Recruiting, Selecting, and Hiring Someone
One of the most significant decisions any employer makes is to hire someone as a "permanent" employee. Remember: you must have just the right number, type, and cost structure of people so that your two-legged costs don't create a profit problem for your business.
While your business may be different in terms of how you "account" for things, you need to determine if you can afford to hire a new person without negatively affecting your bottom line.
Can You Afford to Add to Your Staff?
Assume you want to hire a good Customer Service Representative. The base salary cost (we'll talk about how you determine this later) for this person is $28,000 per year and let's assume you are spending 25% of base salary for employer taxes and benefits.
- Determine total annual new hire cost (add 25% to the annual pay) = $35,000/yr.
- Divide total new hire cost by your average gross margin (this examples assumes 25% average gross margin). $35,000 divided by 0.25 = $140,000.
- Divide total new hire cost by your average net income expressed as a percentage of revenues/sales (assume 5% for this example). $35,000 divided by 0.05 = $700,000.
- Depending on the characteristics of your business, to cover the cost of the new hire will require you to substantially increase your sales (somewhere between $140,000 and $700,000 in increased sales) while keeping all your other costs constant.
The point is obvious, but just to reinforce it, do not make the decision to add someone to your staff lightly. When you make this decision, please understand that if you get it wrong, you have just committed your business to substantially increasing its annual revenues to cover the cost of the new hire. From a business perspective, if you are going add a person, the "true cost" to your business in terms of additional revenues is somewhere between four and 20 times more than their annual salary and benefits.
To make a good new hire decision, be prepared to invest a lot of your own personal/quality time and effort so that you "get it right," as it could cost your business a lot if you get it wrong.
Clearly Define What You Need and Want
This is probably the most important step in the new hire process as you will come back to this description/definition for all the steps you will take to make a new hire decision. When you have a minimum of thirty minutes, find a quiet spot, take some blank paper, and briefly summarize the major duties of the job, and then make a list of everything you might possibly want in your new hire. This should be a free-flowing list (like brainstorming) that you then can go back to and consolidate, throwing out things that, in retrospect, weren't that important.
To help you get started, here's an example of a final description and "wants" list for a customer service person.
Customer Service/Help Representative (example)
Major Duties Description
"Using mainly the telephone and the Internet, answers inquiries from prospective customers regarding our products and services, including cost and availability; takes customers' orders and processes them through our sales information system; collects and enters customer data into the sales information system database; processes the necessary documentation in order to correct billing errors; and may answer basic questions from customers encountering problems in the application of our products/services."
List of "Things" I Want in Applicants for Customer Service Position
- Previous experience providing direct customer service
- A "customer service" helping attitude; goes the extra mile to help a customer
- Articulate, pleasant, easy to hear and understand, patient, has a reassuring voice
- Has excellent listening skills and "reads" people very well
- Keeps promises to customers; returns phone calls in a timely fashion; meets time commitments to customers
- Able to learn our company's products, services, and employees so that she/he is conversant in all aspects of our business, products, and services
- Computer literate in a short time can learn and be proficient in the use of our sales system including order entry, returns processing, issuance of credits, billing, and the use of our on-line help information; can use spreadsheet and word processing software efficiently
- Able to create and maintain customer files that are complete and well organized
- Good at remembering customer names and reading their personalities so that she/he can adjust approach based on the uniqueness of each particular customer
- Has a good track record for being punctual and reliable
- Works well with other employees; outgoing, friendly, cooperative
- Takes the initiative and looks for ways to improve both how she/he does the job and her/his own personal abilities and skills
- Highly regarded by her/his current customers
You might also identify something that you really want but may not find many applicants with this particular attribute. It is also okay to keep items on your wish list that you might otherwise rule out because you never know you might get lucky.
Determining a "Fair Market Rate" for a Position
Establishing a competitive and affordable "market rate" has to take into consideration two major factors internal and external comparisons.
Where should the salary of the new job fit into what I am paying my current employees? It may be more than "X" position, but less than "Y" position.
In my geographical area (from which I will try to attract applicants), what are other companies paying for similar positions?
For the internal comparisons, you should have an intuitive sense of where the new position fits in terms of its relative value vis-à-vis your current employees. You might ask yourself this question: "If I pay this new Customer Service position $28,000 per year, will my people perceive this as fair versus their pay, especially those employees whose current pay is slightly higher and those whose pay is slightly lower?" This "bracketing" will give you a good range of what would be internally acceptable.
