Taking on your first employee is one of the most important steps in the development of your business. It is a major responsibility and a significant activity for any business. This section outlines the implications of recruiting for your business and highlights the benefits of good recruitment and the costs of getting it wrong.
2. Ready to recruit?
Your business is off the ground and beginning to grow. You’re considering taking on your first employee, but you wonder if now is the right time. If you recruit too early, you may run into cashflow problems. But leave it too late and you may be struggling to keep up with demand.
There are a number of key indicators that may suggest the time is right to start hiring.
Here’s one possible scenario. As the business owner, you are running around doing everything yourself and not keeping up with customer demand. It may be that orders are coming in, but you can’t get them processed quickly enough. Or maybe because your focus is on producing product or delivering the service, the flow of business is drying up. This is a clear indication that you need support.
Alternatively, you may feel overwhelmed by some of the day-to-day practicalities of the business – answering the telephone, keeping the paperwork up-to-date, ordering supplies, booking appointments, doing your accounts, and so on. All of these small, yet important, tasks are getting in the way of developing the business and getting new customers. This is another sure sign that an extra pair of hands could make a difference.
Looking for specific expertise
Another often over-looked reason for recruiting is when you need specific expertise or skills. By its very nature, running a business means that you have to step outside your comfort zone and learn new skills. However, there is a point at which it is more appropriate to bring in someone with expert knowledge in a specific area.
For example, you are spending hours putting presentations together, but using the internet for research and then learning to use the various presentation packages is not your forte. Or maybe you are juggling several different projects, all at different stages of development and with multiple stakeholders, you may be great at delivering, but not so good at ‘juggling’.
In these 2 cases, taking on a presentation specialist or a project manager makes a lot of sense.
3. Business benefits of good recruitment
Having established that you are ready to employ someone, you now need to start the recruitment process. This can be time-consuming and costly, but even more expensive when tackled badly and the wrong person is selected.
A good recruitment process means you attract the right people with the right skills at the right cost and at the right time. They want to be part of your business and are willing and eager to contribute.
Taking time to make sure you select the right person brings a number of positive effects:
- good employees have a higher retention rate and stay longer with your business
- they are generally more confident and can handle multiple tasks and adapt more quickly to new roles
- they become more productive in a shorter period of time
- they are less likely to need constant attention and once they are established require less direct supervision
- they are more likely to contribute actively to the development of the business with ideas to improve productivity and ways of working
- they inspire and help develop other staff
4. Costs of getting it wrong
There are many positive benefits in selecting the right candidate, however it’s worth looking at the costs of getting it wrong and what could happen if you fail to follow a structured recruitment process.
- First the actual costs in financial terms. Reports about how much it costs to hire a new employee vary considerably, from 5% of the employee’s salary to a massive 200%! However, there is absolute agreement that it is an expensive undertaking.
- It also takes considerable time to recruit. This means, as the business owner, you have to take time out of other activities to make it happen.
- You get the wrong person – they may be less productive than you expected, they may not have the skills you were looking for, and they are generally not able to do what you wanted them to do. Not only does this mean you have to compensate for their poor performance, you also have to pick up many of the tasks yourself.
- There is likely to be a financial cost in resolving the situation. At best, you may need to provide additional support to the individual, either personally or through training. At worst, having actually employed them, there are costs in letting them go. You may have to make a redundancy payment, or, if you handle things incorrectly, face an employment tribunal.
- The recruitment exercise has to be repeated – costing more time and money.
- Finally, you should not under-estimate the ‘hassle-factor’ – a lot of effort for little or no return.
5. Implications of recruiting for your business
Recruiting should not be an unconsidered reaction to ‘get the job done’. Take time and think of your ongoing business strategy. Looking at the longer term, ask yourself what you want to achieve and who you need to help you achieve it.
The financial implications of hiring your first employee are significant. As well as the salary and the cost of recruitment itself, there are other costs to consider. The first is tax and National Insurance contributions.
You have to make NI contributions on your employee’s behalf through a PAYE system. This means that you have to set up a payroll scheme with HM Revenue and Customs – full details about this and the current rates of NI contributions are on the GOV.UK website. You can do this yourself, which costs time, or through your accountant, a service for which they charge you. There is also now a requirement to make pension contributions for employees and this has to be factored into your costs.
You are required by law to have employer’s liability insurance in place. Most insurance brokers can arrange this for you. Health and safety regulations have increased in recent years and you have a legal requirement to provide employees with a healthy and safe workplace. Make sure you know how the regulations affect your business – as well as costs, you may have to make adjustments to the way you work.
There are more practical considerations too. Where is your new employee going to work? Do they need a desk, a computer, a uniform or special work-wear, or any specialist equipment? What about training, both now and in the future?
The other financial impact to consider is how an employee is going to affect your cashflow. For many businesses, employee wages are the largest fixed expense and you must have the ongoing cashflow to pay wages and associated costs.
Make sure you are fully aware of all the implications involved in taking on a new employee before you consider taking the plunge. There may be alternatives to full time direct employment that can ease you into becoming an employer.
6. Alternatives to direct employment
One of the most common mistakes that small businesses make is hiring employees before they are ready. Before you take this big step ask yourself ‘is there sustainable work for the employee in the foreseeable future?’
Although you may be struggling to keep pace with the work yourself, or wanting to relinquish some tasks so that you can concentrate on higher-value activity, think carefully about alternatives to employing someone.
Is the role full-time or could it be done on a part-time basis?
Is it a permanent position or only required to cover a specific project or activity?
Is it an ongoing requirement, or for a specific time (seasonal activity), or only occasional?
You may consider using temporary or agency staff to cover a short-term or seasonal need. Freelance staff or associates are ideal to work on ad hoc projects on an as-and-when basis. Some aspects of the business can be outsourced to specialists, such as graphic design, website development or IT maintenance, or to generalist providers such as bookkeepers, administration and secretarial support or telephone answering companies.
Many of these outsourced and ad hoc services can now be purchased ‘at a distance’ using virtual services. Investigate your options fully before deciding to employ someone directly.