For some businesses, employees are a necessity right off the bat — it’s impossible to run a restaurant or even a small coffee shop single-handedly. For other businesses, employees are more of a luxury — as much as you might love the idea of a secretary answering your phone and picking up lunch for you, it may not be in your best interest to hire one right off the bat. Still other lines of business, like freelance writing, are well-suited to being one-person operations. (Freelance work is a way to escape the daily grind — but don’t ignore the added responsibility that accompanies that freedom. For more insight, read Freelance Careers: Look Before You Leap.)
Here are the main considerations around hiring employees.
Do You Want Help?
Employees aren’t for everyone. If you like to work alone, work alone, and be happy that you’ve finally escaped gossiping coworkers and workplace politics. And if you’re the type who thinks that a job won’t get done right unless you do it yourself, that’s another reason not to hire employees — at least not in your business’s fragile startup stage.
While hiring someone can bring benefits to your business by increasing your efficiency and freeing you up to do the tasks you’re best suited for, training and managing others does take time, and it also introduces more complexity and risk to your business. If you hire someone you know, you have to think about how a business relationship will affect your personal relationship and vice versa. And when someone else works for you, suddenly the success of your business affects not just you and your family, but also your employee and his or her family. Also, having even one employee dramatically increases the number of government regulations you’ll have to comply with, which takes away time and money from the core operations of your business. And, of course, you’ll have to pay your employee. (Learn more in Identifying And Managing Business Risks.)
Can You Afford Help?
Employees are expensive. They need their own workspace, their own supplies, and wages or a salary. Then there are the payroll taxes, unemployment insurance and workers compensation you’ll have to provide, plus health insurance, retirement benefits, sick leave and vacation time that top prospects will expect. In other words, if you hire someone to help you for $20 an hour, their actual cost to you will be a lot higher. If that employee really costs you $50 an hour, will he or she bring enough value to your business to increase your bottom line? For many startups, the answer is no. (Don’t leave it up to your accountant — owners are ultimately responsible for fulfilling tax obligations. See Small Business Tax Obligations: Payroll Taxes.)
However, some businesses can’t afford not to hire help. If you want to run a restaurant, you can’t expect to stay in business very long if you try to market the restaurant, buy the food, keep the books, do the prep work, cook, wait tables, bus tables and wash dishes all by yourself.
If you have a strong social network, you may be able to convince friends and family members to donate some time to your new business. Think about what you can offer them in return to create a mutually beneficial relationship. But that’s a short-term solution at best.
Differences Between Employees and Independent Contractors
If you’re not ready to make a financial or emotional commitment to an employee but you’d like to see how you perform with help, consider hiring temporary help, virtual help or an independent contractor or freelancer.
In the case of virtual help, this person could be a virtual assistant, writer, researcher, website designer, or anything you need that can be done remotely. If you want to, you can conduct all of your interactions with this person online and through a third-party company. You can hire someone to fill a temporary need, or you can hire them on a trial basis to see how you like having assistance. If money is tight, considering hiring someone overseas who will command a lower wage than a US-based worker would.
Using Temp Agencies
If you prefer to work with a real, live person, you can seek out independent contractors and freelancers in your area. Temp agencies are another source of temporary or even permanent help. This route can be more expensive than hiring on your own, as you’ll have to pay the temp agency a fee for finding and screening the employee on top of the employee’s wages. However, the temp agency will be responsible for handling the employee’s payroll taxes and benefits. That alone can make the temp agency fee worthwhile.
A major benefit of hiring any independent contractor, freelancer, virtual assistant or temporary worker is that you won’t be directly responsible for their payroll taxes, unemployment insurance, workers compensation and so on. Either the agency they work for will provide these things or the worker will be personally responsible for them. You must be careful not to violate IRS rules regarding independent contractors if you go this route. If the IRS determines that you’re treating someone as an independent contractor for tax purposes when their function is really that of an employee, you’ll be responsible for back taxes and fines.
Speaking of taxes, we’ll discuss those next.
Starting A Small Business: Taxes