Every entrepreneur reaches that point in their pathway in which they know they need help. They need software written, their website managed, customers tended to, and orders sent out. When the few people they have on their side are no longer enough to keep their ship going, the new dilemma is knowing when it's time to begin hiring full time employees or contractors onto the crew. There may never be the perfect moment of realization, but below are some tips from entrepreneurs on when they realized it was time.
Rescue a CEO and CEO Blog Nation asked entrepreneurs for their tips on how they knew it was time to hire full time employees or contractors.
Consider the numbers
It is time to consider hiring full-time employees when you can cover the the cost of their full-time salary and benefits (approx. 20% of their salary) without stressing or taking out a loan. Work hard and build up a savings so you don't have to go into debt. Remember, not all new hires workout so you don't want to be under financial pressure of paying for their salary when they are on probation.
Thanks to Sandy Arons, Arons & Associates
Three specific rules to follow
We have a three very specific rules for whether or not to hire contractors or employees. 1) Can the work stand alone? In our company, people pay us to do a lot of reports. These reports can be done by a single person, have a specific deadline, follow a specific set of expectations and can be estimated down to a specific price. 2) Can we make a buck or not? We estimate everything we do and know our margins using independent contractors and a margin for using employees. Sometimes it makes sense to use an independent contractor if we have better things for our employees to do in house. 3) Does this have a customer component. We never let our independent contractors interface with our customers. If it has a Customer Component we use our own people for that. There’s too much at risk letting an independent contractor reach your customer.
Thanks to Mike Robinson, Permit Place
Look at how your business functions
As a general rule, the more control your business has over the individual, for example in how and when they do their work, what equipment they use, how they represent your business, whether they can do work for anyone else, or market their ability to do so – the more likely they are to truly be employees, not contractors. Some businesses go to great lengths to build contracts that they think will protect them from claims that their contractors are really employees – the bottom line is that until you have a dissatisfied “contractor” (who could really be an employee), you won't know whether you are really protected from tax implications, and sham contracting arrangements under the Fair Work Act.
Thanks to Yvonne Walker, HR With Ease
Considering your revenue
When I got too busy to complete my monthly workload and had enough revenues coming in to cover my essentials, it was time to bring on contractors who could take over specialty tasks at a lower hourly rate than I was charging. When it got to the point where I was consistently spending enough on monthly contractors to cover the cost of a full-time employee, we made the switch. In both instances it freed up my time to do more business development and marketing and spend more time nurturing prospective clients.
Thanks to Kane Jamison, Content Harmony
Weighing the choice against the return
This topic of when a company should select a contractor is close to my heart. When I founded Striking Project Management, it was to fill a need in the market, by offering short term specialist project management contractors on a per project basis. This allowed our customers to gain access to highly skilled contractors for short contracts that they would normally not be able to afford. I have also had to decide first hand whether to hire permanent staff or contract staff and during these current times of uncertainty, I felt much more comfortable hiring contractors. This is because not only does allow extra flexibility in my resourcing, but both parties can agree upfront when the contract will end, unless circumstances require otherwise. In both cases, hiring for my own business, or talking through the options with our clients, the decision needs to be weighed against return. The contractor or employee needs to generate some kind of return for the services rendered. If the engagement is project in nature (shorter term and higher risk), or requires a specialised skill set, then it is more likely that a contractor will yield a greater return to the business.
Thanks to Chris O'Halloran, Striking Project Management
Forecast your revenue
So, first things first, can you afford an employee and what are the alternatives if you can’t? The best place to start is to forecast your revenue targets for the next 12 months and then add in an assumption of, if I have someone to do X, enabling me to do Y, what impact would this have to my forecast? I am assuming here that you have a business plan and if you don’t you should have. Then it is the choice between contractor or full time employee, it largely depends on whether the need or role is substantive and ongoing. A contractor gives you the flexibility to terminate more easily and does not carry the same level of protection as an employee such as annual leave, personal leave and termination provisions and protections.
Thanks to Natasha Hawker, Employee Matters Pty Ltd
Whether you need a specific skill
As an employer/ business owner, consider whether the skills the business needs are project specific and whether this skill is needed for a specific limited time period or needed repetitively over a longer time period. If the first two conditions – then typically a contractor will serve the role well. If it is needed over a prolonged period of time, then employment is probably a better option.
Thanks to Lisa Chenofsky Singer, Chenofsky Singer & Associates LLC
Calculate how much work you can
Most people who start small businesses work like dogs and only hire someone after they finally hit rock-bottom with exhaustion. What they should be doing is a quick calculation (before even starting the business) about how many billable hours it will take to make enough money and how many non-billable hours it will take to run the business and get clients/customers. If those add up to more hours than one person can work, then you must hire someone else. It's just math.
Thanks to Oscia Wilson, AIA, Boiled Architecture
Consider the difference between contractor/employee
If you need a full time employee to do a job, hire one. If you don't have an ongoing need, a contractor is a better deal. When I built the IT department at a former employer, I hired full time staff I needed to run day to day operations. We were installing an ERP (Enterprise Resource Planning) system. For those components that didn't require ongoing support, I hired contractors to do the work. Consequently, my IT department ran at less than half the industry average cost for my entire tenure in that position.
Thanks to Greg Gottsacker, North Star Business Systems
It's all about payment
I decided to go on my own when the right opportunity arose and when I heard my company was selling my division and most consultants were going to be laid off. Once I decided to make the leap into entrepreneurship I knew I had to work most of the jury trials myself and that at one point I would have to sub-contract some of the work. It only took 3 months into my business to have to sub-contract a trial to another colleague in the field. I have met this consultant while doing a trial in Broward County, Florida and he was working for opposing counsel. After speaking with him we became acquainted and kept in touch. He seemed knowledgeable just like myself and capable to handle the type of trials I would not mind sub-contracting. When the opportunity of 2 trials on the same week came I immediately reached out to him to see if he can cover for me. I was somewhat hesitant to sub-contract any work with the fear he might try to steal the client from under me. With that fear in mind, I decided to have a Non-Compete drafted by an attorney and have it ready so that he can sign it and I can protect my investment on the client. Once he signed it he has been able to work some trials for me last year and I have been successful on keeping this client happy and know that he can rely on my company to cover his trials. I just had another consultant sign a Non-Compete contract because I am now covering a very long trial and I need even more coverage. Now, I am at the point that I am considering hiring a full-time consultant to cover trials and offer a full-time salary plus a percentage of the billings. I am having an accountant research the financials for me to make an informed decision as to that possibility and it looks like we are headed in that direction. I am also making sure we have the money available to pay a salary for one year with the company's own money as well as obtaining a line of credit for the slower months.
Thanks to Denisse Higgins, ASAP Trial Technologies, Inc.