Business is booming and you are swamped. You don’t have enough time in the day to do everything. “I need help” you tell yourself. Whether you are a solo practitioner or in a large firm, there will come a time when you contemplate hiring an employee. This month will focus on the decision to hire an employee and next month will discuss how to hire an employee.
Reasons not to hire an employee
Before discussing when to hire staff, it is important to understand when NOT to hire staff. You’re having a good year and you feel like you can afford to hire an employee is not a good reason to add staff. Your good fortune may not last. A client or relative has someone who wants to go to law school is not a good reason to hire staff. Doing favors by hiring someone rarely works out for you or them.
It’s all about keeping overhead low
When I started my own firm in 1999, everyone advised me to keep my overhead low. All the lawyers I spoke with complained about how much they had to pay each week just in overhead before paying themselves. When anyone asks me, I advise them to keep their overhead low. But the cost of running a law firm grows and the biggest expense is usually payroll. It is in my office. Adding staff adds payroll which increases overhead. Hold off on hiring staff as long as possible to keep your overhead low.
The cost of hiring staff
For those referring lawyers who have staff, you’ll know where I am going with this. As an employer, you must pay the employer’s share of social security, Medicare and unemployment taxes. This runs about 10% of an employee’s paycheck. So if you pay your employee $30,000 per year, it will cost you $33,000 per year. The employee only knows what you are paying him or her, as an employer, it costs you 10% more. Did I mention benefits? If you have a retirement plan for your benefit, typically you have to offer the same plan to your employee. The better your retirement plan, the more it will cost you. We have a matching IRA SIMPLE retirement plan which provides a matching contribution up to 3% of payroll. That is a modest retirement plan. If you have an IRA SEP or 401(k) plan, the employer portion can be much higher. Health insurance is a huge expense. Most law firms have a health insurance plan because the lawyers and their families need health insurance. If you have such a plan, you usually need to offer that to your employees. In my office, employee taxes and benefits add up to an additional 20%. So, if I pay my paralegal $15/hour, it really costs me $18/hour. If I pay an associate $50,000/year, it really costs me $60,000/year.
Staff is more than just payroll
We’ve been talking about how much staff costs on payday, but employees contribute to increasing other overhead. They will need a computer, desk and office supplies. They will use more electricity, more paper, even more toilet paper. These little things add up as your staff increases. Last year, I was curious, and I tracked how much it cost for toilet paper in my office. I was amazed that I bought over $350 in toilet paper last year. Any office expense you track will increase when you add staff.
Staff also changes the office dynamics. If it was just you in the office, now you’ll be working around someone. If you have a staff and hire someone new, they will have to fit into the firm culture. If the new employee does not fit in, it becomes your responsibility to address these inter-office interactions. To me, this is my least favorite part in running an office. Increasing staff increases the likelihood of difficulties between staff.
Don’t overbuy at the market
If none of the above has discouraged you to hold off hiring staff as long as possible, here are a few other things to keep in mind. Analyze what are your needs and do not over hire. Don’t hire an associate when a paralegal will do. Don’t hire a paralegal when a secretary will meet your needs. Don’t hire a paralegal when what you really need is a receptionist. Create a clear job description before interviewing anyone since it will help you focus what you need this new person to do around the office. When you are done with the detailed job description, review it and see if you can accomplish any of these tasks with existing staff or some other way. Remember, keep your overhead low by resisting the temptation of hiring staff too quickly.
I will close with the same advice which was given to me when I first opened my firm: “Keep your overhead low.” Next month I will focus on how to hire an employee.