Startup Growing Pains – Expanding Your Workforce

Photo: Roundhouse Wipers

There comes a point, for most startup businesses, where it becomes necessary to expand the human resources available to do the work of the business. There are only so many hours in a day, and for most startup founders, the size of the work involved every day in carrying out admin tasks, marketing, public and customer relations and so on becomes large enough to justifying getting a new person in to take on that load and free the founders’ time so they can devote themselves to doing what they really want to do, namely planning and executing the path of their business to the next level of growth.

So, what to do? Hire one of more employees? Hire temp staff from agencies? Hire casual staff or freelancers? Each one of these options has its pros and cons. This blog discusses some of those issues.

In Australia, where I work and live, hiring an employee is a big commitment because it carries many legal responsibilities. An employer must register to deduct tax from the employee’s wages, and so the complexity of the accounting side of the business will increase. In addition, the employer must pay an amount equal to 9.5% percent of the employee’s wages into a superannuation (retirement benefit) fund, obtain workers compensation insurance, and comply with minimum employment standards prescribed by law, which includes things like leave entitlements. In many respects, the law may require an employee to be treated better than the founders have been treating themselves.

But, the other side of the coin is that the employee gets a full 35-40 hours’ worth of effort from a full-time employee each week. If the employee is skilled and has a positive attitude, that is a lot of extra firepower. Still, hiring full-time staff is usually a big quantum leap for a startup business that can’t happen without a capital injection, either in the form of a loan from a bank or an equity stake sold to a venture capitalist. Many startup founders prefer to team up with friendly investors in order to tap into the expertise that those investors can bring to their projects. Someone who has bought a stake in your business wants to see it succeed.

Another option is to find qualified and experienced people, such as freelancers, and hire them by the job or by the hour. A startup which is cash poor is much more likely to get value for money from this strategy, compared to hiring an inexperienced junior employee. There are a lot of people out there like recent retirees or women who are temporarily taking a break from the workforce to raise children who have a wealth of experience, very low overheads, and enjoy working for a few hours each week to keep their skills up or stay active. Also, as the internet delivers the capacity to work from home to people in many occupations, outsourcing work to freelancers has become much easier in many industries.

One thing that startups should not do is try to disguise a full-time employee as a contractor. The taxation authority in Australia will deem a so-called contractor to really be an employee if the person earns 80% or more of his or her income from the same employer. Businesses caught disguising their employees as contractors face fines and possibly prosecution, in addition to having to retrospectively pay the various employee benefits that they should have paid in the first place. Similar laws apply in most countries.

Having adequate human resources, and planning to meet the demand for those resources, is an important element of business success.

[This blog post was written by Australian lawyer James Irving, who has many SME and startup business clients. It is not intended as legal advice for any person. Photo credit: public domain image courtesy of Wikimedia Commons, Roundhouse wipers having lunch in their rest room, Chicago & North Western Railroad, Clinton, Iowa, April 1943, by US government photographer, held in the archives of the US Library of Congress.]




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