they’re a good fit with your culture. You know whether they’re dependable and how they handle pressure and interact with others. You can expedite the hiring process, reduce the cost, and eliminate the need for orientation or onboarding.
You might think promoting isn’t an option when you’re hiring due to a skills gap. But there may be advantages to training up a current employee. Such advancement can motivate other employees, who see there’s a ladder to climb at your business, and that people are recognized and rewarded for their efforts. In turn, this improves employee morale and retention.
Internal hires aren’t always the answer, of course, and external hires offer their own advantages. New hires can bring fresh eyes and different perspectives, for example. Plus, promoting from within still leaves you with an empty position to fill and can create unhealthy competition or resentment among other employees, depending on the personalities involved.
Types of employees
As noted above, expanding your team doesn’t have to mean hiring a full-time employee. You have several options, including:
Full-time employees
Full-time employees generally are paid a salary or on an hourly basis. With a salary, you pay them a fixed amount every year. Salaried employees generally are exempt from the federal wage and hour law known as the Fair Labor Standards Act (FLSA), which means you never have to pay them for overtime (state wage and hour laws may vary from the FLSA). Salaried employees generally do, however, receive a full benefits package, and you can’t adjust their compensation from pay period to pay period based on the amount of work performed.
Hourly full-time employees usually are nonexempt, so they’re subject to state and federal wage and hour requirements, including overtime and meal and rest breaks. You can scale their time according to your needs.
Part-time employees
Part-time employees also are nonexempt and typically work fewer than 40 hours per week on an hourly pay basis, with no or reduced benefits. The FLSA doesn’t specify a standard for the number of hours that makes one a part-time worker, but a part-time employee’s hours can affect whether the Affordable Care Act and other employment laws apply.
Contractors or freelancers
In the current labor market, more employers are outsourcing their work to contractors and freelancers. Either can give you access to specialized expertise you can’t afford or don’t need to hire full-time.
Contractors typically work only for your business and for a designated period (say, three months to a year). Freelancers are more like gig workers, working for multiple clients, often on a project basis.
Neither contractors nor freelancers are actually employees of your business. Instead, they’re self-employed and responsible for their own payroll taxes and benefits. You only have to pay them non-employee compensation (but you must be careful not to misclassify employees as contractors).
As a result, contractors and freelancers generally are far less costly than employees. But they can feel less invested and more likely to move on to greener pastures. In addition, the quality of work can vary, so it may take time to find the right fit. You also have less control over how these types of workers get the job done. The greater the control you have, the greater your odds of misclassifying someone who is really an employee.
You may not want to use them for long, but contractors and freelancers can be a great way to test drive the general idea of hiring a new employee or whether a certain individual is the best candidate. For example, can you keep this person busy? Are revenues up or costs down? How do they fit in? You can learn much more about people when they’re in your work environment than in the often artificial atmosphere of a job interview.
