Your Hub


Forgot password?

Register for ANZ Biz Hub

You'll get easy registration for workshops offered in your area.

Find out more

Find out more

How to recruit the right people print Print

  • 3.4 out of 5 stars
  • from 7 ratings

As your business grows, there’s a good chance that the workload will become more than you can handle. Hiring your first employee can seem daunting, but it’s a reflection that your business is growing so it’s generally good news. We’ve got some tips on taking on your first employee.

Taking on your first employee

How do I know it’s the right time?

Is now definitely the right time to hire? Too early and you might expose your business to unnecessary costs, too late and you might reach capacity, and risk not being able to deliver to customers.

If you’re having trouble making a decision about whether or not to take on staff, there are some questions you should ask yourself:

Am I missing out on opportunities?
In other words, are you missing out on potential business because you’re not employing someone?

Am I overstressed?
Take a look at your work/life balance, and examine how you’re feeling on a day-to-day basis. Has the pressure crept up on you? Are you spending most of your days feeling harassed and stretched?

What are my strengths?
If you’re feeling frustrated because you’re spending so much time on other tasks that you can’t concentrate on what you’re really good at, then it’s a good indicator you need someone to take over those tasks. 

For example, your main strength might be getting new business, or making the products that you sell. This may indicate that you could do with some help with managing your business’ admin: it doesn’t pay for you to do routine administrative tasks when you could employ someone at, say $20 per hour to do the work for you, when you could earn more than $20 for the business in that same hour. This leads naturally to further questions…

What are my limitations?
These are things you’re not great at – for example, admin tasks – but it could also include things you don’t like doing. Do you really need to be doing them yourself or could you make more money by concentrating on what you do well?

What’s making the most money?
Identify what brings in the most money. What part do you play in these core activities? How can you maximise the time you spend on these activities?

Prioritise your activities

Ask of each activity: 'Is this the most productive use of my time?' You can't ignore the 'other activities' because they are part of running an efficient business, but does it pay you to do them all yourself?

What opportunity costs are you incurring?

Perhaps the most important question of all to ask is: How much potential business am I losing because I'm not employing someone? Consider this opportunity cost as well.

In addition, employing someone can create its own positive momentum because the step frees you (or another key person) from routine tasks to undertake more strategic planning, marketing and business development.

Banish those doubts

When people hesitate to employ staff, it’s usually because:

    • They’re concerned with the hassle of ‘paperwork’ – issues such as compliance, PAYE, payroll tasks, KiwiSaver, the various kinds of leave and employment agreements.
    • They’re worried they’ll hire the wrong person – issues such as how to dismiss an employee, the possibility of personal grievances, and how to handle it if the employee turns out to be unsuitable.

These shouldn’t be reasons to decide not to hire staff. When you’ve asked yourself the above questions and they all point to the benefits of taking someone on, you shouldn’t be put off by the potential hassle of becoming an employer. You’re denying your business the chance to grow.

So put your mind at ease by getting help with employment issues through:

    • Business colleagues – talk to people you know who’ve hired staff and take on their advice.
    • Local Chamber of Commerce – becoming a member means you’ve got access to a wide range of support, including recruitment services and employment guidelines.
    • Employers & Manufacturers Association – the EMA provides guides and sample forms on employment relations, as well as networking support and advice.
    • An online payroll solution like SmartPayroll to help you calculate wages and salaries, and file PAYE with the IRD. SmartPayroll will also work out holiday pay and KiwiSaver contributions on your behalf.
    • Inland Revenue – you can get advice at their Becoming an employer section, and you can access their Interactive Tool for business, which explains your obligations in clear, simple language.

Working out a break-even point

A useful next step is to work out how much extra business an employee would need to bring in to pay for themselves.

    • Service business – you may need to calculate a charge out rate for your employees. For instance, if you're charging an employee's time at $80 an hour and paying them a salary of $50,000 a year, then they must work 625 hours in that year ($50,000 divided by $80) just to recover the cost of their salary. If you think there's not enough work in the marketplace to generate at least another 625 hours of work (or 14 chargeable hours a week (625 hours divided by 46 weeks) then don't employ them. Note that this calculation doesn't include overhead costs or a profit margin - just the bare salary. 

See our article on Tips for calculating an accurate charge-out rate.

    • Products business – if you sell products as well, then calculate a break-even point for your employee using your gross profit percentage. For example, if you intend paying a retail assistant $35,000 per year and your gross profit percentage is 30%, then you must sell an extra $116,667 in the year just to cover the employee's salary ($35,000 divided by 30%).

What type of employee is best?

Once you’ve made the decision to hire an employee, the next step is to determine the type of employment that best suits your business. The most common options are:

    • Full-time employee – they are more likely to be loyal and to have a vested interest in the future of the business. A 90 day trial period means you can terminate the agreement if neither of you feel it’s the right fit.
    • Part-time employee – this is a good option if you know work is on the increase, but not quite enough to justify a full-time position. 
    • Fixed term – these work well for projects. You know what your costs will be and when they’ll stop. 
    • Contractors and subcontractors – also good for project work and there aren’t any employment or compliance issues. However you need to be sure of what really defines a sub-contractor, so check out IRD’s Who is an employee or a contractor? guide so you don’t get on the wrong side of them. Generally speaking, a contractor is someone you’ve hired for a certain project, and a sub-contractor is someone that the primary contractor has hired for a specific part of that project.

Tools & resources

Rate this article:

  • 12345 Click on the stars to rate

Share this: