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The initial phases of starting a business

Life as a startup is challenging. Initially, you must develop a business model, create a plan of action, find investors, perfect the product or service that you will be providing to the market, incorporate your business, and hurdle several other obstacles depending on the type of business you start... But once that is done, you can successfully say that you have started your own business. Congratulations!

Once the initial phases of your startup business are complete, your objectives shift to finding ways to get your product or service to market so you can eventually make profits. Everything else is secondary. Increase your chance of success What comes next is the exciting, but incredibly stressful and challenging part: constant change, competition, managing operations, and a myriad of other internal and external forces that play a role in the success of your business. The way entrepreneurs handle these challenges can be the difference between rapid growth and failure.

Employee Administration: The real cost of hiring employees

One of the most overlooked expenses that a company has is their employees. All entrepreneurs know that employees receive wages, but the overlooked portion of a company’s labor costs are the taxes, insurances, benefits, and compliance costs. For a more detailed look at the costs associated with each employee, check out the chart below:

Employment Taxes
Social Security/FICA
6.2% on the first $118,500 of salary
1.45% with no salary cap
6.2% on the first $7,000 of salary
State unemployment/SUTA
Varies from state to state
Workers Compensation premiums
Varies by job but can range from 0.3% - 7.5% of salary
Benefits Costs
(example provided for employee with $50,000 salary)
Life insurance
Health coverage
$2,000 – $3,000 for singles and $6,000 – $7,000 for families
Long-term disability
Dental plan
$240 - $650

***Information on the chart above was gathered by the Massachusetts Institute of technology and can be accessed by clicking the following link:

Including the costs that are listed in the table above, an employee can cost somewhere between 1.25-1.4 times the base salary range. This does not include the recruiting expenses, additional benefits offering, or any equipment that the employee may need. Hiring employees costs money, so employers must identify the right time to hire, shop carefully for benefits packages, and try to retain their employees so they don’t incur additional costs down the road.

The challenge associated with carefully planning your hiring process

The purpose of the above section is not to scare entrepreneurs away from hiring employees, but rather to advise new entrepreneurs of the importance of carefully selecting the right employees for the job and closely monitoring and shopping for quality and affordable benefits packages. After all, you will be investing a lot of your time and resources into that person!

But the real challenge facing startup entrepreneurs is finding the time to balance starting your business and following through with the employee administration obligations listed above. There are only 24 hours in a day, and without the right help entrepreneurs will quickly realize that they are neglecting one of these two factors.

PEOs and startups relationship

How can startups optimize their chances for success?

The reason you started your business is because you believe that your expertise in the product or service you launched will be useful to consumers. Nobody can replace your knowledge of the product or service you are releasing to the market. BUT, you can circumvent the time-consuming and challenging task of employee administration, and here is how:

  • Hire independent contractors – you may pay a higher wage than you would if you hired the employee. But,  independent contractors are paid for by another company. Freeing you of the administrative burdens associated with  employment taxes, payroll obligations, and benefits administration.
  • Seek out employee administration advice – Human resources and workforce management consultant are out there.  Don’t get caught off guard with the expenses associated with managing a workforce. Reach out to experts who can  help you expect the unexpected when it comes to managing a workforce
  • Outsource administrative functions to the experts – There are a number of companies who manage your  workforce for you. You remain the day-to-day manager and employer of your workers, but payroll, payroll taxes,  human resources administration, compliance management, benefits administration, and worker’s compensation are  taken care of by the employee administration experts. Professional Employer Organizations (PEOs) and partnerships  are great for companies in their initial phases and growth stages of their business.