Decide when to add a new employee
The economy seems to have finally turned the corner. After years of worrying whether you would make it through the recession, it might finally be time to hire a new employee. Here are some thoughts on whether it really is the right time to increase your payroll.
There three fundamental reasons to hire a new employee:
- The work they do will increase revenue.
- The work they do will result in decreased expenses.
- They will help free up your time so you can work on increasing revenue or decreasing expenses.
There are several ways a new hire can help increase revenue:
- Now that things are loosening up a bit you might be seeing new opportunities to promote your product or service. Since you've been busy running the business, a new hire can help prospect and sell to customers that you haven't had the time to contact. Creating a compensation package that includes sales commissions might be a way to tap into new markets and maximize your bottom line.
- Adding administrative support to help prospect, contact and follow up with potential clients allows your salespeople to spend more time on active sales calls. This additional administrative expense can help increase the flow of customers in your marketing pipeline.
Ways a new hire can help decrease expenses include the following:
- If your business is already in the process of expanding, you are probably feeling the strain of keeping up with the increased workload. This makes the decision to hire a new employee very easy, especially if the amount you are paying in overtime exceeds the cost of an additional worker. The trick is to make sure you have enough work for an additional employee going forward.
- Subcontracting work to an outside vendor is a great strategy when you don't need that specific skill on a regular basis. When your subcontracting expense exceeds the cost of hiring an employee, however, it makes sense to think about adding someone who has that skill set.
Finally, a new employee can help free up your time by offloading work or giving you a much-deserved break.
Administrative, marketing or payroll are some examples of tasks that you could delegate to another person. Although these activities are necessary to keep the business running, they generally don't add to the bottom line. Hiring someone to handle these tasks should free up time so you can increase the revenue stream or focus on ways to reduce expenses.
Make sure you know the total cost of a new employee before you decide what to do. The hourly rate or annual salary is just the beginning of your expense. Benefits, workers' compensation insurance, office space, overtime, vacation, sick time, travel expenses — these costs can easily add another 75% to 100% in employee expenses to the amount you plan to pay in salary. Forgetting to add these expenses to the total cost of the employee means that you might end up losing money instead of seeing the increase you expected. Reversing a hiring decision is a hard process, so make sure you know the true cost before you make a final decision.
Adding a new employee can have tremendous benefits to your company. Just make sure the person you hire increases the bottom line by more than their total cost.
Consultant Alison Hinson, owner of Alison Hinson MBA LLC, can be reached at ahinson@midmaine.com.
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