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Stop Hiring Like a Startup

Posted by Touchpoint Oct 17, 2013

StartUpHiring_Body.jpgby Erin O’Donnell.

One of the biggest transitions for any entrepreneur is making the leap to employer. While it’s important to know how you’ll handle the cost of adding staff, recruitment and human resource professionals say there’s much more to figuring out whom you should be adding to your company, and when.

When you’ve been doing it all yourself, the challenge is learning how to let go, and what to let go of, says Scott Ragusa, president of contract staffing for WinterWyman, a recruitment firm based in Boston and New York City. For the passionate entrepreneur who has been living and breathing his or her business from day one, this marks a huge shift in thinking. It requires planning, self-awareness, and trust.

“An entrepreneur will hold onto the parts of the business he or she is not built for longer than they should,” Ragusa cautions. “The reality is, if Bill Gates was writing all the code, Microsoft would not have become Microsoft.”

Investing in people: the opportunity cost

As executive director of human capital services for TriNet, a third-party HR solutions firm based in the San Francisco Bay area, Debra Squyres guides startups and sole business owners on planning for staffing and growth. She sees entrepreneurs confronting the same dilemma over and over: they feel divided between selling and delivering their product or service. They experience peaks and valleys because they can’t sustain both in a scalable way. They realize they need help, but they’re worried about the cost.

Too often, she says, they haven’t forecast for staffing needs. “So many people default into growth, as opposed to having a strategy and a plan around it,” Squyres says.

When you realize you need help, that’s the perfect time to take the long view on your financials. Squyres recommends looking well beyond your month-to-month revenue and instead look at profit projections into the next two years or longer. Calculate revenue and profitability for each employee you want to hire, and build toward that.

Cliff Dank understands this both as a recruiting professional and as an entrepreneur. Three years ago, he started Elm Talent Group in New Haven, Connecticut, and now serves as the boutique recruiting firm’s president and managing partner. Dank says most small business owners are constantly looking at the opportunity cost of any investment, of time or resources. They should view staffing the same way.

“What would you otherwise spend this money on?” Dank asks. “If you include people as an investment, you can contrast that against other opportunities.”

Small businesses are necessarily frugal, but Ragusa cautions against going overboard. He urges business owners to view hiring not as an expense but as a revenue generator. Consider how extra staff will drive your production in six months, a year, or two years.

“Companies that do this well continually think about the future, not just about their exciting product but what it’s going to take to bring them to the next level. They’re not afraid to trust other people to help them with that,” Ragusa says.

StartUpHiring_PQ.jpgFind the utility players

When you’ve been a one-man band for a while, it’s hard to know which part to hand off to someone else. Squyres says this is the time to review your strengths. Then, invest in someone who will complement your skill set. “It’s critical in the early stages of development that business owners look for utility players, as opposed to specialists,” she says.

You’re not looking for your polar opposite. An entrepreneur needs to surround herself at first with other people who can also wear many hats, be flexible, and share her love of the bootstrap spirit. The workload will still be heavy.

Squyres recommends an exercise to get some perspective on where you might need help. Keep a time log for at least a month, and track what you spend your time on. Be sure to span a few periods of high and low activity to be as comprehensive as you can. As you analyze the log, key pivot points will begin to emerge.

“Look for what can easily be outsourced or delegated to someone you can hire at a reasonable salary so you can focus on activities with the greater ROI,” Squyres says.

For Dank, a different writing exercise helped with his clarity. When considering where you need help, think about where you might be the bottleneck in your process. Write down all the ways that additional staff could help you get unstuck, he says, and quantify which would be the most valuable thing to free up.

“Any effort toward being analytical is better than none,” Dank says.

Hire or outsource?

If you feel that the business of running a company is pulling too much of your focus, you may be able to move back-office functions off your plate through outsourcing. “That’s what those sole practitioners get bogged down in,” Squyres says. “They’re so busy selling and doing the work that there’s no one to send out the invoices or pay the electric bill.”

