Going Pro: Hiring Employees

By Douglas Bittinger
Smoky Mountain Woodworks  

All right, you have your business up and running. You are making products and they are selling. You have profits coming in and money in the bank. In fact orders are coming in faster than you can make them. It's time to hire some help. You're about to place a classified ad in the newspaper, but there are many important issues that you need to consider in advance. Here are some of them:

About Hiring On The Sly
I have known several workshops – not all were woodworkers – who needed help but didn't want to get into the paperwork and expenses of hiring employees legally, so they hired a friend or relative to help out and just slipped them some cash at the end of each week. And for most, this worked out fine – as long as nothing went wrong. But if anything gets twisted around and you have a falling out with this "employee," he or she can turn on you and make your life miserable for having done business "under the table." Even though they too were involved, you will be the one taken to task for it. If your business is above board in all other respects, why jeopardize that with shady labor deals?

Hiring Sub-Contractors
The law does allow you to hire a person as a contractor without having to deal with taxes, unemployment insurance and workman's comp insurance, but these relationships are valid only if they pass certain tests:

1) Does he work independently, without direct supervision from you?

2) Does she provide her own tools and work space?

3) Is he an independent business entity himself?

These tests would disallow anyone you hire to work with you in your shop. If you hire someone to make parts for you in their shop and deliver them to you for use in your products' that would be legal.

You still have to report the income this contractor received from you to the government on a 1099 form, and they will be required to claim the income on their taxes. The full skinny on this is at this IRS website .

Hiring an Employee
When you take on a regular employee you will find there are some additional costs involved above their hourly salary or piece rate, and things are more complicated than just running an advertisement and making out a weekly paycheck.

Social Security and Medicare are deducted from the employee paycheck, and the employer must match those deductions as a company contribution.

State and Federal unemployment insurance is paid out of your coffers on each employee, unless that employee is a member of your own household: a spouse, child under 18 and living with you, or a parent who lives with you. (Aunt Martha who lives across town but comes over to do your sanding does not count as an exception to that rule.)

Workman's Compensation (or workman's comp) insurance is a form of state-regulated, no-fault liability insurance which covers employee medical expenses, lost wages, rehabilitation services, and death resulting from work-related injury or illness. Employers in every state except Texas are required by law to provide workman's comp coverage. Employees injured in the workplace are eligible for workman's comp benefits regardless of fault. In other words, employees do not have to prove employer negligence to claim benefit. Some states do allow exemptions for very small businesses with under a minimum number of employees or an annual payroll under a certain threshold. These exemptions vary by state; check with your state employer services division to find out what the regulations are where you work.

Workman's Comp insurance does provide the employer with protection from lawsuits, and benefits are fixed under national law. If you do not have workman's comp insurance and an employee is injured while working for you, they can sue you for outrageous amounts of medical bills, recovery, lost wages as well as personal injury claims such as emotional damage. The world is lousy with personal injury lawyers who thrive on this sort of lawsuit. Some are very good at it and will not think twice about taking your business, your home, and everything else you have in settlement.

Where you buy this insurance and how much it costs will vary by state as well as by your industry and your business's safety record. Riskier industries (like woodworking) will command a higher base cost than low risk industries (like real estate sales). Promoting safety in your shop, thus reducing injuries that result in workman's comp claims, is the best way to keep your premiums down.

In some states you must buy your insurance from the state, or state approved companies; others allow you to purchase a plan from any provider. Some allow small businesses to buy in on a larger company's plan to reduce the premiums over having to buy your own plan. It's all very complex and can be somewhat discouraging. Complete details are available at this website .

Employee Benefits
Let's face it, you will have a hard time keeping good employees if you don't offer at least the basic employee benefits that are expected of everyone these days. These will include paid time off to cover sick days, holidays and vacation, the promise of periodic pay raises and or bonuses, and health insurance.

With very small companies, employees may be understanding about not having health insurance, since this is very expensive, but probably not for long. The first time they get sick and need attention they'll be thinking how much better it would be to work for someone who provides insurance. Look to see if your state offers a state sponsored health plan for small employers. In Tennessee we have Cover TN, which charges the employee and the employer each between $39 and $109 per month. It is basic health insurance and there are limitations, but it is far better than nothing. I believe we will see this sort of program spread as more and more Americans are found to be without basic health insurance. Details are available at this website . If your state offers no such option, then you must dive into the sea of health insurance companies and swim with the sharks. Good luck! As I've done before, I'd recommend asking other business owners who they use and what they think of the company to start. Those Chamber of Commerce meetings can quickly yield a lot of great information.

