As business owners think about hiring, however, there’s a strong desire to keep costs down. Many have been optimistic about hiring before, only to scrap those plans when the economy failed to improve. When they do hire, small businesses have a strong desire to get the best people possible in the most cost-effective fashion.

When asked what type of workers they’d hire if they could, 72 percent of business owners said they’d prefer to add temps, independent contractors or part-time workers, while only 26 percent said they’d bring on full-time employees.

If hiring does pick up, finding qualified employees could become a bigger issue. Even now, 53 percent of small businesses say they have trouble finding employees who fit their needs. While that’s down from 65 percent in 2005, it could become a bigger problem in the months ahead as competition for talented employees gains steam.

When you do hire, either for new or existing positions, it’s more important than ever to make the right choice.

Hiring a bad employee can end up costing your business a bundle. Not only is it difficult and expensive to fire and replace an employee, it means that others have to pick up the slack along the way.

The key to cost control is to hire people who are the best overall “fit” for your business. Most companies hire based on skill, but end up firing for bad fit. That’s the wrong way to approach it.  Start by creating a detailed “definition” of the job.  Most employers write job descriptions that are just laundry lists of tasks and duties.

A true job definition includes detailed information such as:

  • What it takes to be successful in this particular job.
  • How success will be defined and how it will be measured.
  • Goals for the position, including different time frames.
  • How the position is linked to other parts of the business.

Also realize that the traditional job interview is a poor predictor of future employee success. That’s why many employers are moving to performance-based interviews that use a standard list of questions and may involve skill or psychological testing. The goal is to get at the things that don’t usually come out in an interview, such as how someone will approach their work, how they cope with high demands and what types of activities motivate them.

Compensation – another key cost component – should include financial and non-financial incentives. Here are some to consider:

  • Pay-for Performance:  Set clear and reasonable goals that promise to put more cash in an employee’s pocket for reaching them.
  • Flexible Schedules: Many employees today prefer flexible schedules and more time off over higher pay. Some small companies even offer every second Friday off as an incentive for everyone to work harder on the other days. Flexibility also translates into greater loyalty, which saves money on turnover.
  • Alternative Rewards: These include small, informal spot bonuses for a job well done, gift certificates, luncheons, golf outings and parties or happy hours to celebrate work-related successes.

Avoid the Independent Contractor Trap

One of the biggest money-saving moves you can make is to avoid the legal pitfalls of hiring independent contractors. Many business owners get burned each year thinking they’ll save money by paying people as 1099-based independent contractors when both the state and the IRS consider them employees.

The risks are high. Not only can you be slapped with back payroll taxes plus penalties, but if a worker is injured and files a workers’ comp claim, you could be forced to pay out of your own pocket, plus fines.

Copyright © 2000-2012 BizBest® Media Corp.  All Rights Reserved.

Have a question about hiring costs? Connect with a SCORE mentor online or in your community today!

About the Author(s)

Daniel Kehrer

Daniel Kehrer, Founder & Managing Director of BizBest Media Corp., is a nationally-known, award-winning expert on small and local business, start-ups, content marketing, entrepreneurship and social media, with an MBA from UCLA/Anderson. 

Founder & Managing Director, BizBest
waiting for an interview