Question: Staffing For Success
Q A DISTRIBUTOR ASKS: As our business grows, I struggle with whether we should continue to hire independent contractors (such as graphic designers, sales reps and accountants/bookkeepers) by the job, or add to our staff on the payroll. What parameters do other distributors use to make this decision? What types of contractor positions make more sense to replace with staff employees?
A There really isn’t a right or wrong way to answer this question. It comes down to the volume of work to be completed, costs, and your comfort level over the control you can exert over the process.
If you’re paying a third party $10 per vector for conversion and you only require 10 conversions per day, chances are you won’t find a full-time resource for less than $26,000 per year. The same goes for any other task you need done.
Personally, I’m a control freak, so I prefer to have control over as much of the process, paperwork and data as possible, especially when the work is sensitive or very important. For that reason, I prefer to hire people on the payroll over contractors. If the work that needs to get done is mindless and of low importance, I’ll consider using contractors. But usually, in my opinion, employees are the best way to go.
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The simplest answer is to do the math. Compare the pay-as-you-go (contractor) model to the employee model. Be sure to include salary, insurance, benefits, tax filings, unemployment payments and filings and the administrative costs of employees related to taxes, health and welfare, etc.
The most common outcome is that hiring employees is not the best economic model for a small business. The alternative is to eliminate most of the administrative costs and work by partnering with a specialized distributor. Find one that specifies in writing that your accounts are yours, you have no binding agreement and you can leave the arrangement at any time with no penalty. Find one that has the highest Better Business Bureau and credit ratings to be sure your profits are safe. Look for one that pays your profits instantly by overnight direct deposit. And, finally, be sure you are protected from bad debt and product liability. Then go ahead and build your business without the worry of employees.
Chief Marketing Officer
Kaeser & Blair Incorporated
If you are asking this question, chances are you don’t have enough work to justify a specialty position. In my state, the cost to hire and keep an employee will be one of the most—if not the most—expensive business costs you can have. Payroll expenses include workers compensation, social security tax, unemployment tax, extra insurance and more hours for the bookkeeper to track everything. And, don’t forget overtime.
There are workarounds, but undercompensating your employees isn’t one of them. With people, you almost always get what you pay for, and their work is representing your brand. If you’re going to have a designer, you want a good designer, and they are not cheap. Hopefully you can find unconventional ways to give your help what they need. We talk a lot about not racing to the bottom. Paying so little that you get the workers no one else wants is another way to enter that race. Here are some things to try:
- Employ family. They get a lot of the take-home pay and many employee rules do not apply to partners or family members.
- Use a third-party hiring company. They often have some benefits for their workers that you won’t have to contribute to, and they perform a background check and drug test. Keep in mind that workers through these companies often come with a lower skill set. I have, at times, found a potential employee and then run them through an employment company like Express Pros.
- Finally, consider getting an independent contractor—that 1099 form can actually benefit both parties. Here’s a PPAI article that addresses the value of sales consultants in the industry—I think it can be applied to most outsourced help: http://cqrcengage.com/ppa/independentcontractors?0.
As you grow, chances are the question will become not “if,” but “who?” You’ll know when it’s time to add to the payroll.
There are good reasons to hire—having control is one of them. If you go with independent contractors, you can’t expect them to put your business first. They will go where the money is. It’s hard to develop a cohesive team if your business is made up of independent contractors.
If you work on project work, as I do, and changes do not need to happen immediately 98 percent of the time, you can utilize outside services much more cost-effectively than hiring in-house.
Outside contractors can be hired for projects as they come up, based upon their individual skill sets. This eliminates in-house drama, payroll issues, benefits and the need for a desk, phone and business cards. If people do great work, you keep hiring them; if not, you can find someone else. This strategy allows me to keep my overhead down and offer my clients the right solution as needed.
There are exceptions. Some businesses have production work, so they have a designer who typesets, provides proofs and manages pre-flight work as it goes out the door. If you are a volume shop, you need someone to do this in-house. It is too expensive and time-sensitive to coordinate with an outside service.
I also believe that sales reps should be hired in-house. You want them dedicated to selling for you and only you, and concentrating on the products and services that you want them selling. They are the face and voice of your brand, and you want them to speak to your clients and act in accordance with your brand. If you have great salespeople, you may also need to hire a coordinator to keep them organized and focused on doing what they do best, and that is taking care of your clients.
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Your management style should be a big factor in determining what kind of team member you bring into the fold. There is a great deal of trust that goes into the work relationship when an independent contractor is part of the team, and clear goals outlined at the beginning can make things go much more smoothly.
As a multiline rep, I am an independent contractor, and my job is to help my lines grow. How I do that is a combination of what the lines like to see and what I do best. But because I am an independent contractor, they can’t say too much about the “how,” and they have to trust that I’m doing my job. Not everyone is comfortable working with those parameters.
I do feel that I am very much part of the team and I am confident that they feel the same way about me. Again, it comes down to finding the right fit.
DMannding Results, Inc.
Do You Have An Answer?
A Distributor Asks:
As a small distributor, what are my options for specifying payment terms and making sure that I get paid on time? I don’t want to be in the business of financing my customers, but demanding cash or a credit card up front doesn’t always seem reasonable.
What’s Your Answer?
Email answers along with your name, title and company name by April 27 to Question@ppai.org for possible inclusion in an upcoming issue of PPB magazine.
Terry Ramsay is associate editor of PPB.