Should I Employ Others?
“Overhead Walks On Two Legs” Felix Dennis, How To Be Rich
One of the most difficult decisions for a growing business is whether to take on employees. Here are some of the questions you need to ask.
Employment Obligations
If you take on employees, here are some of the issues to bear in mind…
Cost - an employee will cost you approximately twice what you pay them. So if you pay them £14,000 a year the true overhead cost will be about £28,000. This means that this person either has to make you more than £28,000 a year or save you more than £28,000 a year, otherwise they are a financial drain.
Legal - taking on employees means taking on an open ended commitment to an avalanche of social legislation from a government keen to shift the cost of social policy onto employers. This is a real, future and uncontrollable cost that must be faced if you start to have employees.
Rights - more specifically you will need to provide holidays, pension, sick leave and pay, maternity/paternity provision along with the inevitable health and safety compliance.
Motivation - employees have a different motivation to you. They are not the business owner and will approach their work for you as a job. Even with outstanding employees this motivation can make a big difference.
Anna Prentice started her beauty treatment salon in a mid sized town in Essex. She was very good and clients liked her so it wasn’t long before she needed help. Her first thought was to contact the local college to find someone graduating from a beauty therapist course who would welcome a first job. She found someone ideal and they worked together well. Some time later her new hire announced an impending pregnancy meaning that Anna now had to keep the job open, with attendant costs and hire a replacement. She used the same strategy and found another great person but, inevitably, it happened again. Faced with keeping two roles open Anna swore never to employ anyone again. She has recently found a self employed therapist who is willing to use the treatment rooms three days a week and another who will use it at other times. This means she can offer customers the same range of treatments but with much more flexible (and cheaper) staffing levels.
Alternatives To Employment
Use associates
As a new, small business you can be lean and agile by developing a virtual business. Build alliances with other small businesses who can partner with you. Exchange invoices with each other. Subcontracting in the construction trades and film making has worked this way for years. As a small business working with associates, your structure is far more tax efficient and more importantly, all your associates or colleagues have a very high motivation to deliver results for you and for your clients.
Outsource Your Business
Outsource what you can for a fixed fee. Get support work done by accountants, partners and suppliers who will deliver results and send you an invoice. That way you bear no employment responsibilities AND you get the results you want.
Take a look at www.Guru.com or www.Elance.com for ideas about outsourcing discrete project based or routine tasks. You may be able to buy four hours a week from an expert without the burden of employing them.
Automate Business Processes
Consider whether you can automate any of what you do using the internet. You can find almost anyone to do almost anything for a fixed fee and by using automatic delivery tools you can have very sophisticated customer communications on autopilot.
Grasping The Nettle Of Employment
If you do find yourself having to employ people it is essential that you get good advice. There are three areas of concern:
- Your responsibilities as the employer
- The mechanics of administration (PAYE, pensions etc.)
- Your employee’s rights and duties
The Inland Revenue offer free workshops and extensive online support to new employers and you should take advantage of the support available from your local Business Link adviser. In the beginning you may be able to find freelance HR professionals who can set up your employment process to conform to employment law.
Final Thoughts
Do only what will make you money and save you money - everything else (everyone else) is a cost. Be really sure that people you employ will give you an outstanding return on your investment. It’s not enough to employ someone to get a job done or be a body in a shop - they have to add value to your business. If they don’t then you’ve just inherited a cost that is extremely difficult to get rid of.
