How much should you pay first employees? That’s one question every entrepreneur faces at some time.
Has the time come for you to start expanding your startup business?
Do daily operations seem to be overwhelming you, or are there simply not enough hours in the day?
Then looking for your first employees could be the route to the next stage and scaling your business.
Of course, hiring your first employee can be a big decision for your company moving forward.
It’s not something that should be taken lightly, so doing your research beforehand is crucial.
In this article, we are going to be providing you with some useful information for the employment process.
Many business owners think that wages are the only financial contribution, however, this is not the case.
There can be a variety of factors, including how much you should pay first employees. And other things to consider during the process.
Of course, be sure to double-check with the applicable laws in your region before proceeding.
The Ultimate Guide To Pitch Decks
Decide On The Type Of Employees You Require
The expertise of your staff will likely have a huge impact on the price you pay them, and the value you get out of them.
Let’s take a look at the main four types of employment, alongside the appropriate pay in comparison to each other:
In-house workers are the standard type of employment that most people immediately think of.
At least they used to. They are either full or part-time and work from within your business premises.
A benefit to this type of employment is the consistency and ability to monitor each worker closely.
They will be completing all tasks with you present, so you can ensure that everything is being done in a timely manner.
And they are at least clocking in the number of hours you are paying them for.
In contrast, these employees typically demand the most pay, benefits, and supervision.
Weighing up the potential cost of an in-house worker, in relation to the potential upside is key.
Take into account the level of real productivity, which in turn frees up your time to complete other business-related tasks.
As well as the many legal and financial risks of physical employees.
See How I Can Help You With Your Fundraising Efforts
See How I Can Help You With Your Fundraising Efforts
Employing remote workers essentially means they can perform their tasks from anywhere in the world.
This can be from home or tailored to travelers who want the flexibility, without being kept in one place due to work commitments.
Many people prefer this type of employment, often making it much easier to find a remote worker for your business.
A common misconception about remote workers is that they require less pay than in-house workers.
However, this is often not the case.
Many of these jobs are offered on a full-time basis, therefore the employee needs to be making enough to live comfortably.
Or you can hire them on an on-demand basis. You may not be saving on wages.
However, money can be saved by allowing the employee to perform daily operations from wherever they wish.
For example, you don’t need to provide (or pay for) office space for the worker, equipment, insurance, and other benefits or costs.
This means you don’t have to make additional, regular payments.
Or worry about the initial costs of creating a new working environment.
Their productivity can be much greater too. It will also provide access to the best talent in the world, with great savings built in.
This type of employment is fairly niche. And involves you offering a training course in addition to practical experience on the job.
The required wage is often much lower than in-house and remote workers.
However, you can end up spending more on training expenses in the long run.
There is an advantage to hiring apprentices though.
They have sometimes proven to be very enthusiastic about the tasks assigned to them.
If this is the route you want to take for your business, check out local colleges and other sources of interns.
Each country has slightly different rules and regulations that must be followed before starting this type of process.
Freelancers are perhaps the most cost-effective workers on this list.
For the most part, you can pay a freelancer depending on what they do, not the hours they work.
However, because of this, you may have to check the quality of their work.
Many business owners use trials to find the perfect freelancer for their projects. In addition to this, you can also utilize reviews.
This type of employment is typically best suited to digital work. Think social media marketing campaigns or graphic design.
Most freelancers can only be contacted via exchanging messages.
But some will be open to discussing your project on an application such as Zoom, or voice if needed.
Again, you may have to use a few freelancers before finding one that matches your vision, work ethic, and ability.
But doing so could prove very worthwhile in the long run.
The type of help you hire will dictate how much should you pay first employees.
Ensuring That You Abide By The Law
Naturally, you’ll want to make sure that everything in terms of employment is done legally.
Without taking certain steps, you could face a hefty fine or even worse.
You could also risk damaging the reputation of your business if something illegal is brought to the attention of the public.
Here are a few things you can do during the process to ensure that your employee is working above board.
Perform The Relevant Checks
To start, you’ll have to perform a check on the employee to confirm that they are allowed to work within your country of operation.
This applies to most employees except for Freelancers, as you are only purchasing a service from them and not strictly offering them a job.
If your job involves working in a certain industry, such as childcare, you are also responsible to check the criminal record of an individual before proceeding further.
Decide Upon Their Contract
The terms of the contract are up for negotiation.
This is your time to implement various clauses and decide on a set wage for the new employee.
During this step, make sure you are offering fair payments in relation to what is expected from the individual.
You will also have to meet minimum wage requirements within your country.
It’s best practice to get this contract in writing, which can then be signed by the worker.
This is useful as it can be referenced back to, should that be required in the future.
Set Up Their Tax Information
As an employer, you must keep track of and pay the required amount of tax on behalf of your in-house employees.
