Startup Flight Checklist Item #11: Hiring and Managing People December 27, 2011Posted by Jim Price in Business, Entrepreneurship.
Once again, let’s remember that our purpose with this checklist is to keep the launch of our new business as simple and inexpensive as possible by leveraging existing, easy-to-access infrastructure. In that spirit, let’s look at the arena of human resources.
The Advantages of Outsourcing and Contractors
As your startup business expands beyond just yourself (or you and your cofounder/partner), you need to decide, as you add more people, whether those functions, in the near term at least, can be outsourced. For instance, do you really need to hire a full-time bookkeeper, or can you outsource that to a freelance bookkeeper/accountant for 4-6 hours a month at first? Do you really need to bring on that full-time marketing person, or can you retain a small marketing firm, or hire a freelancer or contractor for a few hours a month instead at first? Is that web development task going to be an ongoing need, or will it be a one-time task you might better address with a short-term contractor rather than a full-time employee? Can you have your product orders packed and shipped by an outside company on an as-needed basis – perhaps more cost-effectively and with better quality control than by hiring full-time people who would be sitting idle when there’s no packing and shipping to be done?
Outsourcing and hiring contractors in this way offers you several important benefits as an entrepreneur:
- It enables you, even as a tiny business, to surround yourself with deep domain expertise at a fraction of the cost of hiring full-time experts in each function.
- At least in the short run, you can avoid the hassles of setting up all the human resources (HR) infrastructure such as benefits, payroll, tax withholding, etc. that you’ll need to do when you hire fulltime people.
- While a given contractor’s services may cost you more per-hour than an internal employee – they, after all, have to charge enough to cover the costs of their own benefits and marketing their services to people like you – you can scale up a contractor’s involvement by a few hours a month as your company grows, rather than needing to consider hiring an entire additional person.
- The cost to your business of an outsourced function is a variable cost – as opposed to the fixed cost of a salaried employee – making it a much more painless proposition to scale back expenses if that becomes necessary.
Things to Consider When You Bring on Full-Time Employees
As your business continues to grow, it will probably make sense at some point to bring on certain people as full-time employees. At that point, you need to understand that you are taking on a number of human-resources (HR) related legal responsibilities.
There are Federal employment and tax regulations to adhere to, and employment law and tax law also varies somewhat state-by-state. But in general, as a business with full-time employees, you will need to pay attention to a new list of concerns, including (but not limited to) the following:
- Employee manual – required by state employment law, detailing all terms of employment, standard work hours, pay policies, policies and procedures, holidays, paid time off, discrimination policies, healthcare benefits, etc., etc.
- Employment agreements
- Confidentiality and non-compete agreements
- Payroll, including automatic deposit
- Tax withholding (Federal and state taxes)
- Payment of payroll withholding taxes
- Healthcare benefits
- COBRA mechanisms
- Retirement benefits
- Other benefits
- …and the list goes on…
Let’s say your small business is the type that, in order to expand marketing and sales, needs to hire representatives in different remote locations around the country. (These days, that can be done pretty cost-efficiently by having your remote-office reps work out of home offices.) In this scenario, you need to be aware that both employment law and tax policies vary on a state-by-state basis, so your business will need to accommodate that administrative complexity.
In general, whether your business has employees in one or multiple locations, I find that a good solution for almost any growing business is to consider third-party administrators, or TPAs, to assist you with specifying, setting up, and administering your human resources administration systems. TPAs are often independent insurance brokerages – a great example is Kapnick Insurance in Southeast Michigan.
This type of firm, I’ve found, is great to work with for a small-to-mid-sized business because they are able to completely spec, outsource-handle and manage many of your HR functions, as follows:
- Complete benefit plan analysis, design and ongoing administration;
- Medical, dental, vision, life, insurance plans, etc., etc.;
- 401k and other savings and retirement;
- HR e-solutions online admin;
- Ongoing employee communications;
Some TPAs will also advise you regarding setting up an employee manual. (As insurance brokers, most will also quote handle your business insurance needs — which has nothing to do with this post — such as general liability, directors’ and officers’ insurance, etc.) Because TPAs tend to be independent agencies, we as entrepreneurs tend to get competitive rates quoted on the various insurance carriers and plans, and working with a “TPA” (third-party administrator) obviates the need for us to go out and try to hire an HR director with expertise in seventeen areas (which no one person could reasonably possess).
Meanwhile, you can go through the cloud to set up and manage your payroll easily and inexpensively. Consider going through Quickbooks/Intuit – or alternatively a vendor such as Paychex or ADP – with biweekly or monthly, automatic deposits into your employees’ bank accounts, complete with the appropriate tax withholdings, along with your vendor making automatic payroll withholding tax payments to the appropriate agencies (the IRS or state tax authorities). You can integrate the payroll transactions transparently with your company’s online bank account, and via the Internet with your accounting and bookkeeping system.