Your First Employee: Should You Hire or Outsource?

Entrepreneurship comes with many exciting milestones: Deciding on a business name, making your first sale, and eventually expanding your team.

The question is...do you hire or outsource?

There are certainly pros and cons to each method. It’s important to understand that the answer depends on your business’s needs and capabilities.

Try asking yourself the following questions:

1. Are you seeking full-time or part-time help?
2. What do you need help with?
3. What’s your budget?
4. Can you afford to offer benefits?
5. What’s your Employer ID Application status?
6. What are the pros and cons of hiring?
7. What are the pros and cons of outsourcing?

1. Are You Seeking Full-time or Part-time Help?

If your work backlog requires full-time assistance, then hiring an employee may benefit you most. But if a hired employee would only work part-time, your wallet may thank you for outsourcing or seeking a freelance professional instead.

(Note: Full-time employees are those who work at least 30 hours per week. Part-time employees work less than 30 hours each week.)

Considering how much goes into the hiring process—paperwork, tax reports, benefit applications, training, etc.—you are often better off outsourcing work that would be fulfilled by a part-time employee.

One benefit is that it’s easier to jumpstart a project with an existing expert who can jump right in and get work done with minimal training. It’s also easier to detach from outsourced help once a project is done, than it is to fire an employee.

However, the value of a full-time team member shouldn’t be overlooked.

Hiring an employee inherently promotes business expansion, ideas, revenue growth, economic well being, and more. If your small business foresees the need for help on a long-term basis, then it’s recommended you invest in hiring a new employee.

2. What Do You Need Help With?

Certain small business functions are easier and more cost-effective to outsource. Others are better taken care of by established employees.

Consider the following when making your decision:

Employees should be sought out for ongoing, company-specific tasks and day-to-day operations. Outsourcing is best for overarching business support—often for tasks requiring a different industry’s expertise.

3. What’s Your Budget?

No doubt about it; hiring an employee is expensive.

You need sufficient funds for:

• Recruiting
• Training
• Benefits
• Payroll
• Equipment (computer, desk, uniform, etc.)
• Insurance

According to the SBA, a good general rule is that it costs about 1.25-1.4 times the salary to hire and maintain an employee.

For example, if you offer to pay your employee an annual salary of $40,000, you can expect to actually pay up to $56,000 that year for this employee. This accounts for additional expenditures and benefits, such as those listed above.

At the same time, there are costs associated with outsourcing work.

On top of being billed a higher hourly or project-based rate, you also stand to lose out on intangible benefits, such as employee loyalty and inside knowledge. (If you’ve ever struggled on the phone with an outsourced customer service representative, you probably understand what I mean.)

Consider what is most important to your small business, and remember to be realistic about your current financial situation when considering to hire or outsource.

4. Can You Afford to Offer Benefits?

As mentioned before, benefits make up about 25-40% of the cost of an employee.

According to the Bureau of Labor Statistics, the cost of health insurance benefits among varying business sectors is as follows:

Civilian Workers: $3.18 per hour

Private Sector Workers: $2.73 per hour

State and Local Government: $6.01 per hour

Another benefit commonly offered in exchange for retaining top talent is a 401k plan. If your small business plans to implement one, then you should anticipate being able to match an employee’s financial contribution anywhere from 3-5% on average.

According to Human Interest, a 401k plan, for a ten-person company, equates roughly to an extra $1,920 per year. Be sure to explore the cost breakdown and additional details when considering a 401k as an offered benefit.

Other employee benefits may include paid time off, childcare support, gym memberships, travel assistance, and more.

Benefits aren’t necessarily fun to pay—especially when first getting your business off the ground—but they’re a necessary step if you’re looking to hire and retain an awesome team that will take your company to the next level.

5. What’s Your Employer ID Application Status?

Every authorized business in the United States is required to have an Employee Identification Number (EIN). This nine digit number identifies you to the IRS for tax purposes.

You are required to register for a new EIN if you plan to hire your first employee(s). If you’re outsourcing services, then you don’t need to change your EIN.

While the application process may seem like a lot of work, there are also certain tax benefits and incentives offered to companies with employees.

For more details on specific eligibility forms, visit the IRS website.

6. What are the Pros and Cons of Hiring?

As with any entrepreneurial decision, there are pros and cons to be considered.

Here are some of the most significant factors to think about when deciding to hire a full-time or part-time employee.

7. What are the Pros and Cons of Outsourcing?

As you know by now, hiring isn’t the only side that comes with pros and cons.

If you think you’ll want to outsource your next employee, consider the following:

Whether you’ve decided to hire an employee for the long-term or outsource a specialty service, you’ve reached an important small business milestone you should be proud of.

Congratulations, and be sure to reference GoSite for any additional help with the hiring process.

We can’t wait to help you grow your business—in more ways than one! Let us know your experience with hiring employees vs. outsourcing work, and sign up for a free trial of the #1 all-in-one platform for your small business.