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Many small businesses start out with one worker—the owner. Over time, this may change. The SBA says 81.7% of small businesses in the U.S. have no employees, but this means that 18.3%–over 6 million—have paid employees. At last count, the average employer firm had 24.9 employees (small firms averaged 11.7 employees; large firms averaged 3,297.3 employees) and new firms (less than 2 years old) averaged 6 employees.
Importance of using employees to grow your business
LinkedIn lists 5 key impacts that employees play for business growth: promoting innovation, boosting productivity, providing an exceptional customer experience, building a positive work culture, and serving as the company’s brand ambassadors. All good reasons to expand your staff. How do you do this in a way that works for the company without busting the budget?
On staff or outsourced?
If you need more help, should you hire an employee or look to outsource the work to an independent contractor? There’s no bright line you can use to make the determination. Just keep in mind that you can’t simply call someone an independent contractor if they’re really an employee—a worker over whom you can exercise control.
A business may prefer to use an independent contractor because the cost of doing so is usually lower. It’s a common belief that is costs significantly more to have an employee versus an independent contractor because of the company’s obligations—employment taxes, insurance, employee benefits, training—that come with employees and don’t apply to independent contractors.
However, it’s not as simple as slapping a label on a worker to get the desired results. A worker may be classified as an employee under federal or state rules. This is explained in a recent article for the SBE Council. For example, the DoL’s new rule on worker classification is effective March 11, 2024, although action by Congress or the result of pending lawsuits could delay or delete the new rule.
There is also the matter of uncertainty—about your business, about the economy—and a reluctance to commit to an employee. Don’t hire an employee unless you are confident of that position for the foreseeable future. The employee may relocate, change family arrangements (e.g., a spouse may stop working), or give up other opportunities based on a job commitment and it would be unfair to the worker and his/her family to provide only short-term employment.
How many employees?
You may know you need a certain worker to handle a certain job. But in general, how many employees do you need? Indeed suggests you look at “revenue per employee” (RPE). This is a ratio of total revenue per month divided by the number of employees. According to one source, a good RPE is about $43,000 for a business with less than $1 million in revenue to $230,000 for those earning $50 million or more. If you have a high RPE, this may indicate the need…or at least the financial ability…to bring on additional employees.
Consider the challenges of managing a growing workforce. One blogger posits that “everything breaks at 25.” An owner has to recognize that he or she can’t manage everyone anymore and may lose touch with what’s going on in the business. Of course, the matter of growth can be handled as long as an owner is aware of the challenges and can cease to micromanage.
Alternatives to adding staff
Before you hire new employees, be sure you’re optimizing the ones you have. Consider ways to improve efficiencies without added payroll costs, such as:
Training and development
Reassignment
AI assistance
Final thought
Employees are a company’s greatest asset. Invest in this asset and it will produce great returns.
To find more information concerning small business growth, see blog posts here.
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