The True Cost of Hiring Employee (that no one talks about!)

#72. Feeling anxious about hiring your first employee? Sevana and Tiffany got you covered with one aspect of hiring that many business owners mis-step which not anticipating the TRUE COST of employees. Sevana and Tiffany break it all down in today's episode!

Resources:

ADP Payroll Calculator: https://www.adp.com/resources/tools/calculators.aspx

Gusto Payroll Calculator:

https://gusto.com/resources/calculators/payroll

QuickBooks Payroll Calculator:

https://quickbooks.intuit.com/payroll/paycheck-calculator/

**************************** About BBSB - We are two business owners with two very different perspectives on building business, and the business behind that in order to achieve your goals. One of us built to sell, and will continue on the serial entrepreneur path, which means your focus and drive should include very particular tools and tips in order to achieve your goal. The other, is building a generational business, one that can go on long after she’s let go of the wheel. This type of business also requires very specific tools and platforms to achieve this goal. Both women have been successful in their own right, but in honesty - haven’t scratched the surface! Sponsorship Opportunities - Email us here: thebusinessbehindsmallbusiness@gmail.com Website - Check out our website! https://www.thebusinessbehindsmallbusiness.com Notice - As an Amazon Associate, we earn from qualifying purchases. These earnings contribute towards the costs of creating this podcast and we greatly appreciate your support! Disclaimer - We are NOT licensed financial experts, nor do we give financial advice. Anything we share with you here on our podcast, whether it be a personal experience or submission, or advice/tips that have worked for us, or that we believe would work for you should not be viewed as either financial, business, or tax advice. We ask for you to do your research, have open and honest conversations with your company’s own support providers and make decisions based upon that. Throughout this broadcast we will share our knowledge and give suggestions and hope you will receive them as part of your overall research to better your own company.

Transcript

SPEAKER_00 0:00

Hi everyone. Thank you for listening to our podcast and for watching, of course, as well. Tiffany and I give our all to this podcast with curated information, researching platforms, and creating a show with the best up-to-date information that we can. We have a vested interest in the growth and health of your business and hope you feel the same way about us. Would you like to produce a show? Of course you would. All you have to do is email us at the businessbehindsmallbusiness at gmail.com to express your interest and we will share with you all of the marketing opportunities you will get in exchange. Please support us so that we can continue supporting you. And with that, we welcome you to our show, The Business Behind Small Business. Whether you're selling or staying, we're here to remind you that just because you own a business does not mean you are a business owner. We are your hosts, Silvana Stone and Tiffany Keo. Sharing the more fun Jas Hansen. We are sharing the more finite details of entrepreneurship, revealing the dots between startup and success. No one gets to a million without getting a little dirty. There's a lot of business behind small business, so let's get to it. Or really, really dirty. Yeah, yeah. Payroll.

SPEAKER_01 1:21

Let's talk about the dirty side now. Payroll, payroll.

SPEAKER_00 1:24

Payroll is a necessity and it's a huge part of running a business. However, many people do not recognize or realize how much really goes into employees. Um, and uh it's not just a matter of hiring someone and then setting them up with their taxes. There are many costs involved, some of them are hidden. And frankly, if you make a mistake, it will end up costing you a whole lot more. We are here to talk about payroll, and we're gonna stress you out about the mistakes that you could potentially make.

SPEAKER_01 1:55

So grab your favorite beverage while you listen to us. It could be coffee, it's five o'clock somewhere, vodka vodka, whiskey, yeah. Let's talk about payroll.

SPEAKER_00 2:04

Yeah, and it will cost the payroll. Yeah, and hopefully we'll be able to bring you some peace and tranquility with uh with our tips and advice. And uh hopefully the IRS will not come after you and your family. Uh before before we begin, please note our disclaimer.

SPEAKER_01 2:20

Now we've convinced you to stay on board with us within the next however many minutes.

SPEAKER_00 2:24

The horror show. Uh, this is available in both our show notes and on our website. It should be referred to before and/or after our podcast.

