If you find that you have more work than you can handle, or your staff are feeling overwhelmed, it might be time to increase your workforce. Being understaffed does more harm than just increasing stress for your employees. It also limits the growth potential of your outfit as you’re forced to forego new business opportunities because you lack the capacity to take on more work.
Additionally, being short-staffed could also eat into your bottom line when overworked employees start making expensive mistakes, provide shoddy service, or start cutting corners to keep up with the big workload.
But even so, hiring new employees should not be taken lightly. It’s expensive and consumes a considerable amount of time. So before you make the decision to increase your workforce, make sure you first evaluate your situation to know whether you can actually afford it. Here’s how you do it:
Determine how much it will cost you to hire
The cost of hiring an employee goes beyond the salary you will be paying the person. You’ll also have to cover the following costs:
- Recruitment. You will need to find a good candidate to fill the new position, and doing so will cost you an amount dependent on your needs and the amount of time you’ll have to spend on the exercise. You can choose to undertake the exercise by yourself (which is cheaper but less effective) or look for help from a recruiter or online recruitment services.
- Wages. Find out the hourly wage or base salary you will be paying your employee and ensure that you have at least four months’ worth of it in the pipeline before taking on a new hire.
- Benefits. Determine whether you’ll provide the employee with benefits such as life insurance, retirement plan, healthcare, disability cover and so on and how much it will cost you.
- Perks. Figure out what perks you will offer: free food and drinks, attendance for special events and the likes and add them to the overall employee compensation package.
- Payroll tax. Also, include the amount you’ll need to pay in the statutory payroll tax of your region.
- Equipment and supplies. You might need to buy furniture, computing devices, software and other tools and equipment for the new hire. But even the cost of pen and paper could add up so make sure to include everything.
- Training. Factor in the amount of money it will cost to train the new employee. If you won’t be hiring someone to do it and have to do it yourself or have an employee do it, factor in the cost of the time that will be used on it.
Determine if you can afford a new hire
Now that you have a clear idea of how much it will cost you to hire, determine whether your business can afford it:
- Estimate future sales. Look back the last few months in terms of profit and use this data to project future income for at least the next 12 months. Do you have any new deals coming? How many new clients do you expect to add? Figuring this out helps you know whether hiring is financially feasible.
- Project the revenue the new hire will add. Will the new hire increase your capacity to produce more or serve more clients? If yes, by how much? Does the increase justify a new hire? Keep in mind that new employees take a while before they get up to speed, so you’ll have to cover the expenses in the meanwhile.
- Examine your profit margin. If you’ve been making losses or slim profits for the last several months, then you probably can’t afford a new employee. If, however, you can add the new worker to the overhead expenses and still turn a decent profit, then you can be more confident about hiring. Just remember not to deplete your cash reserves so that you still have cover for unexpected eventualities.
Hiring a new employee has a lot of cost implications, so make sure you look at every possible angle before making the plunge.