If you are using a bookkeeping program like QuickBooks Pro to handle your business finances and payroll, it will allow you to set up earned time off. This means that for each hour the employee works, they get a certain amount of paid time off. I find that if you give them a minute and 10 seconds per hour worked, they will get one week of paid time off per year, with the amount of paid time off being equal to their normal work week. A 40 hour per week employee gets 40 hours of paid time per year, one who works 25 hours per week get 25 hours per year of paid time off. You can easily adjust this factor in the payroll system to increase their benefit as they build seniority.

I like to set it up so they get a certain number of hours per year of paid time off, (aka PDOs) then let them decide how they want to use it: as vacation, holiday pay, sick days, whatever. You will want to set limits on how many consecutive days they can take, but allowing them to determine their holidays and personal time avoids a lot of conflicts. Just be sure you inform them ahead of time what days the shop will be closed for holidays so they can decide if they want to take the day off with or without pay.

Pay Raises
Naturally, as an employee becomes more valuable to you, you will need to reward them through pay raises. One system I like is to set a base pay rate as the standard hourly starting pay – this must be at least minimum wage – then offer incentives and bonuses. Say if the employee shows up for work and works a full day every day that week, they get a fifty cent per hour "Attendance Bonus." Excluding days properly scheduled and taken as paid personal days, if they just don't show up one day, they lose the bonus for that week. They still get their base hourly rate for the days they did work, but the weekly bonus is gone this time. When they know they will lose more than just a day's pay by skipping out, it makes them less inclined to do so.

Then set goals. When they master a certain skill and can be trusted to perform it without supervision, increase their hourly base rate. Each new skill earns another raise. If this person proves particularly diligent and hard working, give them an annual or semi-annual bonus. Don't be stingy!

As the business owner you will be looking for ways to control costs and maximize your profits. But don't try to squeeze too much out of your payroll. If he/she/they aren't working and don't deserve the pay they get, you should get rid of them. But if they are doing their best and helping you build your business, reward them both financially and verbally.

Personnel Management
A lot of times, telling your employees how much you appreciate their efforts works even better than another ten cents per hour in maintaining employee morale. Studies have shown that even a generous pay raise will placate an employee for an average of 7 weeks, then they are back to griping about how little they make. But if you make it personally rewarding (as well as occasionally boosting the financial reward) you will increase their job satisfaction and, as a result, their job performance.

Likewise when there are problems, meet with the employee (privately if you have more than one employee) and calmly explain the situation. Ask them for their input, and offer solutions. Then set a goal and a date for that goal to be accomplished. Write out this action plan, have the employee sign it and put it in their file. Follow up on the assigned date. Re-evaluate the employee's performance and amend the written report with these results. Hopefully the issue will now be resolved. If not, these documented sessions will support you should you need to fire this employee for poor performance. Without it, you open yourself to all sorts of lawsuits as well as unwarranted unemployment claims.

Employment laws and regulations have gotten really complicated. Even the hiring process is now very limited in what questions you may legally ask a candidate during an interview and which ones can get you slapped with a discrimination suit. Before advertising for an employee, check with your local Chamber of Commerce and see if they will be hosting an Employment Law Information session soon. Failing that, check with the Small Business Administration for details on the current rules.

Be consistent with your treatment of employees. Don't show favoritism, and try not to take your personal problems out on the staff.

Remember that you are their employer, not their best friend. Be pleasant, take an interest in them and their lives, but don't overdo it. Disciplining or firing someone who has become a close friend is very hard to do. Keep your relationship friendly, but professional.

Do set up boundaries and guidelines as to what you expect from your employees, and what they can expect from you. This would include a zero-tolerance policy for theft and drug and alcohol use on the job, including showing up for work hung over or strung out. Put these in writing, make new hires sign them upon being hired, and keep these in their file.

