I currently have no employees, but am considering hiring one. Hiring someone supposedly costs about 40% over salary for the taxes and other expenses. It seems it would cost me close to what I pay myself to hire someone.
I would keep the profit margin and of course the shop costs go proportionally down (the machinery is busier). But there is also a large administrative cost. I can automate the payroll, but doing the setup will take several days.
How do you know if it's a good financial decision to hire someone?
40% sounds high, but I do now that in Florida it can be as high as 43%. Remember that everyone else is paying these rates, also.
If you are paying an employee $10 an hour, add 40%. The cost of your employee is $14 an hour. If you charge $25 an hour, you are grossing $11 an hour. This is $11 an hour you weren't making before hiring your employee.
This is where finding a good employee pays off. I target a 45% gross profit on each of my employees. This figure was derived from factoring in my overhead expenses and coming up with an appropriate charge rate based on sales and hours worked annually.
I agree with and can relate to everyone's concern about the financial aspects. But remember that if you're working hard enough that you're often wishing you had some help, it's probably past the time to get some, purely from a safety point of view. Studies have shown that serious workshop accidents increase proportionally to the amount of overtime worked. That's not to say you're necessarily at risk if you're working a 50-hour week. But if (like most business owners) you're working 70 or 80 hours a week, the portion of that time you're spending on heavy equipment can be risky time indeed (particularly if you're a one-man shop and you're doing your machining late in the day, when you are most fatigued).
Another thought: Nothing enables you to afford an employee quite like going out and getting one. That's not meant to sound flip; there is literally no incentive to sell more work as powerful as the desire to keep your shop busy. That said, there is a danger in taking work for work's sake. With employees (as, I hope, is the case now) you still need to get your price in the good times (that would be now) and at least break even in the bad times.
Again, I understand the need to look at the costs involved here, but I'd just summarize with these two thoughts: If you feel like you're doing the work of two people, it's time to hire somebody; and, if you wait until you think you can afford it to hire somebody, you may never do it.
And I agree: 40 percent sounds high.
Anthony Noel, forum technical advisor