Is It Time to Hire?

By Toddi GutnerFOXBusiness

The stock market recently posted the best first-quarter performance in more than a decade, the nation’s economic indicators are headed in the right direction — up — and unemployment, while still high, has stabilized for now. On the home front, small-business owners across the country are reporting a slight uptick in sales, which should translate into a nominal increase in profits.

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So while the economy still has a long recovery ahead, most experts think the worst is behind us. Having weathered the storm, many business owners may be pondering whether now is the time to take on additional employees. “This is a great time for smaller companies to hire,” says David Gevertz, vice chair of the labor and employment department at the law firm of Baker, Donelson, Bearman, Caldwell and Berkowitz. “Wages are depressed given the relatively high unemployment rate, and many of those looking for work … are good performers who lost their job due to economic factors beyond their control,” he says. What’s more, he adds, it is likely companies can find employees trained by the competition.

The government is also trying to sway hiring decisions. To help jump-start hiring, the HIRE Act, which President Obama signed into law on March 18, exempts businesses from paying the 6.2 percent Social Security payroll tax for the remainder of 2010 if they hire people who have been unemployed for 60 days or longer. It also offers employers a $1,000 credit if new hires stay with the company for a year.

Low wages, a superior talent pool, and tax incentives aside, business owners need to think strategically about hiring more employees now — and raising their fixed-cost structure. “Your biggest expense is the cost of your people, and when managing that resource you need to be prudent and thoughtful,” says Rick Revetria, managing director of Sensiba San Filippo LLP’s business consulting practice. In some cases, it might be worth buying a consultant’s time for $375 an hour on an as-needed (variable cost) basis or locking in a $30,000 annual salary (fixed cost).

To make these decisions, businesses need to look at specific metrics such as revenue and profit per employee. While it is likely a company can do more business with more staff, an employer needs to assess its rate of return on each employee. Run the numbers, says Revetria, who describes a construction company for whom he has done some consulting. This company had been forecasting new business as a result of a huge backlog of orders. As it ramped up, it would need to hire people, but its employees get paid weekly while the company bills its customers monthly and allows for 45 days to get paid. The company needed to do a cash flow forecast and figure out how it would fund the ongoing payroll. “When [the company] went through the exercise, they realized they needed to come up with some creative ways of doing it,” such as billing twice a month, says Revetria.

Even after assessing the cost-benefit of adding an employee, small businesses may still want to try and stay as flexible as possible with hiring decisions. “If additional manpower is needed to fulfill an increase in demand for your products and/or services, it might be best to utilize a staffing agency to provide temporary employees to fill that need,” says Adam Alexander, vice president of MasteryWorks, a career development solution company. In this way, the company can easily end the assignment if the work dries up or the employee doesn’t meet the company’s needs. Alternatively, “if the increase in demand is more permanent and if the person is capable, then you can hire that person from the staffing agency,” says Alexander. It also gives the company a chance to “try out” the potential new employee to see if he or she fits into the company culture.

Shannon Graham, owner of GSI Contractors in Beavercreek, Ohio, is planning on taking advantage of the new HIRE Act and is looking to add four full-time employees. “The tax incentives will offset the expense of hiring new employees. … If something will cover a quarter to half of a person’s salary for a year, that will help [fuel] growth,” says Graham.

To be sure, hiring decisions are never easy, and they are especially difficult during a fledgling economic recovery. But doing a careful analysis and assessing your needs now will help in the long run.

Toddi is an award-winning journalist, writer and editor and currently is a contributing writer covering career management issues for The Wall Street Journal.

* The Fox Business newsroom was not involved in the creation or production of this special advertising section.

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