Cost Accounting
Payroll expenses will be one of your largest expense accounts, and you will need to keep accurate records of how many hours each person put in on each job. This information will go into your accounting system to help you decide if you're making money on a job or not. Use time slips. These don't have to be fancy, and you don't have to have a time clock, but each person should have a clip board with a time sheet on it and they should have it with them all the time so they can record start and end times for each task they perform. No one can remember things accurately enough to sit down at the end of the day and fill out an accurate time slip. Stress to your employees that this is important and it must be done properly. Then check on your new hires, look at their slip a couple of times each day until you are confident that they are doing it right. If they are, say so. Then spot check everyone occasionally. Don't forget to do yours properly too. Lead by example as long as you are in production work. However once you go to full time management, how you track your time is no one else's business.

There are certain posters that the government requires employers to post where all employees can see and review them. These include: minimum wage, non-discrimination, non-harassment, OSHA, unemployment information and equal opportunity rights posters. There are a number of publishers that are happy to sell you high quality oversize versions of these posters – one in particular will allege that you have to order their posters or face prosecution, but you don't. Check your state's Department of Labor's web site and you will probably find downloadable versions that you can print out and post for free. I encourage you to post your major company policies as well, especially the zero tolerance policies mentioned above.

You hire employees to help you accomplish your work. Maybe you will hire someone primarily to clean up and do the grunt work so you can devote yourself fully to the skilled woodwork. But if this grunt-work employee shows an interest in learning more, don't stifle that. Allow them to grow and expand their skills so they will become even more helpful to you.

How to teach someone to do woodworking varies from person to person. Some are good at it; some are not. Here are a few general tips to watch out for in your training:

1) Don't assume that because you know something and consider it "common knowledge" that everyone knows it.

2) Likewise, don't assume everyone is an idiot. Talk to your trainee and find out what they know and don't know. If in doubt, explain.

3) Never criticize them for asking questions. If they ask the same question repeatedly, help them find a memory tool or get them to take notes. Writing things down helps to remember them even if you never look back at the notes again.

4) Make lessons in small doses and allow them to practice one task before moving on to another. They will learn much faster by doing than by watching you do it. Let them practice on scrap stock so they won't fear being scolded if they mess up.

You may think that hiring an experienced woodworker makes more sense so you don't have to train them. And maybe it does if you are flexible and open-minded. But if their work habits are different from yours and you want things done the way you do them, then you will have to un-train this person before you can re-train them and this is much more difficult than teaching a newbie. But if you can be flexible, you may even learn a new trick or two.

People Are Funny Creatures
Whether you are hiring your very first employee or your hundredth, you will have to decide what kind of person you are looking for before you start interviewing. Because each one of us is different, it would be nearly impossible, short of cloning your favorite employee, to develop the perfect work force. There will be a mix of various personalities, strengths, weaknesses, and temperaments. There will be frictions, and you will be required to address them if you are to keep your workers working productively. If you doubt your ability to do this, most community or junior colleges offer a course in Personnel Management. They don't cost much, can be taken as an evening course and don't usually last longer than one semester, but you will come away with a much better understanding of what makes people tick and how to effectively deal with them.

In Conclusion
I think I can safely say that hiring your first employee(s) will be your biggest and most traumatic step in running your business. Some never take this step. They remain a one man shop or farm out parts to sub-contractors for their entire career so they don't have to deal with all this. But there are many tasks in a woodshop that when done by two people will get done in 1/3 the time, such as having someone catching pieces as they come off the back of your table saw or planer so you don't have to run around the tool with every cut. Even an unskilled worker can save you quite a lot of time and effort. Having another skilled set of hands just expands the possibilities even more, so long as you have enough work and enough profits coming in to allow them to earn their keep. That, you will have to decide.

Douglas Bittinger has been building custom fine furniture for over 25 years, and has been lead repair tech for a major furnishings retail store chain. Along with his wife, Marie, he currently operates Smoky Mountain Woodworks in Edwina, TN.

For your convenience, here are links to all the articles in the "Going Pro as a Woodworker" series:

Taking the Plunge into Professional Woodworking

Is Self-Employment Right For You?

A Suitable Workspace

Tooling Up

Finding Good Suppliers

Financial Tools

Setting Prices

Marketing Your Work

Hiring Employees

Retiring to Management

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