Your first hire as a self-employed sole trader or freelancer can be a magical memory for many reasons. It means you are so successful that you need help with your clients. But it also means your business becomes legitimised. From calculations to bank accounts, here are some tips.
Get All the Help You Need
There are many responsibilities when you hire an employee for the first time. Not only are there tax and welfare issues, but you also need to meet fiduciary concerns to pay your new worker. You can go old school and pay cash, or you can automate bank transfers. Either way, online payroll services can make paying your employees much easier by taking control of the entire process, ensuring they get paid for a job well done, and recording it for tax returns.
Calculate the Costs
There are many costs beyond wages when hiring an employee. For example, there are pension schemes depending on where you operate and live, such as the UK’s National Insurance and Workplace Pension Constitutions. Then there are statutory systems, such as sick pay and maternity leave, that vary by country or state. Of course, one of the most universal costs for employers is the mandatory Employer’s Liability/Workers’ Comp insurance.
Budget for Your First Hire with Hidden Overheads
A study by Capita found that 82% of new business owners underestimate the startup costs. Whether working from home as a freelancer or from a brick-and-mortar store, any employees you hire will come with additional costs beyond wages. For example, just finding the right person for the job comes with recruitment fees. Then there are training costs for specialist tools and equipment, and you will also need to set up a payroll system to manage legal wages.
Keep Personal and Business Funds Separate
You will run into all kinds of trouble if you don’t separate your business and personal income. You don’t even need a business bank account, as any account will do for a small operation. However, these must be paid into different accounts, as it can be easy to use like-for-like. But trouble starts when you use business funds for personal gain, risking a shortfall in money availability for wages, business operations, and, of course, paying business taxes.
Create a Cash Flow Forecast
As a business owner, even if it is a microbusiness, planning and forecasting should be part of the package. Of course, when you are considering hiring an employee, they must be included in a revised business forecast for the coming year. This will highlight potential issues and determine whether you can afford to take on an employee given your current financial situation. If the (conservative) budget doesn’t look good, then perhaps leave it until the following year.
Summary
Getting the help you need, such as automated software or outsourcing, is recommended when you need to budget for your first hire. There are always hidden overheads, such as training, that can be overlooked, so try to be thorough and include these in any annual financial forecasting.
