Employees

When to hire? How to hire? Who to hire? (And—when to fire?)

These are all immensely important questions with answers that will be very personal to your business. We don't have a magic formula to answer these questions. Instead, here are some general thoughts and warnings about hiring employees.

Well—the answer is simple: bring on extra help when it'll make you more money. Of course, there are a few things you should consider about hired help before making them standard-bearers for your business:

They won't be as good as you—at anything. (At least, not at first.) Your 2% repair fail rate will get worse. Your customer service rep could suffer when the employee handles a delicate conversation poorly. Most of all, they won't be as invested in your business as you. These issues are all obvious—but they need to be considered.

They cost more than their wage. There are taxes to be paid (Medicare, Social Security, etc.), training to be done, and general administrative overhead.

In a nutshell, you need to know how much of your time and money they'll cost—and how much profit they'll bring in.

(This bit is US-focused. But we've found many countries have similar distinctions between employees and contractors.)

There are two basic ways to pay and report payment to hired help: as an employee (using a W-2) or as a contractor (using a 1099). The basic difference is that having an employee opens the employer to various liabilities, including tax liability—contractors pay their own taxes.

There's a third way, you say? Pay the help "under the table?" That's illegal—so we're not gonna talk about it.

When considering a hire, financial shortcuts can be appealing. But they aren't always legal.

The first thing a soon-to-be employer will notice is that contractors are responsible for the entirety of their income tax burden—whereas employees and employers share the employee's income tax burden.

So obviously a contractor is a better financial decision for the new employer.

Using a 1099 has certain rules—which basically break down to the Duck Test. If hired help looks like an employee, they should be paid and reported like an employee—if not, they can be a contractor.

Here are a few factors that require employee status:

• They have set hours of work
• They use your business' tools or equipment
• They can quit without breaching a contract

If the hired help offers their services to the general public who competes with you for the the hired help's continued services, they can likely be hired as a contractor.

Check the 20 factor test for more.

Be Ye Warned: If you're going to have more than one 1099 hire, discuss this with your tax advisor. 1099 hires are a red-flag to the IRS, as they're often used to avoid taxes.

If you pay less than $600 to a contractor, you don't need to send a 1099 to the IRS. If the contractor earns less than $400 after expenses, they don't need to pay self-employment taxes (but they still need to report the income).

Here's a good resource with more on contractor taxes.

Employees generally "cost" 20-25% more than their salary.

But, they become much more personally and emotionally invested in your company. They'll go the extra mile for the sake of the business.

Another (rather heartless) consideration comes when selling your company or retiring. Employees are often viewed as an asset by potential buyers. Or, when you're ready to hang up your spurs and retire, you'll find long-time employees might be interested in a buyout or partnership to continue the brand they've helped build.

A skill set comes with a price tag. A personality doesn't.

You can train someone how to replace iPhone batteries easier than you can "train" someone to be likable and pleasant with customers.

Let those statements sink in.

Hire based on your gut, not an impressive resume.

At the end of the day, you want a satisfied customer. As we've said before—quality repair is important, but a repaired device doesn't always mean a satisfied customer.

• Trial period: make it clear that the first 90 days of employment are a trial period. There's generally a one-week honeymoon phase, followed by a couple months of the hire struggling with the learning curve. Give 'em 90 days before any expectation that they'll be staying on a more permanent basis.
• Hire two people at once: it's half the training cost/employee, they'll both help each other learn, they'll compete, and you can compare them to each other.

With employees, there isn't a lot of gray area: either they're working out or they aren't. Are they costing you more than they're profiting you? Include stress and other emotional costs in the equation.

Our parting nugget of wisdom: be compassionate—but remember a pruned tree is a healthy tree.