Jaimie Kasopsky can tell a sad startup story.
Kasopsky is a certified business-performance adviser at Insperity.com, a provider of outsourced HR services. She once met with a startup that was employing eight or nine employees at the time, and they wanted to hire another. Wanting to lure him away from another company, they promised benefits for the new hire’s family, having no idea of the cost. Had they known, they could have offered a salary and told the hire to find benefits on the open market. But they didn’t. Now they must offer that package to every employee.
Cash-strapped, early-stage tech companies attempting to scale are vexed by an array of such questions peculiar to staffing:
- When should I hire my first employee(s), and whom?
- What are the benefits of hiring from within the company?
- Whether to hire on a contractual or salaried basis?
- Would hiring a newbie who doesn’t need retraining be more cost effective than hiring a seasoned professional?
- What creative compensation options may be available?
“Your college roommate may not be qualified to be CFO of your growing company,” Kasopsky says, adding that — when you know that you don’t know squat about the intricacies of human resources — seeking out the right help can protect your company not only from unnecessary cost but also from liability.
Staffing is one of the great stress tests of a scaling startup. Here’s a back-of-the-napkin picture of the HR implications tech startups face when hiring new staff.
Your papers, please? Among the serious legal mistakes to avoid are bad employee agreements. But don’t neglect the need for good record keeping generally, plus tax withholding, eligibility verification, and prescreening.
Another potential legal risk: mischaracterizing employees as contractors who are not subject to wage and hour laws. You don’t want to get dinged for cutting corners.
Formal hiring process Experienced employers know just how costly a bad hire can be. And maybe the company’s founder really isn’t the best interviewer of candidates. So working up a formal, replicable hiring process involving a team of skilled interviewers will promote agile, effective hires while helping to ensure a good culture fit.
After the hire, onboarding and training, making new hires integral to the team, may seem like more than a small startup can handle. But the savings, loyalty, and quality control in the long run are baked right in.
Timing Referring to the title of Doug Tatum’s book, Kasopsky reminds us that startups scaling up enter a “No Man’s Land” where, for example, your company is too big to continue to float on your personal credit and too small to get loans that are profitable to banks. “It’s not until the company gets up to a 10- or 20-employee threshold that it really needs to attract and retain outside talent,” Kasopsky says. Your current team may not be qualified to move the business safely across no man’s land, risking the company’s investment and future.
Contract or Salary? For many startups contemplating their first hires, the elephant in the room is whether to hire on a contracted or salaried basis. With financial resources stretched thin, hiring contract workers offers substantial savings — no need to pay benefits, overtime, or minimum wage, for example. But as we saw, drawbacks exist and demand detailed attention, particularly when making stocks part of the compensation package.
The increased salary thresholds for overtime from Obama’s executive order of May 2016 may incentivize more contract hires and put a wrinkle into stock-option packages. Choosing from among a few challenging options to meet the new overtime rule while complying with workers’ compensation regulations and other wage-and-hour laws requires more than referring to websites. Doing it right, doing it intentionally, takes HR savvy and perhaps a pro.
Outsourced HR options like Insperity can provide instant HR infrastructure, workforce optimization, payroll services, worker’s-comp processing, even group medical benefits and providing business owners with an informed sounding board. While outsourced HR firms don’t typically find your next employee for you, they can put in place the structure and process for finding the right employee. “You want a partner who has skin in the game,” Kasopsky says. If you’re not an expert in any particular space, it makes sense to find outsourced talent.