Craft Venture: Can you Afford to Hire?

Hi everyone!  Im glad youre back for this weeks Craft Venture!  Im Brenda from Phydeaux Designs ““ back to continue our new series on hiring help.  Last week, we talked about the three main characteristics you want your employees to have.  This week, we’re talking about what you can afford to pay an employee.

Before we talk about any more of the nuts and bolts of hiring, you have to make sure you can afford to hire someone!  Many indie business owners have very slim profit margins – do you make enough after your direct costs and overhead expense to pay an employee?

First, let’s talk about what an employee costs.

Let’s say you think you can afford to pay a part-time employee minimum wage, which varies from state to state, and may also vary within your state.  Let’s say that in your state, you have verified that minimum wage is $8.25/hour.

But!  There are more costs than just an hourly wage!  You’ll need to talk with your accountant about the taxes associated with an employee.  Are you required by your state to cover any benefits for your halftime employee?  What about workers compensation?  Will you need to purchase supplies or equipment for your employee (e.g., safety gear, sewing supplies, an extra computer to work from)?  Do you need to send your employee to specialized training (e.g., a class for a specific software program)?  How much of your own time will be spent training your new employee, which will decrease your productivity during that time period?

As a rule of thumb, you can estimate that the annual cost for your employee will be more than 2.5 times the cost of your employee’s wages, including benefits, taxes, equipment, training, etc.  There are 2,080 working hours in a year for a fulltime employee, so with 1,040 working hours for a halftime employee, your $8.25/hour employee’s annual salary is $8,580.  Now multiply that by 2.5 for an annual cost of $21,450.

What!?!

Yes, employees can be very expensive.  If you can’t afford more than two times your state’s minimum wage (which will pay for a very entry level employee), you won’t be able to hire a more skilled employee at $16-20/hour or even more.  The good news is that – for the most part – you won’t be required to pay all of those expenses for your employee.  And if you are, hire someone for less than half time.  Start off small and build up!

This isn’t meant to scare you from hiring help.  I believe you can afford to hire help, as long as you understand your state’s requirements and your costs.  If you don’t have an accountant, talk with your local small business association or equivalent organization.  Talk with other business owners near you.  There’s nearly always a solution for a particular situation!

Please don’t hire out of compliance with your local, state and federal regulations.  Sure, paying people “under the table” (cash payments without record of employment) is easier, cheaper and gets you the help it needs.  However, you don’t want to put your business at risk!

An affordable alternative can be contracting with someone for help.  This is a great way to get skilled labor that will help your business without the same costs associated with a longterm employee.  Typically, contract work has a defined term of time and very specifically defined work.  You and your contractor will sign and date a contract with agreed terms for the labor to be performed.

In the United States, one of the best sources to learn more about the difference between an employee and a contractor is the IRS; ultimately, you want to make sure you’re in compliance with IRS regulations!  If you live outside of the US, check with your country’s equivalent organizations.

A quick word about free internships.  “Hiring” a student or person as an unpaid internship sounds like a great idea, right?  However, this can be very tricky, with complexities at the local, state and federal level.  Internships – paid or not – are primarily intended as learning experiences, rather than as labor.  The previously mentioned resources should be able to help you look at this potential option.

Next week, I’ll walk you through how to define and create a reality-based job (a job that actually exists, for work that you actually need done)!

I’d love to hear more about your experience hiring employees!  If you have questions about any of the above, leave a comment or you can email me directly at brenda { at } phydeauxdesigns.com (if you’d like to remain confidential)!

Image Credit: Heart Sunny Side Up by Pienepoen; Money Jar by paloaltosoftware; 12/365 by Naomi Ruebiber; Calculator from myhosting.com (flickr)

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[…] Can You Afford to Hire? – I’ve been thinking a lot this week about whether it’s time to hire my first employee.  This post gives a great explanation of the true costs of hiring someone (beyond their hourly wage). […]

business buzz 3-26-10 « craftMBA.com – business thinking for designers & makers

[…] Phydeaux Designs – back  for more on our series on hiring help.  Last week, we talked about the true costs of an employee (hint:  it’s not just salary!).  This week, we’ll start to define and create a “reality-based […]

paper n stitch – Craft Venture: creating your new job, part I - A daily dose of handmade, design, and style inspiration
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