SPEAKER_01 2:34

So I'm just gonna dive right in to talk about the true cost of payroll. So there are hard costs and there are soft costs of payroll. Isn't that great? So it is not just the paycheck that you actually pay to your employee. There are other costs that you should consider as an employer above and beyond that to make sure the fact that you are not under under budgeting for when you're ready to hire somebody. So, of course, there is the salary and wage you pay your employee. There's also benefits. So health insurance, retirement plans, uh, PTO days. These are all benefits that need to be added to the cost of your employee. There are employer taxes. So the taxes you have to pay on behalf of your employee for having an employee. So Social Security, Medicare, uh, unemployment tax. Um, there is recruiting or recruiting expenses. So this is the all the costs it leads up to you getting that employee. So this could be advertisements, it could be posting on ZipRecruiter, Indeed, one of those platforms, doing any kind of background checks, or maybe you've hired a recruiter to actually help you get the people through the door. So uh there's that. And then after that, there's also the hard cost of training and onboarding your employees because once they come through the door, yes, they may have experience, but they not they do not have experience in your particular business, in your unique business, and how you want things done. So you need to have time to train them. There's equipment and supplies, so laptop. Um who can't get something done with some kind of laptop or phone these days, right? I feel like every job requires at least some kind of phone, smartphone and a laptop, um, and any kind of software license. So Microsoft 365, Google, whatever Google's is called. Works, baby. Thank you. Because clearly Google, hey, Google meet Microsoft. Yeah. Yeah. Um, office supplies, so pens, papers, all this fun jazz that you have to supply them um for them to be able to actually do the work you need to do. And then of course there's the workspace costs. So if you want them to not be working from home and they have to work from an office, there's space, there's rent that you have to pay for that. And then even if you are, if they are working from home, um, there are sometimes extra costs to having remote employees that you need to be able to think about.

SPEAKER_00 4:49

So well, there's also if you're depending on the kind of business you have, it could be the vehicle, uh, vehicle that you uh have they have to drive, the um the supplies that you have to give them, if you're in a trades industry, if you're in construction, you may have to buy a new dozer or um you know whatever else it is that you need. Uniforms uniforms. Uniforms, you may have to buy buy, uh pay for their gas, which oftentimes is the case.

SPEAKER_01 5:15

You end up paying some kind of mileage or some kind of something like that.

SPEAKER_00 5:19

And also, because it's going to become an issue, is a GPS. Yes. A GPS to make sure that your workers are going to the places that they're supposed to go. Yes. And not just going home and taking a nap.

SPEAKER_01 5:30

Yes. And then on top of that, of course, then if you have employees, do you have payroll costs? So the actual cost of running payroll. So whether you use a platform like ADP, Paychex, Gusto, whatever there is out there, there's the cost of that. Plus, if you are in a trades industry, we're talking about timekeeping. So you gotta pay for that software.

SPEAKER_00 5:46

Yeah, and a lot of people don't don't realize that payroll is not just hiring a payroll company, it's you pay monthly, then you pay also each time you run payroll per person.

SPEAKER_01 6:01

Well, it depends on the payroll platform. Like so, Gusto is like a flat fee per person. But they you can run as many pay payrolls as you want in a given month, but uh, I think ADP and paycheck is per payroll. Yeah. And then there's the year-end cost of preparing the W-2s and any of the filings and whatnot. So, yes, there's a little bit more cost than what most people would imagine, which is just the payroll company. Yeah. Okay, so then that's just the hard costs. Now we're gonna talk about the soft costs. And then I promise you, this is not as depressing as it sounds. We are we are telling you the facts so that you are able to be prepared for it because the better prepared you are, the less shocked you're gonna be once you get that first employee and you go, wait, how much how much can we do it? Right? So this is all necessary cost of hiring employee. So let's talk about the soft costs, the things where you don't have to spend hot hard dollar on, right? There is the time spent to actually hire. So whether or not you hire somebody, like a recruiting firm to actually help you, at some point, I would imagine, especially if you're a small business, you'll be part of that interview process, which means you have to spend some time in this recruiting uh workflow. So you have to spend time maybe reviewing resumes, doing actual interviews with the candidates. Then, of course, there is the training time that's part of the onboarding time. So you want to make sure that you are giving them training, but however, you've got to imagine the fact that while they're training, they're probably not doing actual real productive work because they're probably not ready to do real productive work. So there is still a lag in there from when you hire somebody and you start paying them to when they're actually producing income for you. That makes sense. Then there's the cultural impact. So uh when they're ready, there's a new addition into your company. There is a new contributor to your culture. And you hope you screen them properly when you recruit them, that they're not any negative impact to your culture. But you sometimes never really know until they get started how they're gonna actually impact your culture. So that's something that is a cost, especially if it is a negative impact. Um, there's also management supervision time. So once you get them trained, you get them onboarded, unless they are the manager, and in which case, if they're the manager, somebody's still supervising them. Um, most employees have time where they need to sit one-on-one with your manager and do one-on-one discussions and talks and evaluations. And these are all time that is not contributing to profit generating or revenue generating kind of activity, right? So that's just cost to you, uh, which kind of leads into kind of productivity rap productivity ramp-up time, which is what we had talked about, about you know, getting people onboarded and how long it takes them from when they start to when they can actually do work that'll be deliverables to your customers or you know, contribute to that top line. And then, of course, it's the potential turnover cost, right? So, with every employee, as much as you wish they will stay with you forever, they don't. You know, whether or not it's life circumstances, whether or not it's they just had a better offer. The truth of the matter is these days, turnover happens. Um, it is a thing of the past, although it's not really that much in the past, that people who will stick around a job for 20 and 30 years, there are still people who are employed for that long, but it's just a little harder to find in this workforce these days. So turnover costs where you kind of have to, you know, not only let them go, but start the whole process over of hiring, recruiting, and training and everything, that's an impact, as well as the impact to your customers, right? As you would imagine, if you're in any kind of service-based industry, especially if you're turning over somebody who is client-facing or customer-facing, there is going to be some impact because your customer may have been used to that person, how they actually produce and how they actually communicate with them and how they work with them. And now you kind of have to replace that somehow and make sure the customer still gets what they're paying for. Right. Yeah. So let's talk about math. Uh-huh. Please don't, please don't turn this off. I know.

