Small businesses are often hesitant to hire new employees even when they need to expand their workforce. The true cost of hiring a new employee is more than just their salary so such decisions shouldn’t be taken lightly. In order to make your human resources investment worthwhile ask yourself some pertinent questions regarding your business.
How do you know when you need to hire more employees?
Some business owners hire an entire team of employees when they start a new business while others prefer to wait until they really need to function with a full-fledged team. If you are not sure, consider the following signs that will let you know if it’s time to add to your workforce.
#1: You are losing time on nonessential tasks.
If you are ending your day with a whole lot of unfinished tasks or you are taking work home beyond office hours then it appears that you need additional help. You also need to take on additional staff if you are getting caught up with administrative duties instead of focusing on critical revenue-generating and customer acquiring activities. Remember the 80/20 rule. You should be spending 80 percent of your time on revenue generation activities and building your business. 20 percent of your time should be focused on administrative tasks. If more than 20% of your time is focused on administrative tasks, then it’s time to delegate.
#2: Customer service is getting affected.
An insufficient workforce can result in poor customer service, problems can arise in dealing with current customers and addressing the inquiries of prospective customers. If you have noticed that your organization is struggling with customer service then perhaps it’s time to increase your staff.
#3: Your staff is overworked
This is most often overlooked so take the time to do an inventory of your staff’s current workload. Regularly check if they are struggling to keep up with the demands of their job. Keep an eye out for increased stress levels, lack of attention to detail, or frequent time off due to illness.
Now that you have figured out about the additional staff that you need to improve your business let us look at the true cost of hiring an employee.
What is the true cost of hiring an employee?
The real cost to hire an employee involves factors like benefits, hiring, and training expenses which can significantly add to costs beyond salaries. So what is the true cost of hiring? The average estimated employee cost is 1.25 to 1.4 times base salary or 25-40% over payroll cost per employee. Here are some of the factors that add to the true cost of an employee
#1: Employee Recruitment
Recruitment costs are the first costs that you will incur with a new employee. This is also known as cost-per-hire and is a one-time cost. Recruitment costs include labor for an in-house hiring team, costs for outside hiring agencies, costs for online recruiting services, costs for career events, costs for career events, costs for background checks, and costs for internal referral bonuses. Also calculate the human time it takes to create accounts, job descriptions, and the management of placement. Knowing your cost-per-hire will help with your budget long term.
#2 Onboarding and Training
Businesses spend a lot to hire a new employee, but this investment starts paying off when the employee begins generating revenue. So it makes sense to keep the time-to-productivity short. This is where costs need to be considered, for onboarding and training. If you have a high employee turnover, your costs will increase. Ensure quality onboarding, training and mentoring to lengthen the tenure of your employees within your company.
#3 Payroll Wages and Overtime
Payroll costs are easy to predict and calculate as employee costs as they are straight up. It is the unexpected overtime that can throw your budget out of whack. If your employee is on a salary then overtime costs will be negligible or nonexistent. If they are on an hourly basis this cost can fluctuate and needs to be monitored as they can exceed your budget quickly. Prevent unplanned overtime and excessive shift timings.
#4 Employee Benefits and Perks
Employee benefits vary from company to company and employee to employee. Each employee’s benefits are unique and can vary in complexity. Companies may offer benefits and subsidies that can influence the cost per employee. They are not always easy to calculate as employees do not always avail of their benefits.
Benefits are a crucial part of a recruitment and retention strategy and cannot be avoided. It is equally important to find a good balance to keep your costs in control.
#5 Health Insurance
Health insurance is usually one of the highest expenses after salaries and wages. Some companies offer insurance with a full premium coverage while others offer a limit or percentage. Decide on which unique health insurance strategy works best for you and consider this cost in your employee cost. Seek advice from a professional if you need to.
#6 Retirement Benefits
If your company plans to offer retirement benefits, then this additional cost must be considered in your true cost of an employee. These long term plans are often difficult to predict and include pension plans or outgoing service benefits. Bear in mind the impact on retirement forecasting by ageing, attrition and changing financial structures.
What are the alternatives?
If you are ready to delegate, but feel that you cannot afford a full-time team, there certainly are options. In today’s market, you can find fractional COOs, fractional HR, fractional marketing, or fractional accounting and CFOs. A fractional professional provides you with the ability to get the high level of talent you need to grow your business successfully while keeping your cost low.
If yours is a business that needs fractional accounting and CFO help, we at Accounovation are passionate about helping our clients grow profitably. We also provide businesses with a complete fractional accounting team for the price of a full-time bookkeeper. Get in touch with us at Accounovation.com for a free consultation on how we can assist you with accounting services.