You may not need your own people to do the books, the billing, human resources, or risk management. More and more small businesses are turning to third-party companies to handle these functions. The National Association for Professional Employer Organizations (NAPEO) estimates its industry grew by $10 billion in gross revenues in 2010. About 110,000 small to mid-size U.S. businesses use a PEO.

Depending on the nature of your business, an independent contractor may also make for a good alternative to a full-time employee. In one survey, the Bureau of Labor Statistics found 7.4 percent of the U.S. work force was made up of these freelancers, consultants, and other “alternatively employed” workers who typically work on a project basis.

Ragusa says a common mistake among entrepreneurs is thinking you can continue to do everything singlehandedly just because you’re doing it now. “It’s not so hard being the accountant when there’s only one employee. But can you do that forever?” he says.

The hiring advantage of startups

Squyres watched one startup grow ambitiously, hiring top talent away from Fortune 500 firms. Problem was, they paid like they were already one of them. Those generous 95th-percentile compensation packages ultimately sunk the company.

The moral of the story is, you don’t have to pay top dollar to attract top talent. Squyres says small businesses commonly misjudge just how attractive they are to people looking for that kind of work environment. Stick to your budget and you can still hire talented, passionate people.

“What you find is that not everybody makes a decision based on compensation alone. You have to be competitive, but you don’t have to lead the market,” Squyres says. “Owners underestimate the value proposition they have to people who are hungry to be a big fish in a small pond.”

You want to find the people who are drawn to the energy and promise of a startup—and they’re out there. Like the entrepreneur, Ragusa says, they’re forward-thinking. They will relish the chance to touch many aspects of the business. Or they may be enticed by the chance to share in your future success.

“Someone who thinks, wow, if this thing takes off, what is my stake in it? That’s the person you want to hire,” Ragusa says.

MandateP2_Body.jpgby Erin O’Donnell.

Part 1 of our series on the Affordable Care Act explained that businesses with 50 or more employees now have an extra year to fulfill the employer mandate of the ACA. That means these businesses now must meet a Jan. 1, 2015 deadline to offer affordable health insurance or pay a penalty. Below, we explain the best ways for companies—especially those with seasonal workers—to figure out how to account for employee hours under the new law, and how affordability is defined.

CBG Benefits principal and founder Chris Costello says the employer mandate delay gives businesses more time to plan, but he warns against procrastination. “This is especially true for companies that are approaching the 50 full-time employee threshold or that hire a lot of seasonal workers,” Costello says. “I would strongly advise them to start taking action now.”

Employers in seasonal businesses have a complicated road ahead as they try to account for employee hours under the new law. They should start tracking now, because FTEs are counted by hours, not individuals. Seasonal hours are accrued, adding up to equivalents of full-time employees. If that number reaches 50, the company is subject to the pay-or-play mandate. The IRS has compiled a guide to determining FTEs, along with answers to other frequently asked questions about the health care tax credit for small businesses.

The FTE formulas can also help firms with 25 or fewer employees to determine if they qualify for a tax credit available to employers that pay a portion of their workers’ health insurance premiums.

Michael Taggart, president of Empyrean Benefits Solutions in Houston, says employers should start measuring hours for variable hour employees as early as October 3, 2013. That will allow them a full 12-month measuring period plus the full 90-day administrative period allowed under the law’s “safe harbors” provision for the pay-or-play rules.

The next steps Costello recommends for employers include contacting their benefits broker, attending webinars and seminars on the ACA, and making use of tools that allow them to track employee hours.

Exchange confusion

To ensure employers don’t try to avoid complying with the mandate, the law stipulates that if even one employee buys a government-subsidized individual policy on one of the state or federal exchanges, the company they work for will be subject to escalating tax penalties.