SPEAKER_00 9:48

Whenever math is mentioned, I kind of glaze over.

SPEAKER_01 9:51

I'm so sorry, right? But look, this is the reality of it. We just want everybody to be prepared because we've seen so many business owners who are not prepared, and it really hurts to watch, right? So let's talk about math. Um, please don't, please don't end this podcast right now because we're talking about math. Uh, but this is where the nitty-gritty stuff is uh really super important to you as a business owner because we've seen too many people confused and surprised by the cost of employees, and we don't want that to happen to you. So let's talk about hard math. So something to keep in mind is that when you hire an employee above and on top of what you pay them, think about it between 1.25 to 1.4 times the amount you pay for their salary. So that means the total cost to employer is about 125% to 140% on top of the salary you're offering your employee, right? And so that's a pretty good gauge to kind of cover all these hard and soft costs we talked about. So to break down down a little bit farther, just think about this. So you offer somebody um a salary or a wage, whatever you want to call it, but that's about a hundred, that's a hundred percent. Then you add on top of that benefits. So benefits are typically around 20 to 30% of your base salary. So take the, you know, if you're paying them 100K, this is for simple math, 100k, it'll be about $20,000 to $30,000 of their base salary. Um, and that's again, that is insurance, retirement, PTO, holidays, all that stuff that you actually give your employee. Um, then there's the employer taxes. So the FICA, FUDA, um, state and federal, yeah, um, unemployment, that is about 10 to 15% of your base salary. So that's an another $10,000 to $15,000 add on top of your $100,000 base salary right now. Then uh training and onboarding, most people we you know estimate this to be about 5 to 10% of the base salary. And again, it really depends on how complicated your training is and how come how much training is needed for that person. But five to ten percent is not a bad estimate for it. Yeah, and then last but not least, uh recruiting costs. This goes back to you know who you hire, how you're recruiting, because you could, you know, do it yourself, which will be a little bit cheaper, of course, though as an owner, your time is kind of valuable. Um, but then you can also hire out for actual recruiters, in which case you can have hard costs you can kind of divvy out to this. But if you want to, again, have an idea of about how much to budget, it's about another five to ten percent for recruiting cost. So, you know, those are just some numbers to keep in mind when you're thinking about the true cost of payroll, it's uh it's definitely more than the amount that you're offering your employees as an employer. So watch out for that.

SPEAKER_00 12:25

So it is a good idea to um take into consideration before you start hiring employees as to how much it's going to cost you. I think it's a good practice to have. Uh so if you know that you want to hire by the end of this year, let's say, or you know that you need to hire by uh June of this year, whatever it may be, look at what it might end up costing you and how much your company is currently making. Uh, I'd hate for you to start hiring and then come to realize that you actually can't afford it. And then you're and then you end up be going into the negative. Or what ends up happening most often is that the owner does not pay themselves. Now, a lot of times that's what ends up happening is that you hire people and you don't take into consideration what you yourself are supposed to get paid. And then if you go to sell your company, which we've seen this quite a few times, you go to sell your company or you go to uh evaluate your company or whatever it may be, the there's one salary that is not being added to that. So let's say if you would have gotten paid $100,000 and your company uh has profited $100,000, really the profit is not a hundred thousand because it's zero because you haven't been paying yourself. So do remember to pay yourself. Do remember to, I think it's great to just kind of set it and forget it, which is kind of what I did. Uh put yourself on an automatic payroll, and whatever it is that someone in your role would normally get paid is the general uh rule. So if you serve as the CEO of your company, then pay yourself what a CEO would normally get paid. Not a whole lot less, not a whole lot more.

SPEAKER_01 13:57

So And you can work yourself up to that. Yeah, right. Definitely like the IRS isn't crazy. They're like, you can't probably pay yourself $150K you think you owe yourself in a beginning. Right. But you can work yourself up to it. But the idea is you should work yourself up to it. Do not just stay in that same room, which is, oh, let me not pay myself, but let me keep looking at the bottom line. I'm making a hundred thousand dollars. Well, dude, you're not paying yourself anything. So when you go to a lender, a buyer, or anybody, they'll add that back in um into your bottom line, which means in that effect you're making zero dollars right in the day.