For external comparisons, you are trying to make sure you set the "recruiting" salary at a point that is attractive for job seekers. You can get at this external information a number of ways. You can check the local job ads (newspaper and on-line) for similar advertised positions. Other sources of information are available online by searching on "competitive salaries for positions" or gathering information from the U.S. Bureau of Labor Statistics.
Two things to remember: First, the applicant to whom you offer a position will be looking beyond the base salary and will view compensation as pay, benefits, commute time/costs, and whether he/she thinks there is a good personality/value "fit" with your company.
Second, labor-market dynamics will change what turns out to be an "attractive" compensation package. When the unemployment rate is twice the "normal" rate because of a recession, there tend to be more applicants than normal, so it becomes a buyer's market rather than a seller's market.
Decide How You Will Find/Attract the "Right" Applicant
The objective in recruiting is to find the "right" applicant as quickly as possible while spending the least amount of time and money to do so. To accomplish this, you first need to prepare a brief "Position Requirements Description" that you can give to people so they know what you are looking for as you fill this need. Using the same Customer Service Representative example again, here's what such a description might look like:
Customer Service Representative Position Requirements (example)
This position answers inquiries regarding products/services and their cost and availability, processes orders, resolves billing problems, and answers basic product/service application questions. The position requires someone who has two to three years of prior Customer Service experience and a personality and attitude that is customer-friendly. Successful applicants will have good communication skills, and the proven ability to use automated sales information/order systems and spreadsheet and word processing software. Previous experience in a company with products and services similar to our company, including serving the same customer base, is highly desirable.
Please note how this "Position Requirements Description" is based on the "Major Duties Description" and the "Wants List" that were previously developed.
To meet the objective of spending the least amount of time and money to fill a position, you might consider the following recruiting activities in the order presented:
- Promote a current employee who has displayed the skills, initiative, and desire to move forward to this new role.
- Ask your current employees if they have someone they would recommend.
- Ask your friends, acquaintances, other small business owners, etc., if they could recommend someone.
- Use your social media contacts or your e-mail contact list to ask folks you know if they have a recommendation.
- Contact your state's Unemployment Office and provide them with the "Position Requirements Description."
- Place an advertisement in your local newspaper or on-line with one of the sites that provide this service (e.g., Monster.com).
- Contact a temp agency and "try before you buy."
- Place the position with a local contingent recruiting agency.
Making an Employment Offer
The process of getting to a final deal is usually one that involves some dialogue between the company (you) and the final candidate. While it is recommended that all employment offers are in writing, it is typical to get to the point of having a verbal understanding on the following items before anything is solidified and formally presented to the finalist candidate:
- Pay Rate
- Overtime Pay Status
- Start Date
- Job Title
- Reporting Relationship
It is highly recommended that any offer you extend be done in writing and signed by both the company and the candidate. Also, and this is very important, if you are going to ask the candidate to sign a Confidentiality Agreement and/or a Non-Compete Agreement, both of these documents need to be signed and dated on the same day that the written employment offer is signed and dated.
Another thing to note is overtime compensation. The "tests" for what constitutes an "exempt from overtime" position (exempt) versus a position that must be paid overtime (non-exempt) are convoluted and you are urged to consult both the federal guidelines and your state's guidelines on how to determine if a position is exempt or non-exempt from the laws governing mandatory overtime compensation.
Job offers are typically made contingent on passing the company's drug test. Such tests can only be administered (legally) after an offer of employment has been extended to an applicant. You cannot drug test someone (legally) until you have made her/him a formal offer of employment. Is the offer also contingent upon satisfactory completion of all references? This is so that it can be withdrawn if you discover negative information about the candidate after the written offer is signed by both the company and the applicant.
What You Must Do to Legally Hire a New Employee
Legally, all employers, no matter their size in terms of number of employees, must complete the following to be in compliance for hiring a new employee:
- Complete and file a Federal W-4 Form
- Complete and file an I-9 Form that verifies the legal status of the employee to be in this country and to work. The I-9 Form must be completed by the employee no sooner than at the offer of employment and no later than the first day of employment. Employees have three days to provide the documents required as proof of legal status. As part of the employment eligibility verification, some states may require employers to verify eligibility through eVerify (www.uscis.gov/e-verify), an internet-based system, that compares the information from the I-9 to data from the U.S. Department of Homeland Security and the Social Security Administration.
- Any new hire reporting required by the state in which the employee is paid
These forms are available online, and the instructions on their completion, etc., are also online, as shown above. Please note that you are required to maintain originals of these documents in your files while the person is employed, and it is recommended that, after termination, such files are maintained for a period of seven years from the date of termination.