Cost of Carrying Employees

Shop owners discuss the costs associated with employing help, the value of good employees, and the advantages of going through a temp agency. September 4, 2005

My business has gotten big enough that I cannot keep up with the workload. I am considering hiring a part time employee. How much do insurance and other employee-related expenses cost per month? Are there any unexpected expenses that I should know about? I have thought about hiring this person under the table, but I am afraid of the possible lawsuits, etc. Does anyone do this and if so, have you run into problems?

Forum Responses
(Business and Management Forum)
From contributor D:
If there is a Manpower near you, discuss working through them and cost. You take out the ad, do the interview and hire. Then send the employee to sign up with Manpower. Basically, you are leasing him from Manpower. They pay the taxes, workman's comp, etc.

From contributor J:
The first response has the right idea, in my opinion. I use Manpower here in east Texas and it seems to work fine. I posted the ads and interviewed close to 20 people before settling on two. Manpower charges me a flat rate of 10.50 per hour, which includes their labor rate, payroll taxes and worker's comp. If after 45 days, they work out, I have the option of bringing them on full time without any added costs. I simply roll them over to my payroll. This really helps me with my unemployment rate and with keeping comp costs down.

From contributor C:
Under the table works great until it doesn't work so great. If you have any assets, you will be putting everything you have accumulated at risk. Consider outsourcing as a way to produce more. Figure out what you do best and concentrate on that, while sharing the big picture with others. The benefit is that you sometimes get a better product than you could have made and that you only pay when the need is there. A low paid employee can often cost more than they are capable of producing in a small shop environment.

From contributor K:
I agree with the above about how a low cost employee can cost you more. I, too, am a one man shop. I hired my brother and was teaching him. Paying him and trying to teach him basically drained my accounts. This is because my production slowed down, since I was taking more time to help him and fix his mistakes than actually getting the job done. After I let him go, I hired someone who didn't have any experience and paid him less. But it's obviously the same thing. I've thought about hiring someone with a lot of experience, but I have to replenish my accounts first. I've found that I can build a lot faster while I'm alone. There is no concern about something getting messed up. I do take less jobs now and have started to charge more. My suggestion is to either lower your work load and charge more, like I have done, or hire someone with experience. If you can't handle the workload now, how would you handle it while trying to teach?

I'm also interested in Manpower. I've never heard of it. Do they have a website?

From contributor H:
First, sit down with your accountant. He/she can give you all the facts you need to know about your responsibilities with employees.

From contributor J:
A temp agency may be a good place to start. I've never heard of one where you have to place the ads and interview. In PA, that's their job - that's why you pay a nice premium above the employee's wage. It averages from 40-50%.

Here's my cost for an on-the-payroll employee:
FICA 7.65%
Unemployment 3.69% of 1st $8000
Worker's comp 4.12%
Total about 16%

So a $10 an hour employee will cost you $11.60/hour. Add $2-5 an hour if you pay for health insurance. We pay the individual's premium (about 250/mo). If they want to add family, they pay that part.

When we hire, we have the employee sign a statement that says his first 30 days are probationary and that either the employee or employer may terminate employment at any time. You're going to hire many people who, after a few days, you'll see won't work out in your organization. This eliminates any hard feelings.

From the original questioner:
Thanks. Contributor J, that is exactly what I was looking for. I had this thought in my head that workers comp was going to be too expensive. I will certainly get a probationary period paper made up.

This is a very scary and exciting time for my business and all the information about the temp agencies and employees is greatly appreciated.

From contributor J:
Your worker's comp rate can vary greatly. My rate is for class 323 furniture manufacturing. They have classifications for sawmills, cabinet shops, installers, etc. I know they also vary from state to state.

I opted to purchase my insurance through the state worker's insurance fund. It was the same price as private companies. However, many insurers won't issue just a w/c policy - they want all your business. Also, the first claim you have, they drop you and you have to start the insurance shopping game again. The nice thing about the state fund is they won't cancel you.

From contributor L:
Our work comp rate is 13% with a mod rate of .77. Lots of other things come up when you have employees, like OSHA compliance.

From contributor B:
I pay the same FICA and such, and my work comp is 4.9%. The big thing that got me is that if I have am employed on the job site installing, then the rate jumps to 8.4%.

The other thing that can be very time consuming and cause a lot of stress is if you do your own employee tax filing. I fought that for several years before I got a bookkeeper. It seemed that I would always forget to file it on time, and it cost me dearly several times.

Employees can be the best investment and the worst. You just can't tell when you will get a lemon. I had a friend who tried the employee route in his woodshop and couldn't handle the loss of control (mistakes). He eventually sold out because he just couldn't do it all himself. I was in your position - just too much work to keep up by myself. It took me until I had 6 employees to start making money again - I just didn't figure in the cost of their mistakes and the cost of training - very expensive! If I knew then what I know now, I would have paid a guy $15 to $20 an hour who could do it all. That sounded really high to me until I started adding up mistakes from the fresh recruits. I trained 6 new employees last year at an estimated cost of $24,000 in mistakes.

From contributor C:

You are wearing many hats in a day as a one man show, but a helper will not necessarily dig you out of the trench you're in. Get help in all of the areas that keep you from getting the work in the shop done. Keeping very accurate time records for only a few weeks will help you identify what those exact areas are. You might find that a bookkeeper once a week, a cleaner once a week, etc. will more easily buy you shop time than a helper will. Having installs subcontracted is also a good place to start if you are not already doing that. You need to always look at ways to be more organized and efficient. My experience has been that if you cannot completely delegate a task, you end up actually creating more work for yourself as you add employees.

From contributor L:
I have to agree with contributor B. One $18/hr man is worth more than two at $9. I've got 15 guys on the shop floor and always end up with one or two that just aren't cutting it. Hiring is a crapshoot at best. You will spend a lot of time interviewing, calling references, etc. and still only get one out of three that is any good. No past employer will tell you someone was a poor employee, for fear of being sued. There are companies that will check public records for a fee and may discover past insurance claims history, criminal history, child support problems, etc.

From contributor S:
I have 40 employees in our stair company. At some point, your employees become your business. They will determine the future success and potential of your business. I have had some disappointments, but our employees have become my greatest asset and I am proud of all of them. To my surprise, they have taught me to be a better person and businessman. Don't miss out on an experience of a lifetime over the BS involved in having employees. Take the chance and believe in people and put them in the position to make you money. Employees are only as good as the leadership and the example they follow.

From the original questioner:
Thanks to everyone. I have decided to go through with it and I'm getting ready to place an ad. I understand that a high dollar worker is "most of the time" a better choice, but my case is a little different. My business is not cabinetry , but rather a niche within the woodworking industry. The employee I would be looking for is going to handle my packaging and "rough out" work. I would still be doing the actual work, but all the time, consuming rough out work would be done. Packaging and rough out work take about 2 1/2 days out of my work week. I figure if I hire someone part time, I can get more finished product done and not sacrifice my skilled time doing the packaging and rough out work.

From contributor E:
Do yourself a favor and do not hire under the table. Not only are there liability issues, but taxation issues as well. Even if you don't get caught, you can't deduct the person's wages. In effect, you will be using after-tax money to pay him.