Can I afford my first employee?

Hiring your first employee comes with responsibilities. It is not a decision that should be taken lightly, Van Beuzekom explains.  “To take this step with confidence, it is wise to do the maths and identify the key factors: the costs, the expected returns and your current financial situation.”

How much does an employee cost?

Personnel costs consist of more than gross wages. “Admittedly, wages are the lion’s share. If there is a Collective Labour Agreement, a CAO, for your industry, it will usually lay down clear wage guidelines. If your industry does not have a CAO, you will have more freedom to draw up your own employment conditions and set a suitable wage yourself. You will have to follow certain laws and rules, like the minimum wage act and the working conditions act.”

“Once you work out gross wages, you can figure out all the other costs with an online tool (in Dutch). This will paint a clear picture of primary staffing costs such as holiday pay and employee insurance. Remember to add the costs of secondary employment conditions too, if you decide to offer any. Finally, you can check whether you are eligible for payroll benefits and subsidies in order to reduce costs.”

What does an employee gain you?

Whether it is difficult to predict the return on an employee depends on the role they play and the type of employment arrangement.  Van Beuzekom explains: “If you hire an extra painter to take on 20 hours of additional work, your turnover will increase on a one-to-one basis. Every hour you put them to work brings in money. If you hire someone in a support role, such as an office manager, the situation is less clear-cut. Your turnover won’t increase on a one-to-one basis, but it can rise because you’ll be doing fewer support tasks yourself and can therefore take on more jobs. Furthermore, the value of a support staff member often manifests itself in non-financial ways. For example, you no longer have to deal with the less pleasant aspects of your work yourself.”

What are your current turnover and earnings?

“To put your new financial situation as an employer into perspective, you will need something to compare it to. Take a deep dive into your current financial situation. If you expect turnover to increase significantly in the near future, you can also create an operating budget to map out your expectations for the next 3 years.”

Crunching the numbers

Have you identified these 3 aspects? Then you can calculate your new turnover and profit. Van Beuzekom explains: “Add the new sales from the hire to your current turnover. This will be your new turnover. So: old turnover + new sales from hire = new turnover. To your current profit, you add what the employee brings in before subtracting the costs. This will be your new profit. So: old profit + new sales from hire - employee costs = new profit.”

Example  

You are planning to hire a support officer for 3 days a week and make the above calculation. You already know the costs and predict a small, indirect increase in turnover. After all, you can spend some of the time you save on paid work. Create an overview of the costs, benefits, your current turnover, and your current profit.

It is easy to see that the costs of the employee are higher than the forecast new sales. So while total turnover increases in the new situation, profits fall by about €1000. You could decide to postpone hiring an employee for now. Given everything you stand to gain, however, you could also choose to accept the profit drop. By hiring an employee, you may get to spend more time on the parts of the job that you love while spending more time with your family, too. The stress that told you you needed a new employee will quickly melt away.

 

Start-up costs for first employee

When you hire your first employee, Van Beuzekom says you have to factor in a one-time start-up investment. “There will be a lot of red tape involved the first time round. All that work will also cost you time and money.