Who will do the work, is a question most sole proprietors fail to ask. Doing everything yourself will eventually burn you out. Typically, small businesses only start with a few people. Like one or two who pretty much do everything necessary to get the company up and running. Then as things progress, bringing in outside help becomes an issue. Deciding to hire your first employee means a dramatic increase in costs like payroll tax and expanded insurance coverage and demand in training and employee support.
Yes, an employee can do a lot of work, but they can also take a lot of work. The complexities of employees has crushed plenty of small businesses people. My service companies hiring decisions were governed by two concepts. Will they make me money, and will they make my company look good? During interviews (of both subcontractors and employees), I was always upfront and began with these two questions. Everything else was secondary.
The reason was this company provided high-end real estate services and employees were everything to our image. Basically, it boiled down to this. The better we appeared, the more they trusted us. The more they trusted us, the higher the cost of service. The higher the cost of service, the better the profit. The better the profit, the more we could expand. The more we could expand, the longer we stayed in business. The longer we stayed in business, the more money we made. Thus, these two questions delivered on the purpose behind every business. The first is to meet customer demands. The second to turn a profit. However, before we head out and start hiring people right away, lets take a closer look at what’s involved.
Who will do the work – Differences between Employees and Subcontractors.
- Employees (Common-Law / Statutory) are basically people hired to do jobs over extended periods. The management sets hours, pay, time, location and even what and how they do their jobs.
- Subcontractors are basically qualified people/companies hired to do specific tasks to finish a product or service in a set time. And with little or no supervision.
To know the differences between these two, most countries set policy and rules to govern their difference. In the U.S. it’s the IRS.
Here are 3 Factors of consideration from the IRS
- Behavioral control factors: Type of instructions, Degree of instruction. Evaluation systems and Training.
- Financial controls factors: Significant investment, reimbursed expenses, Opportunities for profit or loss, Services available to market, and Method of payment.
- Type of relationship factors: Written contracts, Employee benefits, Permanency of relationship, Services provided as key activity of the hiring company.
To summarize all these, we are hiring employees if: You dictate various things like when to be there, where they will work, what tools must be used, how to do the job, provide work-related training, reimburse expenses, share profit, set wages, provide benefits, evaluate their work process or work for you over extended simultaneous periods.
If this is the case, you must comply to all State and Federal laws governing employees. For new business owners we refer to this as starting a payroll.
Who will do the work – What’s required under employee payroll rules/expenses
- Employee Information (personal information on W-2’s)
- Hours worked (payable hours employee worked)
- Time off (vacations, sick days, paid leaves)
- Salaries and wage dollar amounts (salaries are fixed, wages are hourly)
- Overtime pay (over 40 hours per week is typically one and a half times normal pay)
- Fringe benefits (health insurance, retirement plans, employee discounts)
- Other pay (tips, commissions, bonuses)
- Garnishment (typically court ordered deductions from specific employees pay)
- Deductions (money deducted for workers taxes including local, state and federal taxes)
- Gross and Net Pay (Track total money paid = Gross, Money after deductions = Net)
- Payroll taxes (FICA = Social Security and Medicare, Unemployment and Disability Insurance)
Who will do the work – Options for help besides employees & subcontractors:
Friends/Family – Bringing either of these into your business, may be somewhat useful. But not without caution or cost. Before getting family and friends involved remember this. The closer the relationship, the deeper the hurt. Especially when they feel taken advantage of.
Partners – Partnerships can be great, if each side has similar if not equal commitments. Like friends and family these can be tricky to navigate, and failure rates are high (up to 70%). However, many great companies required a team to become successful. Maybe you do too.
Outsourcing – Companies that provide help to more specifically targeted areas like process management, logistics, finances etc.
Temporary agencies – These can be a great first step to employees. These “temp agencies” provide the laborers or professionals needed to do pretty much anything you need. They handle the legal issues, paperwork and vetting processes, and you pay a straight forward cost for the help you need. The name temporary refers to shorter periods of work, but work contracts can go longer depending on regional rules.
Consultants – these individuals or firms are more like information brokers focusing on specific needs, not general labor. Their help and advice can bring more efficiency and effectiveness to operations and management. Thus limiting the need for employees.
Gig workers – Independent professionals hired to do specific projects – typically negotiated over short-term contracts. Similar to Subcontractors, but because they are individuals they work more like an independent agent.
Sometimes these additions happen when we have a change in our business model, or even when offering a new product line. However, there is no easy way to determine when and who you need. Good indicators are – Demand surpasses our capacity to respond. New regulations or market shifts demand more staff.
Profitable customers are falling through the cracks. Personal burnout from overworking. And expansion into new areas, we are unable to fulfill ourself. If you answer yes to ANY of these, maybe its time to start looking at delegating out the responsibilities by paying others. This can free you up to focus on the areas that made you successful in the first place. Building a good workplace environment for the team who makes your business possible should never be underestimated.