When to hire a new employee for your growing small business

As a founder or leader at a small business, growth is incredibly exciting — it means the thing you’re building is working, gaining steam, and growing market share.

But growth can be painfully complicated, too. You’ll inevitably reach a point where there’s more to do than you or your current team can get done — but is there enough work to justify hiring a new employee?

In this quick guide, we’ll show you how to decide when it’s time to hire. We’ll also cover when the independent contractor or freelance model might work better, plus we’ll give you some pointers on the three main phases of personnel growth: hiring, training, and retaining.

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Signs your business is ready to hire a new employee

Figuring out the ideal moment to hire a new full-time employee can be a complex decision for many startups and small businesses. You know you need help, but a new hire is a massive commitment when you’re just starting out — and it can be a pretty big hit to your bottom line, too. Hence, it's important for HR teams to use the right recruitment software to automate their hiring process. This way, they can leverage the maximum benefits by eliminating manual tasks from the recruitment cycle. Use these signs to help determine if you’re ready to hire your next employee (or even your first employee).

Your cash flow can handle the increased cost of a new hire

First up, you need to know you have the cash flow to accommodate a new hire. And remember: As a business owner, you’re responsible for more than just the new hire’s paycheck. There are tons of backend and behind-the-scenes details that impact your cash flow, including:

• Background checks during the hiring process

• Training and onboarding costs

• An employee’s insurance costs and other employee benefits

• Payroll taxes (Social Security / FICA), plus infrastructure, software, or services to withhold and pay those taxes

• Workers’ compensation insurance

• Human resources support

Admittedly, all of this can seem overwhelming if you’re just hiring your first employee, and some of it might not kick in until you reach a certain size.

Whether you’re hiring your first employee or your 50th, here’s the takeaway: The costs are greater than the salary or paycheck the employee sees. Make sure you have appropriate cash flow to cover the visible and hidden costs.

Your team needs someone with a new skill set (or more team members with a certain skill set)

Another sign that it’s time to hire is when you find yourself missing a skill set entirely, or with far too little capacity within a skill set.

As you survey or inventory the skills your current team has (or doesn’t have), you may notice gaps between what your team can do and what you need it to do. These gaps could have to do with actual skills and knowledge (e.g., you have no employees who know how to do a specific job) or with capacity (e.g., your top salesperson knows a little bit of coding, but she can’t do both jobs at once).

It’s a good idea to map out your current skill sets along with employees’ current and projected workloads and hours logged. With this information mapped out, you’ll be able to see what skill or capacity gaps you have.

If the idea of mapping out this information seems overwhelming, we get it. More than likely, you need a better tool for doing so. Quality project management software, like Teamwork.com, shows much of this data automatically, letting you quickly view your current employees’ workloads and see at a glance whether they’re over capacity.

You’re ready to take on new opportunities and boost your bottom line

As we mentioned earlier, cash flow is a major factor, especially for bootstrapped companies where there’s no funding to tap into. But it isn’t the only way to look at the monetary impact of a new hire.

You also need to evaluate the potential impact of a new hire to your bottom line. Are you turning down work because you lack the capacity? Then it’s time to think about hiring.

This is more obvious in some departments than in others. Take sales, for instance: If you have a capacity problem that prevents you from reaching prospects and customers, you’re losing money on the percentage of the contacts you don’t make. In this example, it’s easy to see how adding another sales rep can increase revenue and improve the bottom line.

With other roles (like an HR director or an internal communications director) the connection won’t be as clear, but here’s what you should ask yourself when you’re getting ready to bring on new staff: Will the new hire increase your opportunities to grow revenue and reach, either directly or by improving the efforts of those who do?

Deciding whether you should hire a new employee

Hiring a new employee can be costly. As we mentioned before, beyond the new employee’s salary, you have taxes, insurance, training costs, the onboarding process, and more to account for. It’s important to weigh these costs and make sure you’re prepared to absorb them.

Make sure to consider the timing of a new hire as well. If your business has heavier and lighter sales seasons, it’s tempting to be bullish about hiring when sales are up and bearish when sales are down.

It’s a good idea to trust the overall numbers, not the trends of the moment. Keep your decisions in line with your cash flow and bottom line rather than with short-term ups and downs.

