Starting A Small Business: Hiring Employees
By Amy Fontinelle
For some businesses, employees are a necessity right off the bat - it's impossible to run a popular restaurant or even a small coffee shop single-handedly. For other businesses, employees are more of a luxury - as much as you 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 comes with freedom. For more insight, read Freelance Careers: Look Before You Leap.)
Here are the main issues you should consider if you're thinking about hiring employees.
Do You Want Help?
This might sound like a no-brainer, but employees aren't for everyone. If you like to work alone, there's no reason you shouldn't - it's your business, after all. You can finally escape gossiping co-workers and office 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, 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 would 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 a 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 place to work, their own supplies and wages or a salary. Then there are the payroll taxes, unemployment insurance, workers compensation and possibly health insurance and other potential benefits you'll have to provide. In other words, if you hire someone to help you for $10 an hour, their actual cost to you will be a lot higher than $10 an hour. If that employee really costs you $20 an hour, will he or she bring enough value to your business? 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 design the dining room, market the restaurant, buy the food, keep the books, do the prep work, cook, wait 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.
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 do with help, consider hiring temporary help, virtual help or an independent contractor/freelancer.
In the case of virtual help, depending on your line of business, this person could be a virtual assistant, writer, researcher, website designer - 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.
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. Just keep in mind that they can be more expensive, as you'll have to pay the temp agency a fee for finding and screening the employee on top of the employee's wages. The nice thing is that 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 do have to be careful not to violate IRS rules regarding independent contractors. 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, that's up next.
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