Are you a budding entrepreneur? If so, you probably already realize that hiring employees to help with your growing business will cost you more than their actual salaries. What other costs do you need to consider? Here are six things that you need to know to determine how much help you can afford to hire.
There are costs involved in finding the right person to work for your company. Not only do you, as a business owner, have to spend your valuable time looking through LinkedIn profiles and resumes, but you also may choose to hire professionals to help with the process.
Maybe you will hire a headhunter or professional recruiter to help you find the right people for the job. Perhaps you will seek new employees by paying to participate in hiring fairs. Maybe you will use paid sites such as Monster, Dice, or ZipRecruiter to collect applications and resumes.
Perhaps you will hire a writer, website designer, and photographer to make sure your LinkedIn profiles and websites look professional and impressive. Remember, you want your future employees to feel as if working for you is an enormous opportunity instead of being a considerable risk.
2. Hiring and Onboarding
Once you have chosen a new employee, the costs begin to grow.
You may have to pay someone to run a background check on your applicants. This is standard practice across a wide variety of industries.
Whether you are your company’s HR department, or you have outsourced these responsibilities to another firm, you will have to spend either your time or money to have your employee ready to work.
Depending upon the industry, it takes an average of 8 to 26 weeks for an employee to gain full productivity. This means that you may not receive any monetary benefits from hiring a new employee until months after they start. If you don’t have much operating cash, this may be a painful transition.
Your employees will expect to receive benefits. These may include health coverage, life insurance, disability insurance, dental plans, retirement plans, gym memberships, and tuition reimbursement. Although the percentage varies based on industry, the Bureau of Labor Statistics says that benefits cost employers 31.4 percent while the actual salary accounts for the remaining 68.6 percent.
This means that if you plan to pay your employee $50,000, plan on spending $15,700 on benefits.
While your employee will pay a percentage of his or her salary to federal and state governments in the form of taxes, business owners are also responsible for taxes as well.
You are required to pay Social Security taxes, which is 6.2 percent up to the annual maximum. You also will pay Medicare taxes, which is 1.45 percent of wages. Together those taxes make up the Federal Insurance Contributions Act, otherwise known as FICA.
Plan on paying federal unemployment taxes (FUTA) and state unemployment taxes (SUI). The SUI tax rates vary from state to state.
6. Space, Equipment, and Transportation
Whether you buy nametags and uniforms or laptops and cell phones, each of your employees will need to be equipped with the tools of the job.
These tools may be a desk and internet access or dog grooming tools. Regardless of the type of business, your employee will need to be provided with the necessary equipment.
Benefits of Hiring Employees
Regardless of the costs, there are benefits of hiring employees for your company.
There are only 24 hours in one day, and you need to take some time to eat and sleep. Hiring employees will allow you to have a little bit of your life back. Life is short. You don’t want to spend every hour of your day at work.
Giving someone a job is hugely satisfying. As an employer, you are helping that individual employee, their families, and your local and state economies.
Even though it may take time, hiring an employee should increase your ability to make money. This is assuming that the cost of hiring an employee is not more than the money he or she will bring in to the business.
Benefits of Hiring Freelancers
Some small business owners are concerned about the high cost of hiring, training, and compensating employees. Instead, they are choosing to hire freelancers to complete some of their business tasks.
The only costs associated with hiring a freelancer is their pay and the amount of time it takes to hire and interact with each freelancer.
Being a small business owner means you have to weigh the pros and cons of each decision continually. Should you hire a new employee or do the work yourself? Is hiring a freelancer instead worth the hassle, or would you rather have one consistent person to help you grow your business? Good luck in making the right decisions.