SPEAKER_00 14:28

Right. And you know, also just for main budgeting purposes, you should be taking yourself into consideration because yes, you started the business, but you and the business are not the same. And I feel like I say this all the time that you are um essentially working for your business. I mean, yes, of course, you're working on your business and you know, all of those other things that we talk about, but you and your business are separate. So your business really should be paying you, and you should be taking that payroll into consideration as well. Um, also, uh, you need to make sure that you are staying, uh, you know, inflation has changed everything. So maybe what you were paying before worked for 2019 or maybe worked for even two years ago. But it would not it would not work now. So make sure that you're paying everybody what um say Glassdoor. I I go to Glassdoor or Glassdoor is a good one. Yeah, just see what the national average is for the roles that you're hiring for, and then also see what the the local average. Right, what the local average is because I can say that where we are in northern Virginia, people get paid more because everything costs more. Everything costs more. So it'll be likely different here than it would be in, like, say, Little Rock, Arkansas, Arkansas. Yeah.

SPEAKER_01 15:37

Or even, you know, you know, I'm from Richmond, so like you can. Oh, yeah, you're miles away. It's completely a different pay structure. Totally. And we nearly don't probably don't compete with like even New York, where actually we kind of do compete with New York. We do come to New York and San Francisco. Never mind. Yeah. But still, yeah, the location really matters.

SPEAKER_00 15:52

Yeah. So just make sure that you're taking that into consideration. Uh, another thing that you need to do, which is I find some of my clients that we do payroll for uh forget to register their businesses or register for um for the taxes in other states. So if you are hiring outside of your state, which is not unusual to do in Northern Virginia, people hire people in DC, Maryland, especially now remotely.

SPEAKER_01 16:17

Like people hire people remote in different states all the time.

SPEAKER_00 16:20

Yeah. Um in West Virginia, you just you have to make sure that you are registering your business. The state wants to know you're actually hiring somebody then. Exactly. And also take into consideration some states will require you to file for um unemployment or workers' comp or unemployment after the first check has been cut. First check has been cut. So, you know, remember, remember that because I have come across a problem with a client before where they forgot. They signed up and they did all the right things, but they forgot about that, and then they went like four or five months without having paid into the unemployment, and it ended up costing them a lot because there was also late fees and like all that other stuff.

SPEAKER_01 17:06

Well, I think the the the matter is for people who are hiring people remotely, you just gotta be careful. Every state has their own rules. Right. That's what makes this so complicated because it's not one state is the same, but federally is all the same, which is nice, but every state has its own rules, and like you said, like if you miss something, it's on you. And even if you hire a payroll company, yeah, still make sure you get certain things done, but sometimes they may miss the mark too, and it comes back on you. It's your account, it's just like taxes. They do it wrong, it's your your fault half the time. So just be careful.

SPEAKER_00 17:36

Another hidden cost of payroll, in my opinion, is hiring an HR specialist. Now, you could hire somebody contracted, you could do uh a contracted HR person until you can afford to have someone in your office, or maybe just stay with a contract contractual uh full-time HR in a house, yeah. No, you don't, but you definitely want to have someone You need to have a presence. Yeah, you need to have a presence because if you're gonna start hiring employees, you're gonna need human resources. Um that cannot be you, the boss. No, it cannot be you uh for compliance purposes, and also really, if it weren't a compliance issue, it would also be like why do you think that's a good idea?

SPEAKER_01 18:20

Yeah. So I don't think they're gonna come up to your door and tell you that, hey, I got a problem with you, but it doesn't mean that nonetheless it's not a problem, and we're not perfect human beings. We all have our issues and quirks and whatever, like that. So you need to be able to have a separate outlet for your employees if you ever want to find out any kind of issues that you can curtail early.

SPEAKER_00 18:40

So so take that into consideration that that's gonna be another cost for you as well. Yeah. Uh also, uh, if you are if you have been hiring and this is not any news to you, maybe what may be news to you is that rules change after you have 50 employees. So make sure that you uh stay in touch with what the rules and regulations are, uh, because once you hit that 50 employee, 51 employee mark, yeah, things change.

SPEAKER_01 19:10

Well, yes, a lot of it is federally changed, right? So then every state also has their own rules that may actually be less than 50. I think in Virginia there was something that's only at 25. Right. So um the idea is, you know, if you're trying to be your DIY HR specialist, there's a lot more involved and more complicated. You may be more at risk than you think. And these things are hard to keep up with, right? It's like trying to keep up with the tax law. There's it just changes all the time. That's why it's helpful to have one, a payroll company process your payroll, and two, having somebody who is an HR specialist help you.

