5.5 MIN READ
Any independent financial advisor will tell you that the first few years of firm ownership are nothing short of challenging. Most days can feel like a sprint (even though you’re actually running a marathon).
But there does come a time when everything finally starts to click. A time where everything you have been working for over the past couple of years comes to fruition.
Your firm is past the start-up phase, has created and implemented efficient processes, built up a solid list of clients, and you’re making good money. The word has gotten out that you are a phenomenal advisor and referrals start making their way to you. You increase your prices and continue to refine marketing efforts as potential revenue sources keep pouring into the funnel.
Life is good.
If growth continues, big decisions are on the horizon. Should you try to slow the roll, or keep it going? Either decision is completely acceptable. For those looking to continue growth, hiring becomes inevitable. This is an exciting time, but for many independent financial advisors who have never before hired, it is also an uncertain one.
So, what does it take to find a good hire? And what will that hire actually cost?
Consideration # 1: Can You Afford to Pay An Employee?
Guess what? Paying someone $50,000 per year doesn’t equate to the actual cost of an employee; offering a $50k salary will actually cost you much more.
1.25 to 1.4 times that amount, to be exact.
As the employer, you are required to pay Social Security and Medicare taxes, federal and state unemployment taxes, and Workman’s Compensation premiums. And that’s just the bare minimum. As an employer, you should carefully considering offering additional benefits, such as health insurance and a retirement plan. Though not required, a competitive benefits package will attract and retain top talent.
For Social Security and Medicare, plan on paying 7.65% of your employee’s gross wages. Of that, 6.2% on the first $132,900 (for 2019) is for Social Security, while the remaining 1.45% is for Medicare.
Unfortunately, there is no earnings limit on the Medicare tax. Quite the opposite, actually. Once you pay an employee over $200k, the Medicare tax will increase by 0.9% for all wages beyond $200k. (We can’t imagine you'll pay your first hire more than $200k, or anywhere close, but this is good to know nonetheless.)
Federal unemployment taxes are standard. For 2019, expect to pay 6% on the first $7,000 in wages. Beyond that you are free and clear.
State unemployment taxes are a bit more complicated to calculate, but in our home state of Montana, we pay a minimum of 0.13%. Each state will vary, so do a quick internet search to see where your state stands.
Workman’s Compensation also depends on the category of your employee. Typically, clerical-type employees can expect to pay 0.3% of salary at a minimum. Each state has different rates, so another Google search is in order.
Benefits can be anything from health insurance to a retirement plan. You can choose to completely cover the costs of dental, health, and vision insurance, or split the premium with the employee.
Matching retirement is a good way to encourage employees to save, but be aware that whatever you match is in addition to their base salary so you need to factor this in to the total cost of employment.
Depending on how generous you are with your benefits package, expect to spend anywhere from $300-$1,500 per month for each employee.
Not a numbers person? Lucky for you, we are. You can expect your $50,000 base salaried employee to realistically cost anywhere from $62,500–$70,000 per year.
Consideration #2: Interviewing, Screening, & Hiring—Where to start?
I can’t stress enough how important it is to find the right person. We’ve seen how relying on a 10-minute phone call alone can lead to a rushed job offer.
Sure, sometimes the stars align and the employee on the other end of that phone call is the perfect fit; but most of the time, without a proper vetting process, the hire won’t work out. That phone call should be part of your hiring process—not the entirety of it.
You have to be able to work well with this hire day in and day out. And they have to be able to work with you! They must be trainable and willing to learn. You, as a manager and trainer, must be able to provide them the necessary tools to successfully perform the duties of their job.
You should provide clear expectations on what the hire will be expected to do, including the education and professional experience requirements you’d like them to have. Decide if you are willing to work with someone remotely or if they must come to the office. Create a clear and concise job description and distribute across channels such as LinkedIn, Indeed, Facebook, and any other social channels you use, and of course, your website.
Once the job is posted, collect and review resumes. As you review resumes, divide applicants into two categories: qualified and unqualified candidates. Set up 10- to 15-minute phone screens with all qualified candidates.
The phone screen provides an opportunity to trim your applicant pool to the most promising candidates. During this time, you should ask basic questions to see if the candidate actually reviewed your website and the job description and to gauge their interest in the position. It’s always pretty apparent which applicants took initiative and prepared for the call and which didn't.
At the conclusion of the call, be sure to set expectations for when they should hear back from you regarding a decision or next steps.
From there, whittle down the field to three to four qualified candidates who you want to interview in-depth. We recommend doing this step in-person or over video call so you can visually see their reactions and tendencies.
Develop a list of questions such as how their experience relates to the job and why they applied. Be sure to throw in a few difficult questions as it’s helpful to see how someone handles something they haven’t necessarily prepared for.
Once you’ve completed all interviews, you can make an offer.
If none of the applicants seem like a great fit, or your top candidate doesn’t accept your offer, don’t feel rushed into making a bad decision. Take your time. Reopen the position if need be. Time spent, no matter how much, finding the right employee will not be time wasted. Time spent training an employee you should have never hired in the first place, however, will be.
The amount of human capital that goes into hiring and training a new hire can so easily be lost if turnover occurs. Do your best to vet the employee and ensure their goals align with yours. If they are a good fit, do your best to keep them around and keep them happy.
Consideration #3: How to Pay Your Employee
With the sheer number of payroll technologies available today, actually paying your employee is pretty simple.
Of course, you can be old school and try to run payroll on your own. Before online payroll processing was available, I created multi-faceted ‘if’ statements in Excel to know how much to withhold and pay my employees.
Don’t be like me. It didn’t save any time and costly mistakes can happen. Instead, explore your options.
We use Gusto at FA Bean Counters and love it. Pricing starts at $39/month + $6/month per employee. You can setup benefits withholding, retirement matching, and Gusto guarantees their withholding calculations are correct.
Employees will receive their pay on time, deposited directly into their bank account. Employees can even setup multiple accounts to automatically allocate a portion of their pay to savings.
Gusto also integrates with QuickBooks Online (QBO). You can map the transactions to the correct accounts in QBO so you don’t have to do any adjustments, making the bookkeeping side of things a breeze.
When the withdrawal happens from your bank, Gusto will have already made an entry to record the wages at gross and properly increase liabilities as they incur while reducing liabilities as they are paid. It doesn’t get much simpler than that!
The thought of hiring your first employee can be daunting—but it doesn’t have to be. Simply budget and forecast accordingly to ensure you can actually afford to hire an employee, take the time to make the right hiring decision, and let a payroll processor handle actually paying that employee once they’re on board.
Once the legwork is done, you'll soon begin reaping the many benefits of having someone to take work off your plate so you can focus on what you do best.