Jill Seminaris has 15 years' experience in sales, marketing, and customer service. She is also a published poetess.
Well-calculated business decisions don't always involve the responsibility of hiring an employee. There are times an independent contractor is a better fit. Raymond Grainger, founder and CEO of Mavenlink, an online project management software company in Irvine, California, suggests that decision-makers should commit to hiring full-time W-2 employees "if the billable time of current full-time employees is at or above 85 percent and the profit margins are at least 50 percent." Until then, many small businesses have found more success by delegating 30% of their workload to independent contractors, or sub-contractors, rather than committing to hiring an employee for a position-appropriate hourly wage.
If you deprive yourself of outsourcing, and your competitors do not, you are putting yourself out of business.
— Lee Kuan Yew
Independent Contractors Have Valuable Expertise
Hiring an independent contractor (IC) may cost more per hour, but they're typically subject matter experts. Years of professional and/or educational experience usually make independent contractors more valuable (according to Nolo on the Forbes blog), as they are able to produce higher quality work in a shorter period of time, which translates into financial savings and greater profit margins for the companies who hire them on an ad hoc basis. A solid network of independent providers who can take on entire projects or certain elements of a larger project can enable a company to focus on attracting new clients and providing higher quality customer service.
Outsourcing your workload to independent contractors will usually save your company money, both immediately and over a longer period of time. If you belong to a Chamber of Commerce, business networking group, or even a place of worship, consider hiring individuals you already know, trust and admire. Ask for references of their work to determine if you feel they are a good fit for your company.
When hiring independent contractors, there are also important considerations to think about, such as the legal difference between a contractor and an employee, and making sure your business is compliant with tax laws. Carefully assess the growth and expansion your company expects to make, and decide whether or not hiring an employee is the most reasonable way to propel the company toward its desired end-goal. After careful reflection, you may feel it would be best to hire someone on a more permanent basis. If you do choose to hire an employee, this isn't a decision to make lightly.
The True Cost of Hiring an Employee
The true cost of hiring an employee includes:
- Employee wage
- Employer taxes
- Perks an employer may offer, like health or dental benefits
Costs can be divided further into static costs and costs whose amount can vary.
Static Costs: Taxes and Insurance
- Social Security/Medicare
- Federal Unemployment Insurance
- State Unemployment Insurance
- Worker's Comp Insurance
- Disability Insurance
- Local taxes (county, municipal, or school district taxes)
Tax and insurance rates vary by state and according to state laws. Only certain states offer state disability insurance. Though Workers's Comp is required in every other state. it is not required in Texas.
Optional Costs: Employee Benefits
- Medical insurance
- Vision/Dental Insurance
- Retirement or pension plans
- 401(k) match
- Paid holidays
- Paid leave (such as maternity or bereavement)
- Child/elder care
- Tuition reimbursement
- Other perks (incentive travel, bonuses, events, cafeteria or meals, gifts, etc.)
The Cost of a Bad Hire
Here's a fine infographic from Mindflash on the staggering costs of a bad hire.
For optimal growth and expansion, hiring an employee should be viewed as a long-term investment, not a short-term solution. Marian Mueller and Matthew Siegel say "the market demonstrates that companies that systematically cut costs in order to free up funds for growth investment have long-term sustainable financial performance."
A successful leader can define precisely which skills are necessary for the position, and can also identify attitudes and behaviors during the interview process that will qualify a potential candidate as an excellent fit for the position. The hiring process is the most important overall growth strategy a company can have. It's no longer enough to rely on the resume, the interview process, or lofty-sounding questions during the interview process that start with "Tell me about a time when..." Hiring the right team is exponentially profitable in every direction, so it's crucial for a company to know exactly what non-negotiable qualities and skills will make a new hire successful within the organization so that they can zero-in on those qualities during the recruitment process and make the soundest hiring decision.
Successful companies also know that attracting the right talent is a give-and-take. Offering competitive wage-and-benefit packages is a great start, but it's only the beginning.
Increasing in popularity is a focus on creating positive workplace culture, and today's most admired companies know it. Now, perhaps more than ever, it's also vital to the success of any company to have effective management (or if you're a small business, it's incredibly important for you to learn how to be a great manager yourself). Offer more than just great pay and a dental plan, and take pride in creating a space your employees love to be at!
Most companies accept the reality that many employees don't plan on remaining stationary. Therefore, mitigating or preventing high employee turnover can be an enormous component of long-term profitability, and should be a high priority for every business. Hiring decisions require a meticulous evaluation of candidates and involve substantial costs to the employer, thus preventing employee turnover is even more critical for small businesses and entrepreneurs who typically underestimate the difference hiring quality key persons and retaining them can make to their overall growth and success in the long run.
It's important to remember that your employees want and need to feel valued and heard. Great managers don't bark orders and expect to be blindly obeyed. Great leaders understand that it is their sole responsibility to empower and inspire those under their leadership, and in doing so, they boost the business bottom line.
What kind of work environment can you offer? By focusing on creating value to get value, companies are better able to maximize cost effectiveness and return on investment of new hires. Another consideration is whether or not the new hire will improve, rather than depress, office/company morale. An employee's effect on office culture is deeply critical to success in every area of business, especially the productivity of others in the office. It's no secret that when the individuals in a group work in happy symbiosis with one another, company sales and customer service (not to mention the collectively intrinsic satisfaction that comes from success) dramatically improve.
Consider this Sage Advice from Steve Jobs, Creator and Founder of Apple
Whether you decide to keep yourself employee-free for a long as possible or decide to hire someone for long-term assistance, you now have pithy information to ruminate over. Whenever you're in doubt about the legality or fiscal potential of any situation, talk to a qualified, certified public accountant or lawyer. Happy trails!
- 3 Ways Your Company Culture Directly Impacts Your Bottom Line (Inc.com)
- When Does It Make Sense to Pay Employees Above the Average?
- "What It Really Costs to Hire an Employee" by Synergis HR
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.