Who should you hire?

Hiring your first employee can seem like a big step. But it’s a reflection that your business is growing, so it’s generally good news. Here are some tips on taking the leap – and taking on your first employee.

If you’re having trouble making a decision about whether or not to take on staff, there are some questions you should ask yourself:

In other words, are you missing out on potential business because you’re not employing someone? If so, how much are those missed opportunities costing you?

Take a look at your work/life balance, and examine how you’re feeling on a day-to-day basis. Are you spending most of your days feeling harassed and stretched?

If you’re feeling frustrated because you’re spending so much time on other tasks that you can’t concentrate on what you’re really good at, it’s a good indicator you need someone to take over those tasks.

For example, if your main strength is sales, it doesn’t pay for you to do routine administrative tasks. Why not pay someone $20 per hour to do the work for you, and spend your time developing new business - and in the process generating much more than $20 in that same hour.

When people hesitate to employ staff, it’s usually because:

• They’re concerned with the hassle of ‘paperwork’ – issues such as compliance, PAYE, payroll tasks, KiwiSaver, the various kinds of leave and employment agreements.
• They’re worried they’ll hire the wrong person – and have to deal with issues such as how to dismiss an employee, the possibility of personal grievances, and how to handle it if the employee turns out to be unsuitable.

But these shouldn’t be reasons to decide not to hire staff. If you’ve asked yourself the above questions and they all point to the benefits of taking someone on, put your mind at ease by getting help with employment issues. Sources of help include:

• Business colleagues – talk to people you know who’ve hired staff and take on their advice.
• Your local Chamber of Commerce – becoming a member means you’ve got access to a wide range of support, including recruitment services and employment guidelines.
• The Employers & Manufacturers Association – the EMA provides guides and sample forms on employment relations, as well as networking support and advice.
• Inland Revenue – you can get advice at their Employers section, and you can access their interactive tool for business, which explains your obligations in clear, simple language.

A useful next step is to work out how much extra business an employee would need to bring in to pay for themselves.

• If you’re a service business, you may need to calculate a charge out rate for your employees. For instance, if you're charging an employee's time at $80 an hour and paying them a salary of $50,000 a year, they’ll need to work 625 chargeable hours per year ($50,000 divided by $80) just to recover the cost of their salary. If you think there's not enough work to generate those chargeable hours, you may want to reconsider. (Note that this calculation doesn't include overhead costs or a profit margin - just the bare salary.)
• If you sell products, calculate a break-even point for your employee using your gross profit percentage. For example, if you intend to pay a retail assistant $35,000 per year and your gross profit percentage is 30%, then you must sell an extra $116,667 in the year just to cover the employee's salary ($35,000 divided by 30%).

Once you’ve made the decision to hire an employee, the next step is to determine the type of employment that best suits your business. The most common options are:

• Full-time employee – they are more likely to be loyal and to have a vested interest in the future of the business. A 90 day trial period means you can terminate the agreement if either of you feel it’s not the right fit.
• Part-time employee – this is a good option if you know work is on the increase, but not quite enough to justify a full-time position.
• Fixed term – these work well for projects. You know what your costs will be and when they’ll stop.
• Contractors and subcontractors – also good for project work and there aren’t any employment or compliance issues. However you need to be sure of what really defines a sub-contractor, so check out IRD’s Am I an employer? guide so you don’t get on the wrong side of them.