[This is the next installment in our series on this topic.]
Mutable law #7: Hire your first employee (and any subsequent ones) only when you have no other choice.
Congratulations! Your business has done well. Youʼve grown your firm to the point where youʼre working way too many hours, but getting rewarded in that the revenue stream is steady and impressive. You feel you are ready to obtain help. This is a big decision for an entrepreneur.
So now you reach that question. Who do you hire?
Many entrepreneurs start with hiring family. Spouses, children, and similar folks can be good choices. In theory, they should be as committed to your success as you are. Of course, there are downsides to hiring family, as you well know by reading this blog and other content on this website.
Another common choice of the newbie entrepreneur for the first employee is a friend. Like family, friends can be incredibly helpful to you. A good friend could become a good employee. But if kids and other family can be minefields or missiles, friends, who are sometimes referred to as your family of choice, can have similar propensities.
Letʼs assume your decision is to hire a stranger, a third-party with whom you have no close relationship. Your first question is whether you put out the word yourself and also do the initial screening and interviewing for your employee, or whether it makes sense to utilize the services of some search firm. Youʼll pay more for the latter, but you will chew up a lot of your time hunting for an employee on your own.
When it comes time for the interviews, unless your background is in HR, youʼre going to have to learn how to interview. You will also need to do a background check to be sure you are not hiring someone whoʼs on the lam from the law over a forgery charge. You will do all the correct analysis, read the background reports, take careful notes during your interviews, check references off the resume, and youʼll make your hiring decision based upon . . . your gut instinct.
Now youʼve hired someone. Youʼll need to get set up to file the appropriate forms for the withholding of income and Social Security tax. As the employer, you now pay a portion of Social Security into the kitty, and also have to pay for unemployment compensation to the feds and your state. Youʼll need workers compensation insurance in case a file cabinet falls on your new secretary. Youʼll have to be sure that you request the proper documentation showing your new employee is a citizen or legally in this country.
Letʼs say you did a great job. You snagged a good person. You waded through all the forms, probably with the help of your accountant or your attorney, and are properly complying with all federal, state, county, municipal, and any other type of regulation
required of employers. Now starts the training. You work with your new hire and over the next several months begin to polish him into a terrific right-hand man for you.
In fact, heʼs so good, that one of the following things is bound to happen:
1. He will leave to secure a job with another company that can pay him a lot more than you can afford.
2. He wonʼt leave for another opportunity if you substantially increase his pay.
3. He wants to stay, but he wants to eventually own a piece of your company.
4. He leaves and sets up a company of his own to compete with you. Because you were only hiring an assistant, you didnʼt have your lawyer draft up an employment agreement that might restrict him from doing this. Or, maybe you have a noncompete that he ignores. And, not only is he a competitor, he starts to steal your customers.
5. He becomes sick and has to leave his position for a period of time but wants to return.
And so on . . .
The hiring process is a bitch. Getting the new employee on board, especially the first one, is a hassle. Setting up the paperwork and getting on the straight and narrow with all of the governmental requirements can be time-consuming and require the assistance of paid professionals. Training the plebe takes effort and can distract you from running your business. During the time it takes to get your recruit up to speed, not only are you paying more of your revenues out in expenses, e.g. salary, but your revenues may suffer as a result of the distraction of the new kid in the office. And finally, turnover, while at a corporate level expected and planned for, can be devastating for the small entrepreneur. If you wind up having to hire three assistants in a year because they keep quitting, the bottom line for your firm for that period is going to look pretty grim.
Yes, hiring is not a fun process. For the small businessman, if the size of the company mandates employees, it is a process that will need to be repeated, time and time again. Your employees will quit. When they quit, replacing them means going through the pain all over again. But what if an employee needs to be let go?
You hired an employee, and he turns out to be a dud. No matter how hard you try, you canʼt seem to train him to do a good job. You have given him lots of opportunities to improve his skills, but sadly, you are realizing that you made a mistake in hiring in the first place. You hired an employee, and he is a nightmare. He engages in one of the following activities (check as many as apply): [ ] he steals from you; [ ] he is disrespectful and insubordinate towards you; [ ] he appears to have an alcohol or substance abuse problem; [ ] he is aggressive and violent; [ ] he is plain lazy.
You hired an employee, anticipating that increasing revenues will allow your business to support the employee as well as you. You find that revenues have flattened out or decreased, and the employee is now making more money than you are. You have to lay off your employee.
Firing, laying off, or otherwise terminating an employee is an unpleasant task. Letting a guy go because you canʼt afford to keep him will not only disappoint him, but can be humiliating for you. After all, this is not a Fortune 500 company. Finding that you canʼt pay an employee can be construed as admitting your failure. Further, the behavioral nightmare can be a hazardous firing — he could take a swing at you. If he has an alcohol or substance problem, you have to check carefully with the law to be sure that the firing is permissible and handled properly. No matter what the reason, a former worker may feel that his firing was unjustified, and may decide to file suit against you for wrongful termination, even if you are in a state that is governed by the employment at will doctrine. Finally, the employee that is a dud, whether male or female, may burst into tears when you fire him or her.
Other than canning someone for stealing from you or punching you out, in many cases the person who does the firing (thatʼs you) will wind up feeling worse about that interaction than the one who was fired (your ex-employee). For even the toughest, thick skinned business person, letting someone go is an emotional deal.
Was hiring that employee a difficult, distracting and draining experience? Wait until you have to terminate him.
Yikes! So whatʼs the bottom line here?
Perhaps one answer is to use as many independent contractors as you can. Your IT guy, accountant/bookkeeper, and even your virtual assistant, need not be employees. True, an in-house person should show extra loyalty, which, combined with training that person to more effectively serve your clients and market you further, could be worth it. A key person can be part of your exit strategy, as you look forward to a sale of your business or your retirement. Our mutable law here is not a prohibition. Rather, itʼs a reminder to tread carefully and thoughtfully.
Employees are like any other relationship. A good employee can be an invaluable asset, and help your business grow exponentially. Synergy can be awesome in a small enterprise. There is a reason why the loyal assistant is humorously referred to as the office wife or office husband. But, a bad fit can be like the problematic boyfriend or girlfriend that you simply canʼt shake. And employees tend to cost more than you initially estimate, adding to your fixed overhead each and every month.
In todayʼs world of technology, virtual assistants, and independent contractors, consider carefully before posting that help wanted sign.