The tax is deducted from their pay, which you will then forward to the appropriate place at the end of the tax year, or quarterly as applicable.
You may need to provide your employee with a pension contribution which is covered more in the following section.
Once you’ve worked out these factors, you’ll have a fair estimate of how much should you pay first employees.
Figuring out how to find and hire the right team and their salary structure is just one of the startup hurdles every entrepreneur needs to overcome. If you would like an overview of all the other challenges you’ll overcome, check out this video I have created. You’re sure to find it helpful.
Costs Associated With Hiring Staff Members
Many people overlook the additional costs when employing a new member (or members) of staff.
There can be many more things that require your attention, some of which include the following.
If applicable, you will have to pay a percentage of your employee’s earnings into a workplace pension scheme. Or match their 401k contributions.
Minimum wage requirements still need to be met in this instance, with the pay they receive (excluding pension contributions) being above the relevant threshold.
Will your new employee require office space?
If so, they are likely to need things such as a desk, computer, and other pieces of equipment to get up and running.
Similarly, if you are operating in a niche such as construction, they may need their own vehicle in order to perform required tasks.
Some of these expenses are rare or occasional expenses, such as a desk or computer.
Others may be regular payments if you consider things like fuel, additional electricity and computer updates, phone service, etc.
While breaks aren’t always paid, they are still worth thinking about.
Some contracts may include a clause that offers paid lunch, or something similar.
Regardless, in most countries, a worker has the legal right to a 20-minute break if they have a shift that is over 6 hours in length.
This generally does not apply to freelance workers and independent contractors.
Full-Time Vs. Part-Time Employment
Is your business in a tight place financially?
Or do you simply want to utilize the most cost-effective route in terms of employment? Then, this is something to consider.
You could choose to employ two part-time workers in place of a full-time alternative.
This is sometimes the best way in terms of keeping costs down.
You could also utilize different types of workers for different tasks.
For example, you run a manufacturing business but also advertise heavily online.
Then, you could find a part-time worker to operate the machinery while working with a freelancer to run marketing campaigns.
Sometimes, it’s as simple as running through a variety of scenarios and calculating the costs for each, in order to find an optimal scenario.
In addition to this, employing multiple workers can come with an array of benefits.
Spreading the workload can help to avoid burnout, meaning heightened levels of efficiency.
You could also offer shorter shifts to each employee, with fewer paid breaks as a result.
The job description, hours, and expertise they bring to the table will influence how much should you pay first employees.
Keep in mind that in fundraising, storytelling is everything. Potential investors want to be sure that you have a trained team on board to work for the success of your venture. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Other Things To Consider
In most cases, there are other factors that may affect the wage you pay employees. Other things you should consider include the following.
Competitors, particularly larger competitors, might be paying more than you can reasonably afford.
This is particularly true in the case of your first employees, as your business likely has a strict budget.
You have to be competitive with your wages though, or else employees may be persuaded to join a rival company.
This happens in many cases, with some businesses being used as a stepping stone.
A new employee will come into your business to gain experience and perhaps even a letter of recommendation. That’s before switching to a company that pays higher.
Offering significantly less pay than rival companies can also damage your reputation. Not to mention a competitive edge in business.
Comfortable Living For Employees
Another thing you need to consider, both morally and in terms of reputation, is paying your workforce enough so that they can live comfortably.
This is particularly prominent if you’re offering them a full-time job. Their job with you may be their only source of income, so paying fairly is crucial.
The Tasks An Employee Performs
Looking at the national average for wages can sometimes sway you into offering an unfair wage.
It’s important to take into consideration your niche, alongside what is expected from the worker.
Some tasks may require a high level of education or experience.
If you can find an employee with a wealth of experience, consider paying them in relation to this.
It might seem like an unnecessary step, but the money you save on training could be used to boost their wage.
Look at the real value versus the investment to find your ROI.
By no means does this paragraph suggest that you have to pay bonuses to your employees.
If you want to go the extra mile though, it’s something to ponder over.
Bonuses could be paid at certain times of the year, like Christmas, or simply during a time of high profitability for your company.
There are many benefits to offering bonuses, including:
- Higher Productivity Levels – If employees know they will receive a bonus during a period of high profitability, they will push themselves to be as productive as possible.
- Greater Morale – Small acts of appreciation are a great way to boost the mood in the workplace.
- Future Opportunities – Seeing bonuses being awarded can attract other talented workers to your company, should you look to expand further in the future.
Another alternative is to offer equity in the company, stock options, or RSUs.
That wraps up this article on how much should you pay first employees.
Paying every worker fairly is a sure-fire way of keeping them motivated and preserving your reputation as a company.
Also, keep in mind the different types of employment opportunities, as these can help your business to be more cost-effective and productive.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.