Alternatives to hiring an employee

Before you decide to hire a full-time employee, consider the alternatives. Not every business function needs to be performed by a full-time, in-house employee. In many businesses, outsourcing certain functions to dedicated agencies or service firms is pretty much a given.

Entire business units or types of work can be outsourced in this way, including:

• Janitorial

• IT (from helpdesk to full-service managed IT)

• HR (Bambee)

• Accounting (Your Part-Time Controller)

For other types of work, contractors and freelancers can be a great alternative to an in-house hire.

According to JazzHR, contractors tend to work longer stretches (contracts) for a single client, while freelancers work for multiple clients concurrently, usually on shorter projects.

Not sure whether a contractor or freelancer might be right instead of a new hire? Consider these pros and cons:

Hiring contractors

Pros:

• You aren’t responsible for benefits (health insurance) or payroll taxes.

• You gain access to deep specialization that you only need for a set period of time.

• You can pass off a large project to someone who has experience leading similar projects and teams.

Cons:

• Contractors set their own rates, and the good ones are expensive.

• When the contract expires, you lose access to a contractor’s expertise.

• Contractors have greater flexibility over when they come and go, so contractors tend to have a higher turnover rate than salaried employees.

If you’re looking for a more in-depth comparison from a legal or HR perspective, here’s a lawyer’s take on the differences.

Hiring freelancers

Pros:

• You aren’t responsible for benefits (healthcare) or payroll taxes.

• You gain access to specialties or levels of top talent you couldn’t afford to hire in-house.

• You have access to a near-infinite pool of resources for jobs you need done that don’t equate to full-time workloads (e.g., you don’t need a full-time graphic designer).

Cons:

• Finding the right freelancers can be time-consuming.

• Quality can vary greatly from one freelancer to the next.

• Scaling with freelancers has its challenges (Who’s working on what? Who approves which work? What happens if something doesn’t show up or isn’t up to standard?).

When used strategically, freelancers can drastically improve your capabilities and capacity. Read more on how to use freelancers to help your agency scale.

Hiring a new employee: 3 key steps

Contractors and freelancers can accomplish a lot, but sometimes you need the stability and commitment of a full-time hire. When you’re ready to start staffing up and hiring employees, consider these key steps.

1. Hire

First up is the hiring process itself. This is where you post job offers to hiring sites, make announcements on LinkedIn, and potentially engage the services of staffing firms.

Pay close attention to the job description you create. As a new business and especially in a tight labor market, your job description is as much an advertisement as anything: it needs to draw in prospects.

Once you have a pool of candidates, invite the best candidates for an interview. Through careful use of quality interview questions (we recommend behavior-based interviews), you can determine which applicant is the best fit for your business needs.

For an in-depth look at how Teamwork.com can supercharge the recruiting and onboarding process, check out this detailed report on how we use our own platform internally when recruiting and onboarding new job candidates.

2. Train

Next up is the training process. This crucial time sets the stage for your new hire, showing them what it’s going to be like to work for you. Be sure to get this right by offering consistent, thorough, repeatable training to all new hires. Don’t leave this up to the individual hiring manager to determine.

Using templates and checklists is a great way to make sure you cover everything you need to. Building a workflow in Teamwork.com can keep all parties involved in onboarding on time and on track.

3. Retain

Getting an employee up to speed on basic job functions is crucial, but it’s far from the end of the journey. In today’s competitive job landscape, businesses must work hard to retain employees once they hire them.

Company culture plays a large role here. Make sure you’re creating the kind of culture that top-tier performers would want to be part of.

Mentorship and clear job responsibilities are two other top factors in employee retention. Consider setting up an informal mentorship program where every new hire is assigned a more experienced mentor.

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Hire and onboard new employees with ease

When it’s time to hire new employees for your business, you’ll encounter numerous steps and time-consuming tasks that are all crucial to success. It’s far too easy for growing businesses to miss, skip, or gloss over important tasks in this process — you’re busy getting work done and growing the business, after all.

A project management approach can help bring organization and consistency to heavily task-oriented hiring and onboarding processes. If you want to start hiring on budget and on time, it could be time to systematize.

Find out more about how Teamwork.com empowers organizations to bring project management principles to their HR and hiring workflows.