What You Need to Know about Bringing Employees into Your Business
If you’re planning to be a successful entrepreneur, you’re going to need the right tools and the right team behind you. Going from a sole trader (and sole employee) to an employer, team leader, and motivator requires a lot of consideration. It requires you delegating control, implementing safeguards to select the right applicant, and accepting the responsibilities that come with being an employer. The Society of Human Resource Management estimates the average cost to recruit an employee to be $4,129 and the cost of making a bad hiring decision to be at least 30 percent of that employee’s first-year earnings. Therefore, the recruitment decision is not one to be taken lightly and should be approached diligently, starting with deciding what the perfect employee for your business looks like.
1 Define What The Best Fit Looks Like For Your Business
To maximize the contribution and working relationship between your business and your employee, you must first hire an employee that is the right fit. This means matching their resume and skills against your business needs, But it also requires looking beyond the resume at their compatibility with your business. You will also need to determine the optimal time commitment of the role you will be recruiting for. Assess whether the job description and its roles require longer hours and constant contact, i.e. a full-time employee. Alternatively, seasonal roles or short term spikes in sales may be better suited for part-time or contract employees. Finally, correlate your business finances and cash flow with the financial commitment required of each of these working patterns. Can you afford a full-time salary and the ensuing benefit required of employers, such as health insurance and a 401 k?
2 Cover Your Legal Bases
As an employer, there are certain legal requirements you will need to fulfill, beginning with securing an Employer Identification Number (EIN) and the issuance of an employment contract or letter in which the agreed working terms are laid out. For permanent or full-time staff, this requirement is particularly relevant during the taxation process. You will also need to retain standard employee details to be included during the business’ tax submission. Finally, as an employer, you are required to meet several health and safety laws, dependent on the industry your business operates in. You are also required to provide adequate protection for your employees in the form of health and/or loss of income insurance. This acts as two-way protection since, according to Cerity.com, workers compensation covers your business for all state benefits, including injury onsite and wage replacement claimed by your employees and subcontractors.
3 Address Your Finance And Tax Obligations
As an employer, you are required to pay payroll taxes, including Social Security, Medicare, and other federal payroll taxes for any employee of your business. For Social Security, the rate is 6.2 percent on the employee’s first $132,900, while the Medicare tax rate is currently 1.45 percent on the first $200,000 of wages. There are also voluntary contributions that you may want to consider offering employees, such as contribution to a retirement plan or additional health insurance.
Finally, assess your business’ cash flow to ensure your business operations can sustain the remuneration package being offered to any employee. In other words, are you making enough profit to allow for the cost of hiring an employee? Keep in mind that the price not only encompasses the employee’s annual salary, but also the cost of benefits attached to the employment, the value of the recruitment process, and any training and facilities you may need to acquire. If the increase in income outweighs the cost of hiring the employee, then you can consider your business to be financially ready to hire someone. For any business, growth is usually welcomed. However, with growth comes increased commitment and the need for more resources, including human resources. Hiring employees is about much more than hiring someone to fill a role: it is about balancing the needs of the employee and your business. It is about fostering a conducive environment for an employee. It is about finding the balance between what your business needs to move forward and what an employee brings to the table.