For a small business owner trying to grow their company, the decision to hire or not hire employees can be a difficult one. If you've reached this potential turning point in your business, here are 4 things to help you make the right call.
1. Understand the Hidden Costs. The salary or wage you plan to offer an employee may seem like the only financial aspect of the transaction that you need to know about. However, employees can be significantly more expensive than just the wage cost. Payroll taxes are paid both by employers and employees. FICA taxes, for example, currently cost the employer an additional 7.65%. In addition, you may be responsible for workers' compensation coverage, unemployment insurance, and licensing costs.
2. Assess the Ongoing Need. If you need help only for specific projects or certain times of the year, consider whether it may be better to hire a temporary employee or hire a subcontractor for the duration of a limited project. While employees hired through a temporary agency can come with additional charges by the service, you won't be paying those costs on an ongoing basis and you won't have to do the additional legal tasks.
3. Think About Hiring Your Child. You may find that one of the best options for your business and your family is to hire your minor child. Why? If you own and operate a sole proprietorship, you can generally hire your own child without being subject to many payroll taxes. Your child, in turn, will also see reduced tax costs. You can even contribute much of his or her paycheck to a tax deductible IRA so that they don't incur any tax liability either. Consult with a professional payroll or business tax service before making this decision.
4. Outsource the Payroll. If you truly do need to hire an employee or two, it's best not to try to DIY the payroll work. Because employers are accountable to a number of different state and federal agencies, there are many complex processes that must be done correctly and regularly. This may include registering with state agencies, signing up with and remitting taxes to the IRS, filing quarterly and annual reports, and being audited by various stakeholders. Hiring a payroll service with experience in small businesses payroll in your industry can help you avoid problems and extra stress.
Going from a one person operation to a full-fledged employer is a big step. By considering these few tips and working with a qualified payroll service, you can take that step confidently and with as little cost as possible.