Taking on your first employee is one of the most important steps in the development of your business.
It is a major responsibility and it represents a significant cost. But becoming an employer is also often the only way that you can help to ensure that your business reaches its true potential.
Small firms tend to find it difficult to hire in an efficient manner. A lack of experience in both recruitment and employee management mean that many small businesses fail to get the best out of their employee – or that they hire the wrong person at the wrong time.
So how can you ensure that you make the most out of your first hire?
When should I start hiring?
This is a very tricky question. It is common for small businesses to begin hiring either too early, or too late. The former can cause cashflow problems, while the latter can mean that the business is unable to deal with demand or fulfil its potential.
There is a range of potential indicators that may suggest the time is right to begin hiring. It may be, for example, that you simply lack the manpower to deal with demand, particularly if you work in a consumer-facing industry. Alternatively, you might want to employ someone who can take up some of the day-to-day practicalities, in order to allow you to concentrate on business development or finding new leads.
An often overlooked indicator, however, is a need for specific expertise. By its very nature, running a business requires entrepreneurs to step outside their comfort zone and learn new skills. But there may well come a point at which you need to call on someone with expert knowledge in a specific area. At this time you will need to consider whether you can contract with a third party on an ad hoc basis, or whether you need to hire an employee to help you fulfil that need.
What are the financial implications?
The financial implications of hiring your first employee are significant. Of course, there are obvious costs like the headline salary and the cost of the recruitment itself. But many small businesses forget to factor in other, equally important expenses – only to find that they cannot actually afford their employee a bit further down the line.
In addition to the headline salary, you should make absolutely sure that you understand the added tax burden that will be imposed on you when you become an employer. You will have to make contributions on your employees’ behalf through a PAYE system and, as a result of auto-enrolment, you will soon be forced to make pension contributions for them too. There are also numerous miscellaneous costs that you should take into account, like equipment and training.
How do I get the most out of the employee?
Many first-time employers find, a few months after their first hire, that they are not getting exactly what they needed or expected from their employee. This is a common, but potentially expensive problem.
Managing employees is a unique and difficult task, and one for which you need to be prepared. You are going to spend a significant amount of money hiring and keeping your employee, so it is important that you get what you need from them.
You should begin by setting down on paper exactly what it is that you require from the role. What do you expect to be achieved as a result of the hire? Don’t just write something like ‘an extra pair of hands’. Instead, be specific about the range of tasks that the employee will be expected to complete, or the new expertise that you intend for them to bring to your organisation.
This document is a useful aid in your management of your workforce – but it is also a vital tool for the employee. Make sure that it is fleshed out into a full ‘roles and responsibilities’ sheet for the employee, in order that all parties understand exactly what is expected.
You should also ensure that you carry out regular assessments and appraisals, particularly during the first few months of an individual’s employment. Develop a set of standards and benchmarks against which their performance can be judged. Are tasks being completed in the way in which you had envisaged? If not, what can you do to ensure that the employee is better equipped to fulfil the role? By addressing these issues early in the contract you can help to ensure that problems are nipped in the bud, and that you and your employee both get what you need from the arrangement.
Don’t forget about insurance
Don’t forget that you may need employers liability insurance. Under the UK law employers - with few exceptions - are required to have at least £5 million of employers’ liability insurance, or they may face a fine of up to £2,500 per day. You can get it as part of a comprehensive business insurance policy, together with other covers, such as public liability insurance.