Can I Afford to Hire a New Employee?

Taking on your first employee is arguably the hardest, especially if you are a first-time employer. There are a lot of considerations when hiring, and one of them is cost.

When asking “can I afford it?” also ask yourself the opposite “can I afford not to?” Usually, the decision to hire your first employee is prompted by these considerations:

• You are turning down new work or larger projects.
• You have a new large revenue stream.
• You lack the skills to manage current work or to expand into a new area.
• Customers can’t reach you, because you don’t have time to answer phone calls and emails.
• Your customer service quality is falling.
• You spend too much time on administration, or not enough time.
• You haven’t had a holiday because there is no-one to cover for you.
• You are feeling stressed, and you are frequently sick, but there’s not enough time to rest!

The best time to hire someone is when you have the time and energy to do it right. If the workload is already overwhelming you, it may be difficulty to have the mental bandwidth to choose the right person and train them.

How Do I Budget for a New Employee?

When you hire an employee you not only have to pay their wages for working, but you also have recruiting and onboarding training costs. You must fund ACC, holiday pay, sick leave, Kiwisaver and other allowances (see below). Your employee will need a place to work and tools for their job, such as office desk, computer, mobile phone.

You can use a simple calculator tool to work out how much it will cost for the first year of employment costs: https://www.business.govt.nz/employeecostcalculator but make sure that you tailor it for your specific circumstances. If you engage a recruiter to help you find the right candidate, then your recruitment costs will be more like 16% of the annual salary upfront rather than the cost of a few SEEK advertisements. Recruiters can smooth the way for you, when you don’t have a lot of time to read CVs, when you are unsure what market salaries are and when you don’t quite know how to market the role with an enticing job description.

Estimate how much extra income you will make in the first year of employing someone, either by giving them productive work or by giving them administrative work so you can spend more time on productive work. Depending on how quickly your employee settles into their new role, it may take several months for your investment in them to reap financial returns.

How Do I Write a Job Description?

Start with a list of all the tasks that need to be done in your business. Then identify which tasks you will continue to do yourself and which you will employ someone else for. Having identified the tasks they will do, consider if they need to be experienced in those tasks or whether you are willing to train them. Do they need formal training or education?

How many hours a week will they take, and do they have set hours or flexibility? Where will they work from – a fixed address or customer sites? Employees may be permanent full-time, permanent part-time, casual or fixed term. You can find out more about different types of worker here: https://www.employment.govt.nz/starting-employment/types-of-worker/permanent-or-fixed-term.

What will they be paid, and what other benefits will they receive in their role? How much responsibility will they have for decision making? Who do they report to? (You, if it’s your first employee.) How will you assess their performance?

Remember to include an enticing description of your business and why they would love to work for you. If you find this all a bit bewildering, talk with a recruiter or start with these examples from SEEK: https://www.seek.co.nz/employer/hiring-advice/how-to-write-a-great-job-ad-with-examples .

What if I Don’t Have Enough Work for a Permanent Full-Time Employee?

One of the challenges to face with your first employee is deciding how much time you need them for. If you know that you can regularly employ someone for 1-3 days a work, then you may be looking for a permanent part-time employee. If you think the time may be less consistent, then consider engaging an experienced virtual assistant (VA) or a contractor for specific projects. You can find virtual assistants for a variety of tasks and industries here: https://www.nzvirtualassistants.com .

Employee vs Contractor

We need to distinguish clearly between employees and contractors, as the responsibilities and entitlements are quite different in some areas. An employee must have a written employment agreement, receives holiday pay, sick leave etc. They generally have set hours under supervision, and the employer decides where, when, what and how work is done.

A contractor may have a written service agreement, can decide when they are available to work, may have multiple principals/clients. They can be engaged for a specific project(s) or to fill a vacant role while you look for a permanent employee. They invoice the business and must register for GST if they earn over $60,000 a year. You can read more about the distinctions here:

https://www.employment.govt.nz/starting-employment/types-of-worker/employee-or-contractor

Employer Mindset

Are you mentally prepared to employ someone else? Being an employer requires a mindset which very different from working solo. You are reliant on another person to perform to expectations, and you need to trust them with responsibilities. You are unlikely to find a carbon copy of yourself. Be aware of and be glad of the differences.

Leadership and Vision: Clearly define your company’s vision and goals. Communicate these to your employee to ensure they understand their role in achieving them.

Empathy and Support: Show genuine interest in your employee’s well-being and professional growth. Provide support and resources to help them succeed.

Accountability and Responsibility: Set clear expectations and hold yourself and your employee accountable. These build trust and ensures that everyone is aligned with the company’s objectives.

Open Communication: Foster an environment where open and honest communication is encouraged. Regular feedback and two-way communication help address issues promptly and build a positive work culture.

Continuous Learning: Encourage a growth mindset by promoting continuous learning and development. This not only benefits your employee but also contributes to the overall growth of your business.

Recognition and Appreciation: Regularly acknowledge and appreciate your employee’s efforts and achievements. This boosts morale and motivates them to perform better.

By focusing on these areas, you’ll create a supportive and productive environment for your first employee.

Next Steps

What systems and processes do we need in place for our first employee? Read on, in our next blog post.

- Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

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An article like this, which is general in nature, is no substitute for specific accounting, tax and HR advice. If you want more information about the issues in this article, please contact your adviser or the author.