SPEAKER_00 19:45

And uh my last point is if you are working in uh trades or if you're working in an environment where your per your people are going into someone's home or into someone's office, insurance, insurance, your insurance costs are gonna change. And uh so your liabilities are gonna change. What you were paying before is is gonna be a lot, it's gonna be a lot more now. So you got to take that into consideration. And what I had mentioned earlier about vehicles, vehicles or equipment. It's not just to me, it's not just the laptops. I mean, if you're if you've got a burgeoning, let's say burgeoning uh construction business, you have you have to buy more or rent more tools and uh machines. Yeah, and then you may want to also consider having a separate person as your safety. Um, your person who is the person that will be um report your people will be reporting to when there are safety concerns or safety issues. Uh, if you're gonna grow and you don't want some, these are the the ways in which to cover your butt. You gotta make sure that your insurance is correct. Keep in touch with your insurance person. I say you should talk to your insurance person like twice a year personally. Uh at least that's what I do. Um sometimes I talk to them more than that, but you need to talk to them. You need to make sure that that if there's anything that has uh come up that's new and it pertains to you, definitely look into it. How much is it gonna cost you? And then also um safety issues. OSHA, you know, you you it's part of your H it's part of your HR. It depends what industry you're in, it's a real thing. Absolutely, and it's part of a requirement depending on your industry. So uh these are all hidden costs that people don't usually take into consideration when they hire their first employee. So, and maybe not maybe you're not on your first employee, maybe you're on your twenty fifth employee. But as we just mentioned, rules may change, federal regulations may change, state regulations may change. So look into the state that you live in to ensure that you are you are up to snuff, that you're doing all the things right.

SPEAKER_01 21:52

Yeah, and this is actually pretty easy to figure out on your own. I mean, you just w wind back what we just said, right? And take out a sheet of paper and make a list. And make sure that you are putting a dollar value to each one of these so that when you hire somebody, you already know how much extra I need to put on top of their base salary or base pay. And then you get your true cost as an employer. Right. And that goes into your budget. And it's not to say that if you don't have the money today, you can't hire them because don't forget, I mean, you're paying their base pay like over a period of time, right? It's not like, oh, I'm hiring you for $100,000, I have to pay you $100,000 today. You're not. You're splitting that all over a period of time. But the idea is you need to know what your cost is. So you need to figure out how much revenue you need to bring in in what period of time so you can be able to start covering that cost. So you get you give yourself a little bit of a ramp up and you understand what that ramp up looks like.

SPEAKER_00 22:42

Right. And to me, the two most important costs for a successful business are the marketing costs and the operational costs. And payroll to me is part of operational costs. So if you can cover, or rather, if you can budget for your marketing costs, which is going to be that money coming in, and then you can also budget and cover your operational costs, which is the money going out, then you should not fail. So all right. Uh before we move on to the raw truth, we want you to be a part of our conversation and let us know what you want to hear. Send us questions or comments to our email, the business behind business the business behind small business at gmail.com. There we go. Nice. Uh say that three times twenty. Fast. To ask questions related to our show or just let us know how much you love us. Because I know you do. You know, you might not say it that often, but we know you do. Uh, we want to give you what you want to learn about. So if there is something that's been keeping you up at night and we haven't talked about it yet, shoot us an email. We'd love to talk about what you guys want to hear. All right, so we're gonna move on to the raw truth, where we're each going to share our own gritty experience with today's topic. We want you listeners to know that success isn't easy, it's not pretty, and it's certainly not a straight line. Uh, we hope you will hear our cautionary tales and learn from them. Have you got a raw truth?

SPEAKER_01 24:11

Not a bad one, but I would just say that I learned pretty on, and luckily I learned pretty on as hire an HR specialist, right? My gosh, I don't know what my life would have been like if I didn't have my HR consultant by my side. Um teaching me things that I would have never known before, um, all the way from how to interview, because there are actually rules about what you can and cannot ask in an interview. And I promise you, as a business owner, you will be shocked at the things you are not allowed to ask. Um, that you are opening yourself up to liability or lawsuit for, and you may not even know. Um, how to terminate an employee. That was an interesting uh learn and ask and conversation. Um, like just the whole cultural stuff, right? Like, I you know, there's so much like sensitivities and intricacy to building a culture, uh training your employees and everything like that. Like, I just feel like my HR consultant like kept me out of hot waters a lot of time. And I learned so much in the process too, that you know, for like my next company and the next hire, like I feel so much more prepared, like I know what to expect. So um, that was uh probably the best thing I did. It cost me a fortune, small fortune, small fortune. Uh, but I think the problem with that, like, you know, mindset is like it's gonna cost you what's c'est you. This is the cost of doing business. Right. And uh people always talk about bootstrapping, bootstrapping, bootstrapping, meaning you cut your cost to the lowest. There are certain things in business you better not cut your cost on. Right. Um, and this being one of them. And I do feel kind of like um, I do feel like that industry does oftentimes get overlooked, right? Because they're like, oh, it's all the touchy feely stuff, all the people stuff. Well, your people are your business. So, you know, if you don't invest in that, I don't know where else you were trying to invest your money into. Right. And just don't skimp, don't skip on that stuff, don't do it. Um, but I hired pretty early in my business. I only did like subcontracting for a little bit of time. Where I know a lot of companies uh do subcontracting for a much longer period of time because one, it's also great, like you don't have to deal with this in the beginning, but I kind of just went in full blown uh pretty early on. So and I did not, yeah. You did the opposite way, yeah. You stayed with subcontractors for quite some time.

