Hiring employees is necessary for expanding and growing your small business. However, the process of hiring new employees entails several costs that need to be carefully calculated and managed. These costs go beyond the employee's salary and benefits and can significantly impact your bottom line if not managed properly.
As a small business owner, it is essential to understand these costs to budget your expenses accordingly and make the right hiring decisions. In this guide, we will discuss the common costs associated with hiring new employees for your small business.
#1. Recruiting and Onboarding Cost
The cost of recruiting and onboarding new employees is the first expense you will incur in the hiring process. This cost includes spending money on job postings on various job boards, recruiting firms, and staffing agencies. Additionally, you'll have to budget for background checks and pre-employment assessments to ensure that you're hiring the right candidate for the job.
Employee onboarding costs include expenses such as hiring bonuses, welcome packages, and socialization events to help new hires feel welcomed and comfortable. You'll also have to spend on training sessions and onboarding software tools to help new hires become productive quickly.
#2. Employee Benefits
Employee benefits, such as health insurance, retirement plans, and paid time off, are essential for attracting and retaining top talent. However, these benefits do come at a cost, and the more benefits you offer, the higher the cost will be. As a small business owner, it is crucial to analyze the benefits you offer to ensure they meet your business's and employees' needs. It would be best to work with an insurance broker to help you choose cost-effective plans to benefit your employees and manage your company's costs.
As an employer, you're responsible for paying payroll taxes on behalf of your employees. Payroll taxes include Federal Insurance Contributions Act (FICA) taxes, federal unemployment taxes (FUTA), and state unemployment taxes. Payroll processing and administration costs include spending on employee payroll software, payroll services, and any third-party labor law compliance solutions.
#4. Equipment and Office Setup
You might have to spend on equipment or adjust your office space to meet your employee's needs, especially if you're hiring remote workers. These expenditures might include buying new workstations, providing employees with laptops and phones, and ensuring that your office space is conducive to remote work. Additionally, you'll have to factor in the cost of installing and maintaining necessary work-from-home technology, such as VPNs and video conferencing software.
Hiring a new employee also comes with legal compliance costs. Small businesses must comply with several federal, state, and local employment laws, including filling forms such as Form W-2, I-9, providing paid sick leave, and providing reasonable accommodations for employees with disabilities. Failing to comply with these legal requirements can result in penalties and legal settlements, which can be costly for your business.
Tips for Finding the Right Team Members
Hiring the right employees for your small business can be a challenging process. However, with careful planning and strategic thinking, you can attract top talent that aligns with your company's goals and culture. Here are some tips based on my research:
Be Clear About the Role: Make sure to use industry-standard or recognizable job titles in your job postings. Avoid gimmicky ones like “social media gurus.” Also, limit your job description to a maximum of six key responsibilities to keep it concise and clear
Adopt an Employee Manual: Create an employee manual tailored to your business and ask your top candidates to read it and ask questions before discussing a job offer. This will give them an understanding of your company's policies and expectations
Know Your Dream Hire: An HR consultant suggests that building a successful small business lies not just in hiring A+ employees but rather in knowing what your dream hire looks like
Always Be Looking for Potential Employees: Don't just wait for job vacancies to start looking for candidates. If you meet someone who might be a great fit for your company, don't assume they're happy in their current role
Find a Loan to Offset the Initial Costs of Hiring Top Talent
Hiring new employees is essential for growing your small business. However, it's crucial to understand the costs associated with hiring and budget accordingly. Understanding the expenses involved in recruiting, onboarding, employee benefits, taxes, and legal compliance can help you make informed decisions about hiring new employees. However, you can use a business loan, such as a working capital loan, to help offset the costs of growing your team. Explore the Fundid Capital Marketplace to find a lender right for your business.