Kasfia Rashid - “Money Matters with Kash the Bookkeeper”
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Hello! Welcome to Money Matters- Ask the bookkeeper series, the accounting show answering burning accounting questions! You know, the ones you would only ask your best bookkeeping buddy!
Each show will have one main question from the audience with supporting questions from my various travels. Have a question to ask? Don’t be shy, step right on up! You can submit your questions directly to Hello@kashthebookkeeper.com! You may hear your question aired live across the globe!
Somehow we are on week 11 and quickly coming to the end of our season! Eep! Today’s question is a tough one: “When should I start hiring employees?” Hiring employees is a huge and fantastic milestone! ! But it’s also one of the most important tasks you’ll ever undertake. With so few people in your early team, hiring has a huge impact on your business. It costs more than $4,000 on average to hire a new employee! So you don’t want to be one of the 62 percent of small businesses that say they made a bad hiring decision. Many employers say hiring the right person can help you avoid a huge swath of problems later on.
But that’s just the tip of the iceberg with employees. Before hiring, we need to determine why, who, what, when, where … and of course… how much?!?! Oh, and taxes. We can’t forget about taxes!
Show Objectives - The Why
It’s important that small businesses get the timing right when hiring new employees. If an employer hires someone too soon, profits can decline and cash flow can dry up. But if employers wait too long to bring on a new worker, your commitments can outpace your capacity, so unfinished work starts piling up. You should hire new employees when there’s enough work to demand additional help and your financial situation is stable enough to manage the additional cost of a new employee. You should also consider the hidden cost of hiring new employees, including health insurance coverage, training program costs and more. It’s important to hire new employees before you reach a workforce crisis, since it usually takes eight to ten weeks to hire someone, and even longer to properly train them.
These four factors can help you decide when your small business needs to hire new employees:
If you’re considering bringing on new employees, the first thing to do is to take a look at your business’s financial reporting. In particular, examine your company’s revenue and see how it has changed over time. If your business has been steadily growing its revenue over the course of several months, that’s a good sign that your current employees are working efficiently to drive strong growth. This could suggest that in order to continue the pace of growth, you need to scale up your business by hiring new workers.
LIMITED EMPLOYEE CAPACITY
Next, take a look at the capacity of your current employees to evaluate whether it’s time to hire more support. The best way to understand your employees’ current capacity is to speak with them directly, or talk with managers who oversee the workflow of employees. If employees are unable to take on new work or, worse, struggling to manage their current workload, it may signal that you need to create a new job position to keep growing your business.
NEW OPPORTUNITIES ARISE
If your business has the opportunity to offer new services and products to your clients, there’s a good chance you’ll need to hire new staff to accommodate the expansion of your business. If your company is already busy with current business responsibilities, you’ll need to take on more employees to help with the increased workload of expanding your product and service offerings for customers.
NEW SKILLS ARE NEEDED
If your business is expanding to offer new services in order to grow, you should look at the skills and experiences of your current employees. If your new business offerings require a skill set that is lacking in your current staff, you’ll need to hire new workers who are experts in that area, even if you’ve determined your workers may have the capacity to take on new work.
What You Need to Know - The What
Distinguishing between employees and independent contractors can impact your bottom line, as this affects how you withhold taxes and avoid costly legal consequences. Learn the differences before hiring your first employee.
An independent contractor operates under a separate business name from your company and invoices for work completed. Independent contractors can sometimes qualify as employees in a legal sense. The Equal Employment Opportunity Commission created a guide for making the determination.
If your contractor is discovered to meet the legal definition of employee, you may need to pay back taxes and penalties, provide benefits, and reimburse for wages stipulated under the Fair Labor Standards Act.
Independent employees versus contractors
There are lots of rules, but generally:
This is important to understand, because if you’ve identified someone as a contractor but the nature of their work is more like that of an employee, you may need to give them benefits and pay employment taxes.
What You Need to Do - The How
All set? Awesome! Now for the fun stuff! Let’s say you need someone to take over some admin work. You should:
Before finding the right person for the job, you’ll need to create a plan for paying employees. Follow these steps to set up payroll:
The IRS maintains the Employer’s Tax Guide, which provides guidance on all federal tax filing requirements that could apply to the obligations for your small business. Check with your state tax agency for employer filing stipulations.
Step #2. Now ask—are you ready to hire someone?
Is your business actually in a position to hire someone? You ought to think about these questions:
Previous: How do I account for start up costs?
Next: What are some ways to save on taxes?
Written by Kash the bookkeeper
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