SPEAKER_00 26:23

So definitely pros and cons to it all, man. Oh, for sure. Yeah, so I recognized uh that the model of my company in the beginning w required contractors. Yeah, because I just could not promise hours, I couldn't I couldn't promise anything. So I hired my first contractor. I want to say I so I started in 2011. I want to say the first person I hired was a 2017. Uh and that I hired a couple of people, and then in 18, 19, 20, hired a couple more, a couple more, a couple more, and everyone was a contractor. And that worked up until um last year. And last year I found that uh I had steady enough business, knock on wood, that um I had steady enough business that I could start guaranteeing hours. And so I looked at my year. I did exactly what we just talked about. I started the year off with this is how this is the number I have to hit in order to be able to switch people over to um over to con uh over to employment. And so I went to my team and I said, Would you like to be be on payroll at the beginning of 24?

SPEAKER_02 27:37

Yeah.

SPEAKER_00 27:38

And um, to be honest, a few of them were like, nope, I want to stay a contractor. Yeah, I mean, there are freedoms to to subcontracting that you can't deny. Totally. And the ones that stayed contract, I totally get because the work is as needed work. Yeah. Rather, the clients that they work for are as needed work, and really it is contract. It very fully lies lies within the contract uh rules, if you will. So I was like, okay, that's cool. Everybody else, uh, I did the math and I was like, okay, this is the number I have to hit by the end of 23. And I hustled. Yeah, hustled. Yeah. I hit that number and then some. So that leftover money I put into um my marketing budget, just like I talked about, operational and marketing. And so that's that's how I did it. I I do recommend other people to do that too. Just make sure that you know how much money you're because the last thing you want to do is end up, you know, what is it, cutting off your nose and spite of your face kind of thing. You don't want to put yourself in a bad position by hiring people without having known what your budget should have been.

SPEAKER_01 28:41

Yeah, I think that's the advantage I think we both had was because we knew about these costs and we, you know, by default always calculated costs just in our line of work and things. So I think that was a that was a real benefit and advantage to us because we made no, like it wasn't, it was very realistic when we decided to hire. We knew how much the cost is on top of what you're paying them. So both you and I had numbers in our mind of what revenue we need to hit in order to make all this actually work. So, like, um, because I hired early, there was a gap I had to make up fairly quickly because I went from because by the time you need somebody full-time, you're probably already too late. Yeah. So I hired before I had enough full-time work, but I was very aware of how much work I needed to bring in, how much business we had to bring in in order to be able to close that gap with that employee, including training time and onboarding time and all that fun stuff. And um, I think that that was that was you know super helpful. But I also recognize the fact that a lot of our clients don't have that advantage, they don't think about stuff like that, which is why we're making this podcast because we want people to think about it. Because it's not like you shouldn't hire, you should hire, just don't do it with your eyes closed. Mm-hmm. Exactly.

SPEAKER_00 29:48

Yeah. And I think this is a great time for us to take a commercial break. Commercial break before we move on. All right. Wouldn't it be great to hear the sound of us promoting your business for you right here on our show? Of course it would. You can have that and more by producing a show or multiple shows. All you have to do is email us at the businessbehindsmallbusiness at gmail.com to express your interest and we will share with you what you will receive with your investment. You'll have the opportunity to have your name and the name of your business mentioned multiple times on our show, having your company logo on our social media along with details on how to get in touch with you and other marketing opportunities as well. Please support us so that we can continue supporting you. So, uh now we're gonna move on to our famous example. In each episode, we'd like to connect a famous example to our discussion to help relate our talking points on a more global or well-recognized scale, revealing the dots between the living room startup and the success story on the cover of Forbes. Sometimes we use exact examples of either famous persons or successful business owners of today or in history. And sometimes we use examples of people who inspire us and have inspired today's discussion. All right. My famous example is Sir Richard Branson.

SPEAKER_01 31:07

Oh, I like that guy. Who doesn't like Sir Richard Branson? Let's just be honest. He's such a fun guy. He seems like it. Founder of Virgin Group. Um, he is all about people. If you've ever seen him in interviews talking about business, he is all about the people of his business. It's actually really admirable to like see. And so, you know, he has probably been known for saying a lot of things, but one quote I have here is you know, clients do not come first, employees come first. If you take care of your employees, they will take care of your clients. That is so true. Yeah, it's uh it's he's so smart. So his approach to hiring is really focusing on the value of employees to the overall business ecosystem. So I feel like it's a little bit of what we were talking about, the culture and how your employees actually fit in. Um, indirectly, um, which are things that indirectly is like a uh like a soft cost, as we said. There's no hard cost to it, but it's a great cost to the business if you don't prioritize these things, right? Um, such as the employees, you know, fit and well-being and whatnot. So there was an example that I I dug up, which I thought was kind of interesting, as a short example, because nobody really wants to talk about their business pro like business people problems half the time, right? But one thing that brand uh Richard Branson actually have uh shared before was the the fact that he had a senior training captain at Virgin Atlantic who made a mistake by landing a plane with the parking brakes on. Oh so I've never flown a plane, but I can only imagine why that's a bad idea, as every our listeners probably can do. Oh my gosh. So, but instead of leading to immediate dis dismissal, which would be the case for most companies because it was a potential like safety risk, and there obviously was cost involved because I can only imagine what happened to that plane after that happened. Uh, Branson took a different approach. He recognized the captain's impeccable record up to that point. So the the captain has been with Virginia Lange for some time. He's had no issues with his record. And uh the value of lesson learned, because I imagine that captain's not going to do that ever again. Heck no. Uh Richard Branson actually chose to actually keep him and retain him on staff. So that's because he believes so strongly in the experience that this experience would make sure that the captain will never do this again. Um and he's also using this as a lesson learned to teach others to be careful with what they're doing, which then ultimately contributed to the safety, overall safety, and improvement of the airline's operations. So that was a call on his part of, you know, kind of exemplifying how he really feels about the people impact of his business. Not sure how much repairs had to go in that plane, though, but my gosh.

SPEAKER_00 33:58

Like I'm imagining that it must have broke the wheel hinge off and he must have slid. Like that's the only way I could imagine.

SPEAKER_01 34:06

Imagine a rough landing, too. Wow, right? Holy cow. Well, I'm impressed that he off day. Somebody was having an off day, apparently. Like serious off day there.

SPEAKER_00 34:17

All right. Well, I am gonna be um talking about Henry Ford because he was so much more than just the inventor and owner of Ford vehicles. He really did revolutionize how many hours a person worked in a week and how they got paid. Yeah, that's true. Yeah, he is the creator of basically the working hours that we know today. Because before that, uh there were no 40-hour work weeks. They were more like 80-hour work weeks, and there was no such thing as a weekend. Ford created the weekend.

SPEAKER_01 34:46

Ah, that is true.

SPEAKER_00 34:47

There was no such thing as a weekend before, yeah, like the person should have early 1900s. Uh yes, it was. 1914. Uh, he believed that a person should have Saturdays for their family and Sundays for the Lord. And he also believed that by doing that, that created a more relaxed and less stressed-out person who would be more productive. What a thought. What a concept. Um so he also paid believed if you paid people well, it was easier to retain them. So in 1914, Henry Ford paid five dollars a day for eight hours of work, which was double the average um of factory wage at that time. And Ford also created the middle class prior to Ford. There was no such thing as a middle class. I thought about that. When I read that, I was like, and then I was like, hmm.

SPEAKER_01 35:41

No, and that time was that's when they had that big class disparity, right? Because basically you had the ultra-rich and you had the ultra-class. Ultra poor. And then that was it. That was there was nothing in between.

SPEAKER_00 35:50

Yeah, which was interesting.

SPEAKER_01 35:52

Yeah. And now the middle class supports the whole economy.

SPEAKER_00 35:54

Yeah, there was the upstairs, downstairs. There was no no first floor people.

SPEAKER_01 35:59

Yeah, and it was almost impossible to jump from the lower class, like the the uh low income class to the high income. Like there's almost impossible to get through that bridge.

SPEAKER_00 36:07

Yeah, you did have like upper middle class, yeah. But it wasn't even called upper middle class at that time, it was called like lower high high class.

SPEAKER_02 36:14

It was called So you were the best of the worst, or the worst of the best.

SPEAKER_00 36:19

Pretty much. Um, but it's kind of funny because uh because Ford was a hard-nosed businessman businessman, he knew that by introducing a five-dollar work day it would stabilize the workforce and it would make him far more competitive in the industry. Um, and he would attract the best employees and retain them for the longest. So, what was the motivation? Uh well, a year prior to that, Ford had introduced the first assembly line with his production of the Model T. And the conveyor belts were transporting small parts to workers, everyone had their place. It was like do go do go do go. Well, he didn't necessarily need skilled workers for that. He just wanted people who would happily do the same thing hour after hour, day after day. Oh, this was the industrial age, right? Exactly.

SPEAKER_01 37:04

What was it, the um oh not conveyor about, I'm trying to figure out the assembly line. Thank you.

SPEAKER_00 37:12

The assembly line kind of like invention. And the problem that he found was that his workforce was finding it to be boring and laborious. So he had a real problem of absenteeism and a lot of turnover. So when he gambled with the higher wages, thinking that it would attract more reliable workers, it was a gamble that he really it was way off, way better rather, than he ever expected. So now people were like, yeah, not a problem. I'll I'll push that button 150 times a day if you're gonna give me $5 a day for that. Whereas before I was making $2.50 a day. So um, Ford Motor Company doubled its profit. With that, with that in mind, Ford Motor Company doubled its profit in less than two years with this just with this one change. And it was the best cutting move he ever made. Many also believe that Henry Ford also upped the wages in order to expand his market by paying his employees enough so that they could afford to buy one of the vehicles from Ford. Which too is very self-serving. It is, it is. However, I will tell you, having having lived in Michigan and lived a majority of my my childhood and adulthood in Michigan, and uh so from where I lived to where my high school was, I passed two factories at the time that are closed and gone now. But um, I will tell you that everyone I knew drove a Ford, their father drove a Ford, their grandfather drove a Ford, and probably their great-grandfather if they if if there were one. Um, everybody drove a Ford. If you worked for Ford, you were Ford for life. If you worked for Chrysler, you were Chrysler for life. You know, what or GM, GM for life.

SPEAKER_01 38:56

And it was a great way to wear colours on their arms and then had to duke it out in the streets.

SPEAKER_00 39:01

Uh yeah, they danced it out. Ford versus Chrysler. They danced it out. I see.

unknown 39:06

Yeah.

SPEAKER_00 39:06

That's a sharks. The sharks versus the Jets. Um, I I mean, I don't have any definitive studies on it, but I tell you, it definitely worked because he created this um pride, this level of pride. I'm working for Ford and I'm driving a I tell you, the first time I went there was Actually, that's an incredible asset, though.

SPEAKER_01 39:24

Like if your employees have pride in working for your company, oh my gosh.

SPEAKER_00 39:30

Like well, he had a family and friends discount, I recall at the time. Now, this is back in in the late 80s, early 90s, when I had a conversation with somebody about it, and I think it was like a 30% discount, which is pretty considerable, I think. And I I lived in a really, really blue-collar town, blue-collar area in like my school, everybody had a four-pinto. Because four pinto back then was six thousand dollars, not a problem. Okay, yeah. Okay, it was it was a sea of brown, and they did look like pinto beans, it was kind of funny, but anyway, um, I will say it absolutely worked for him. It absolutely worked for him, and it was the best move that he ever made. And then the rest is history. So there is a saying that goes, put your money where your mouth is, and we're drilling down a bit further to connect what we've discussed at a granular level to tangible sources you can take to get you to the next level.

SPEAKER_01 40:25

So we'll list this in the show notes, but I did find uh a few like online calculators that you can use to be able to calculate your cost of payroll. So we have like, I mean, first of all, all major like um I feel like payroll platforms have it. So we have ADP, Paycheck City, uh, Gusto, QuickBooks even have a calculator. So pick your favorite, uh go with it, and make sure that you really do know the hard and hard and soft costs or these are fantastic of your of your um hiring needs. Um, a couple books. Um, The Cost of Human Capital Management, a guide for HR Financial Leaders by Jeffrey Higgins. His book offers insights on information understanding and managing the costs associated with human capital. So when you hire people, there's your capital, human capital. Right. Uh, and he's he's gonna talk about both direct and indirect costs, which is why I thought this was a good book to recommend. Um sounds a little bit like a textbook, I'm sorry. But uh you know, look, you gotta get someone, you have to be good at everything a little bit if you're the owner of it. So you're gonna have to learn some of this. Um, the other thing is the other book is called Investing in People, Financial Impact of Human Resources Initiatives. So again, let's go back to cost. Is that the theme for today? Yes. Uh by uh Wayne F uh Cassium and uh close enough. John W. John W. Um, how do you say that? But yeah, it sounds very French. Anyways, it'll be better. It'll be better spelled in the uh show notes. But this book is all about providing the framework for quantifying the costs and benefits of various HR initiatives, helping you make more informed decisions about your workforce. So maybe that sounds too big for you, but it is good to know how things are done on a macro scale so you know how to adapt it for your micro scale. Because it depends on you. Maybe it's one employee today, but your goal is to have 50 or 100 in the future. You want to know what's down the road so you don't get surprised. And you want to start in the beginning as much as you can. Right. Right. All right, so that's what I got. What do you have? I got nothing.

SPEAKER_00 42:27

Ah, I win! I'm just kidding. No, I know. I think this might be the first time I've ever not had something. No, just kidding. I just stole one of mine. Yeah, I guess I could have, but I actually before we um, or rather, I usually write the script and then and then Tiffany puts in her portions, and then when I saw what she had, I was like, wow, these are all good. And I'm done. Yeah, yeah. Pretty much. I was like, I don't I got nothing to add. These are great. So yeah, I got nothing to add. Believe it or not. So uh please join us for our next episode where we are going to discuss hiring the right the first time. So it's just kind of piggybacking CR thing. Yeah, we're piggybacking. People theme. Yep. So hiring right the first time, steps to ensure retainment. Stay tuned. Please show us your support by following us on your preferred podcast platform, social media, and YouTube. We'd love for you to also share our episodes. All of our links are posted below. Until next time, mind the business behind your small business because all great successes start small.