The government is encouraging employers to make voluntary reports to the IRS in 2014 and 2015 about their health coverage, says Heidi Savage, a former human resources professional who counsels small businesses on health care reform and also blogs about it. To avoid penalties, employers with more than 50 workers must offer a plan that meets two criteria:

  • Affordable: The employee’s share of the annual premium for self-only coverage is no greater than 9.5 percent of annual household income.
  • Minimum value: A plan that pays at least 60 percent of the total cost of medical services for a standard population.


If their plan does not meet those standards, then employees may qualify for government subsidies on the health care exchanges, or marketplace. Savage notes that people who decide to shop on the exchanges will have to supply their employer’s tax ID number, and this is how the government will be able to check whether the employee is eligible for subsidized coverage, or whether they should be covered instead under the plan they’re offered at work.

MandateP2_PQ.jpg“Anyone can shop on the exchanges, but the subsidies aren’t available to you unless your employer plan exceeds 9.5 percent of your household income,” Savage says.

Savage posts a four-question test for employers on her blog to help them stop ineligible employees from applying on the exchanges.

There’s a chicken-and-egg quality to the employer mandate delay, because some employers are looking to the insurance exchanges for guidance on what health plans will cost. However, a business that is already offering insurance is welcome to shop around for something better on the exchanges. That will help them decide which makes more financial sense for their firm: to pay for coverage, or pay the government $2,000 per employee.

The extension until 2015 is meant to give businesses a chance to better prepare for implementing the ACA’s rules. And Taggart warns employers not to squander this time, but to use it wisely by making necessary changes to their record-keeping systems. He and Savage note that by 2016, the IRS will require reporting about the employer-provided coverage, and to whom it’s offered, under sections 6055 and 6056 of the tax code.

“Your accountants will need this information,” Savage said. “Ultimately, it’s a risk management decision for the company.”

Disclaimer: Since the details of your situation are unique, you should always seek the services of a professional for advice specific to your business.

MandateP1_Body.jpgby Erin O’Donnell.

Note: This is Part 1 in a series on the Affordable Care Act. Part 2 can be read here.


The Obama administration announced in July that businesses would have an extra year to fulfill the employer mandate of the Affordable Care Act. That means companies with 50 or more employees now must meet a Jan. 1, 2015 deadline to offer affordable health insurance, or pay a penalty.

“We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively,” wrote Mark Mazur, an assistant secretary at the treasury department, in a blog post announcing the delay. “We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so.”

The announcement came as a surprise to some small businesses, but for many it only added to confusion about their obligations under the ACA.

“Many employers have mistakenly interpreted the employer mandate reporting delay to mean that the ACA itself is delayed for a year,” says Matt Thomas, president of WorkSmart Systems, which provides human resource services to about 300 small and medium-sized businesses in 37 states.

MandateP1_PQ.jpgOnly the “pay or play” provision is affected, Thomas says, and even that affects only a small percentage of small businesses. According to a the latest annual survey by the Kaiser Family Foundation and Health Research & Educational Trust, 91 percent of firms with 50 to 199 employees already offer group health plans.

According to the law, here’s what employers still must do by January 1, 2014:

  • Make sure their health plans are compliant with the ACA. (Visit the U.S. Department of Labor)
  • Adjust their health insurance waiting period to be no more than 90 days.
  • Make sure that employer contributions to health insurance plans are equitable to all eligible employees.
  • Distribute notices to employees about the Health Insurance Marketplaces, or exchanges, by October 1, 2013. Open enrollment for private insurance through the marketplaces begins in October 2013 for coverage starting as early as January 1, 2014. The marketplaces were created to help companies and individuals comparison-shop for private insurance plans.

For businesses that don't offer a group plan, the government has created a model notice to be given employees, available for download here.

Even with the employer mandate deadline extended by 15 months, Thomas says employers with 50 or more full-time employees should start working toward mandate compliance sooner rather than later. They’ll need that time to find affordable coverage and to plan for their variable-hour work force. And key point to reiterate: firms with less than 50 workers are not subject to the employer mandate.

Disclaimer: Since the details of your situation are unique, you should always seek the services of a professional for advice specific to your business.

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