Hiring employees can be a time-consuming and frustrating process for many small businesses. You can tame this big, hairy monster by using this list to research and plan a successful hiring process. Hiring the wrong people can be one of the most expensive things your business does; hiring the right people saves you time, money, and increases your profits. Fortunately, knowing what to consider before hiring will prevent you from wasting your time and making costly hiring mistakes.
1. Know the Laws
Hiring employees has many legal implications that can cost big money if you aren’t aware of the federal, state, and local requirements. You will need professional advice from an accountant, an attorney, and an insurance broker.
Your accountant will assist you with setting up your Employer Identification Number (EIN), setting up a payroll system, payroll tax withholding for your business as well as for your employees, and filing your required tax forms. Although I don’t recommend a DIY approach, you can visit the IRS’ website for withholding forms and IRS Publication 15, Circular E, Employer’s Tax Guide. You will also need to register with your state’s labor department.
Your attorney will assist you with understanding the federal, state, and local laws that apply. There are hefty penalties for noncompliance that you can avoid by investing a little time to understand the requirements. If you decide to go it alone, federal laws require companies to hire only people who may legally work in the United States. The law requires completing Form I-9 or using E-Verify to prove eligibility. You must also post notices of worker rights for your employees. The Department of Labor provides information about which notices you must display and provides these posters at no cost.
Your insurance broker will help you with workers’ compensation insurance, general liability, and errors and omissions insurance. Hiring employees has risks, and you want to make sure your business is covered and not put in jeopardy if something unexpected occurs. You definitely don’t want to find out you’re not covered after you make a mistake. You may also want to consider offering employee benefits like health, dental, life, and disability insurance as part of your total compensation and benefit package.
Hiring employees costs more than simply paying a salary. Understand all the employment costs involved: employer taxes, federal and state unemployment insurance, benefits, payroll processing, and more. Take a close look at your finances to project your current and future income. You may be able to make payroll in the short-term, but you need to consider your long-term finances so you are not caught short and forced to lay off your employee. Remember, you’ll be paying your employee all year through the peaks and valleys of your business cycle.
If your finances can’t handle a full time employee, you can consider alternatives like part-time or seasonal employees, freelancers, consultants, or temporary workers. If you find that what you can afford to pay a full-time employee is less than the going salary, consider whether you can hire someone with a complementary skillset or a less experienced employee who is smart and a quick learner who can grow into the position.
3. Understand the Cost of Not Hiring Now
- Turning down business and lost sales because you lack capacity;
- Increased overtime costs to serve existing customers;
- Lower productivity due to stress and burnout of existing employees; and
- Decreased customer satisfaction because of overworked employees.
4. Be Clear About Why You Are Hiring and What You Need the Position to Accomplish
Many small businesses hire quickly without carefully considering what they need and who would be the best person to fill that need. You might feel overwhelmed with administrative tasks and rush to hire someone who will ease the burden and take off the pressure. Your business might be better served by hiring someone who complements your skills. For example, if you are not an expert in sales or marketing, you may find that hiring a sales or marketing professional would benefit you more than hiring an administrative professional. Increasing your sales would then allow you the financial means to hire an administrative professional.
A common mistake small businesses make is relying only on education and experience and ignoring personality, attitude, and mindset. We have all worked with that person who has the best technical skills and education, but just never quite fit in. Make a list of the top three to five personality traits and attitudes of your most successful and your least successful employees. When you are interviewing potential employees, make sure you are including these as part of your hiring decision.
6. Learn Objective Interviewing Skills
Most small business owners are not experts in interviewing. Like any skill, it can be built over time and strengthened with consistent practice and refinement. A common mistake is searching the Internet for questions that others say are the “best.” For example, you might find a list of questions that Google uses in their interviews and decide that if they work for Google, they will work for you. Unfortunately, those questions may not work for your unique needs because you are not Google. Your business has a different mission and culture.
The good news is that interviewing is an art that anyone can learn. Spend some time carefully considering the questions you will ask and what information you want those questions to reveal about your candidates. Asking Insightful Interview™ questions will give you a truer picture of your candidate so you can avoid relying on those canned responses every candidate has researched. To see my makeover of a common interview question into an Insightful Interview™ question, click here.
7. Understand the Importance of Reference Checks and Background Screens
The importance of reference checks and background screens can’t be emphasized enough. One of the biggest areas of risk a small business faces is not knowing who they have hired and trusted with the keys to their kingdom. Your employee may have access to your finances, inventory, and customers. You want to verify the information obtained in your hiring process from your employment application, the candidate’s resume, and the interview. It’s always better to trust and verify than to find out later you have hired someone dangerous or who steals from you or your customers. This simple step can save you thousands of dollars for a minimal investment of time and money.
Hire with Confidence
You have a solid foundation to begin hiring. If you’re not quite ready to go it alone and would find it helpful to have someone walk you through the hiring process, visit my website to learn more and schedule your free consultation.