Rice Sullivan & Co.

Affording new staff

Whether you're thinking about adding your first or fiftieth employee, hiring is an important decision with long-term consequences. As many business owners learned in recent years, laying off good, loyal employees can be heartbreaking. So before you add more people to the payroll, ensure you have the resources to pay them.

Employees cost more than an annual paycheck; benefits, payroll taxes and workers' compensation insurance typically add another 20% to the total. Keep in mind, however, that current tax incentives may reduce your hiring costs. For example, if you hire a military veteran who's been unemployed for more than six months, you may be eligible for a Work Opportunity credit as high as $5,600 — and up to $9,600 for hiring qualified "wounded warriors."

Opportunity costs

Need more incentives? Perform a cost-benefit analysis. For example, if you're picking up the slack by performing administrative and bookkeeping tasks yourself, you may have little time left over to manage customer relationships and solicit new business. Consider the cost of lost growth opportunities vs. the cost of hiring a new employee.

Also consider your business's near-term future — say, six months to a year out. Depending on the industry and position, it can take several months to find qualified candidates — not to mention the fact that, if you drag your feet, your forward-looking competitors may beat you to the best talent.

Leading economic indicators such as retail sales and durable goods orders, as well as sector-specific measures, can help guide your growth and productivity projections. But it may be necessary to take a leap of faith and hire new workers before you're certain you have enough work to keep them busy.

Will a temp work?

One option for gun-shy owners is to hire part-time employees. For example, you might start someone at 20 hours a week with the possibility of full-time employment when work picks up. If you're wary of adding an employee to your payroll, employment agencies can be excellent sources of part-time and temporary staffers — particularly administrative, accounting and creative personnel. Keep in mind, however, that you may have to pay a finder's fee if you later decide to hire one of these temps.

Be careful, too, when working with independent contractors. Although they can be lifesavers when you have a short-term project that requires specific skills such as IT or graphic design expertise, these relationships are scrutinized by the IRS. To avoid possible back taxes and penalties, talk with your accountant about how the IRS defines contractors vs. employees.

Making the call

Deciding to hire is a tough call in an uncertain economy. But if you've been short-staffed for a while and your revenue picture is finally improving, it's time to start considering it. •

 

Other articles in the April 2012 Edition of Business Matters: