Hiring staff is a significant decision for any business. We know that it comes with both opportunities and challenges. In this episode, we will break down the costs and benefits of hiring employees versus freelancers. Additionally, we will explore why making the right choices can have a major impact on your business’s growth.

Why Should You Consider Hiring?

Firstly, when you are growing your business, it becomes increasingly difficult to manage everything alone. We’ve all faced the limitations of being a one-person operation. Hiring can bring the manpower you need, helping you focus on other important aspects of your business. Furthermore, employees can provide long-term sustainability, allowing your business to scale more efficiently.

Benefits of Hiring the Right People

When you make the right hires, your business can experience numerous benefits. For instance, hiring the right people allows you to save time, enabling you to concentrate on bigger business goals. In addition, by expanding your team, you can offer more services, boost your output, and improve your overall customer experience. These advantages, in turn, can strengthen your profitability and sustainability.

Hidden Costs

However, it's important to recognise that hiring comes with its hidden costs. Besides salaries, you must consider employer National Insurance, pensions, insurance, and other employee-related expenses. These costs can quickly add up, so it's essential to budget accordingly. Consequently, understanding the financial obligations of hiring staff is key to making informed decisions.

Common Mistakes to Avoid

Although hiring seems straightforward, there are several common pitfalls. For example, many businesses hire in a panic, without properly assessing the fit or understanding the full costs involved. Additionally, failing to register as an employer with HMRC can lead to serious consequences. To avoid these issues, take your time and plan carefully before making any decisions.

Financial Planning for New Hires

Before hiring, it’s crucial to prepare financially. We recommend using tools like Budgetwhizz to help manage your budget effectively. This tool can help you track employee-related expenses and keep your finances in check. Also, consider using payroll calculators to ensure that you’re setting aside enough to cover wages, taxes, and other costs.

Conclusion

In conclusion, hiring staff can significantly benefit your business, but it comes with both direct and hidden costs. Therefore, it’s essential to plan wisely and make the right choices. If you’re unsure about the financial implications, be sure to consult budgeting tools like Budgetwhizz and calculators to help you manage your business effectively.

Don’t forget to listen to the I Hate Numbers podcast for more tips on growing and managing your business effectively. Subscribe, share, and leave a review!

Lastly, don’t miss our free webinar How to Handle the Rise in Employers' National Insurance coming in April 2025. Register today!

The costs and benefits of hiring staff is the topic of this week's I Hate Numbers podcast. The podcast is here to help you make the sense of the money in your business. My name is Mahmood. I'm your host today, and today I'm going to be talking about something that's a big step for any business - hiring staff.

We're not talking about freelancers or subcontractors, even though there are similar comparable lessons, it's about hiring employees. Now, you could be a one person operation, a one person band who's got aspirations for growth. Perhaps you've already got a small team and you want to take on more people.

Whoever you are, wherever you are, understanding the real costs and benefits of employing staff is an absolute key. Grab yourself, your drink of choice, settle in and let's crack on.

The first question's got to be, why hire staff in the first place? It's the big question. Why bother having employees at all? Why not just stay solo? Why not just hire freelancers and subcontractors? Well, here's the thing. No business can grow if you're doing everything yourself. There's only so much of you to go around.

You can't manage sales, customer service, finance, admin, and deliver the actual work without eventually burning out. There's also an economic argument, by the way, that says when your business gets to a certain size, actually economically and financially, you do better employing staff than you would do if you bought in freelancers to deliver those services.

That may be not conventional wisdom, but economies of scale. That cost advantage you have of having a member of staff or a team is certainly to your advantage. Now, in this podcast here, all the comments we're talking about doesn't matter whether you are an arts organisation, a charity, a private business.

Employers are employers. Now - chaos. Who wants that? Now, bringing in staff if it's the right staff, gives you back time. It allows you to focus on the bigger picture, the stuff that drives your business forward. And staff can help you increase your output, offer new services, and improve customer experience. If it's done effectively incorrectly,

employing people can make your business stronger, more profitable, and a lot more sustainable. But, and it's a big, but only if you plan it properly. Now, there are hidden costs of employing staff, so let's bust a myth. But many people think, and when you take on a member of staff, it's just about the wages that you pay out.

If only life were that simple. So let's throw some numbers into the mix. Let's assume you're paying somebody 25,000 pounds a year. It sounds quite straightforward, doesn't it? Well, not quite as an employer, you've got Employers’ National Insurance to consider now for the 24 25 tax year, so that runs between the 6th of April 24 and the 5th of April 25,

you pay Employers’ National Insurance at 13.8% on most earnings, over and above are about nine grand. 9,100 if you want to be a bit more precise. Sp on an amount of about 25 grand a year, that's an extra 2,200 pounds a year on top. You do also have things like Employers’Allowance that can mitigate that cost. And note,

In April 25, that national insurance cost goes up to 15%. There's a change in allowances, et cetera. And as a heads up folks, check out the show notes for a link to a free webinar we're doing on the 19th of March 25 on How to Handle the Rise in Employers’ National Insurance. I digress. Coming back to our wage costs, we've also got to consider pension contributions. Now under what we call auto-enrollment - oh

what a mouthful! An employer has to put a minimum of 3% of the salary of the employer assuming that individual qualifies. That's about another 750 pounds to add to the mix. So that 25,000 pound higher, excluding any potential allowances, is going to cost you about 28,000 a year. There's also things to factor in, like holiday pay, sick pay training, equipment and tools, uniforms if required, insurance, payroll costs, and it was also your time to manage and to train people,

a hidden cost that often creeps on business owners. Time is money, as they say. What I will say, to be truthfully honest, over the 30 years that I've employed staff, I've had some great successes, some interesting times here, and the gray hair isn't completely down to the stresses of work, but employing staff, there's a lot of frogs that have got to be kissed to get to the right person anyway.

I digress. So what are the common pitfalls when it comes to hiring staff? What can go wrong? Well, quite a lot if you're not careful. Let me share some of the common traps. Number one, we hire in a panic. All of us have been there. We're overwhelmed. We're drowning in work, and the first person that turns up, they seem half decent,

we don't take the time to get the right fit, the right skills, the right attitude. We don't do our due diligence, and we may end up with a bigger problem than we started with. Hand held up. I've made that mistake. Pitfall number two, we underestimate the costs. Now, just like we covered earlier, wages is just the start point.

If you don't work out the true cost of employing someone, you might suddenly find your cash flow struggling. As a shorthand tip, always budget around about 20 to 30% on top of the salary to cover the extras. Check out our payroll calculators by the way. In the show notes and you've got a link for 24 25 calculator, and we've got a new one coming out for 25 onwards.

Pitfall number three, and I've seen this too many times, no proper contracts or policies in place. This one's potentially huge. Verbal grievance, handshakes will not protect you when something goes wrong. It's also a sign, in my opinion, of poor management. You don't give that clarity. People don’t know where they stand.

You must have proper, legally sound contracts and make sure your policies are clear, communicated well - things like holidays, sick leave, and disciplinary procedures. Don't take shortcuts 'cause they'll come back and bite you where it hurts. Pitfall number four, and I've come across this one, is where you forget or you fail to register as an employer.

Before you pay anybody, you need to register with HMRC, especially if what you're paying them is above a minimum level of around about 120 pounds a week. It's free, fairly quick to do online, but it's essential. We provide that service for our clients, but if forms you are comfortable with and do it online,

it's a relatively straightforward procedure. Make sure you get it right though. Otherwise you will end up with hot water or more likely you'll end up in hot water, not with hot water, with a tax plan. So is it worth it? You might be thinking, blimey Mahmood, this sounds like a lot of hassle, lot of expense, but don't let the cost and admin put you off.

I employ people in my businesses. I also have freelance staff. And when you employ the right people, when you kiss those frogs and you found your prince, your business can scale economically and financially. You'll make more money with employees than you will with freelancers, especially if the commitments, the activity requires a full-time commitment or close to it.

Your business can scale. You can serve more customers. You delegate the task you're not good at. You free yourself up to focus on strategy, growth and doing what you love. Look at it as an investment. You make the right investment, you'll reap the benefits. Remember, staff don't have to be full-time or permanent hires.

You can start small, maybe part-time roles, fixed term contracts, zero hours contracts. The key is matching your staffing to your business needs and cash flow. Define those needs. Work out the resource that you need to deliver. Now let's think about financial planning, especially for new hires. How do you get it right?

Well, let me share some top tips with you. Number one, work out your full costs. Before you even advertise the job. Do the sums. Do the numbers, look at your salary, look at your national insurance costs, your pensions, your training equipment, the whole lot. Be realistic, and do the numbers. Again, either ask your current accountants.

If you don't have a current accountant and you need to work it out, then give us a shout. I'm sure we can help you. Tip number two, check your cash flow. Make sure you can afford the extra monthly outgoings. Don't rely on the if money, like if we get this big order, if the sales pick up, have a degree of certainty when you look into the future and your cash flow.

A tool like Budgetwhizz is a great way to forecast those cash flows and help you plan accordingly. Tip number three, plan your workload. Have a clear idea. Clarity is important, and what that person will do. Will they bring in income? Will they save you time? Are they going to be supporting the business in some way?

Make sure there's some value added there, either customer facing, supporting the business, performing tasks that you may not be good at, or it's not a good issue of your time. Tip number four, make sure you've got good support. There are brilliant payroll providers out there, HR consultants, accountants, cough cough, who can take the stress off your shoulders.

Don't try and DIY at all if you're not confident. The consequence of getting it wrong is not worth the aggravation. As I said, if you need a hand, you know where we are. So let's look to wrap up and to sum up where we are. Hiring staff can transform your business in a good way, helping you grow and thrive.

It does come with responsibilities, extra costs. So plan carefully. Avoid the common pitfalls like panic, hiring, lack of clarity, not giving clear direction. Trying to be perhaps the best friends with your employees, that's not your role. And ignoring the paperwork and compliance. And remember, people are your biggest investment.

Treat it that way and it will reap benefits for you. Now, if you found this episode useful, I'd love it if you could subscribe. Hey, I'd love it even more if you left a review. Share it with any fellow business owners who might be thinking of taking that next step. And if you want tools to help you plan your numbers, including staffing costs,

check out Budgetwhizz, check out our online calculators. It's designed to make your financial planning simple and stress free. Now, thanks for listening to I Hate Numbers. I'm Mahmood and I'll see you next time. And remember, plan it, do it, profit.