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Employees—Damned If You Do (or Don’t) Hire Them

THE EMPLOYEE CONUNDRUM is one of the biggest challenges that you face when considering entrepreneurship. As discussed previously, employees help determine where you are and where you want to go on the Job to Business Spectrum. If you don’t hire employees and are a one-man band, you aren’t really creating equity, you are creating a job (a.k.a. a job-business). And for all of the reasons in this book already, if what you have is a job, you may find that given a job’s risks and rewards, you are better off working for someone else’s company instead of working for yourself.

So, if you are thinking big—big enough to create some equity in an entity that itself has value—you are going to need some employees to get there. In fact, if you don’t have anyone else working with you, you will probably eventually go insane. You are human, which means you will, at some point, get the flu, or you might want to take a vacation. But even if you work 24/7, you just can’t possibly do everything yourself. Hiring employees is necessary, but a necessary evil in many ways.

Fun with Employees

When you add your first employee, everything changes. And I don’t just mean that you can no longer leave the bathroom door open when you pee. The moment you decide to hire an employee, just one measly employee, your paperwork and legal headaches increase by a factor of several hundred. If you haven’t been through this before, here’s what you are in for (and if you have, just consider this a friendly reminder). First, you have to hire the employee. That requires you to spend money to take out ads or hire a staffing agency to find interested applicants. Then, you have to weed through the applicants to find the candidates you might potentially want to hire. Then, you have to conduct interviews. When you conduct an interview, there are certain guidelines of things you can’t ask or say; if you do, you violate the law. If you think that blue-haired memaw is too old to do a good job at your skateboarding company, you better find another reason not to hire her because you can’t discriminate during the hiring process. If you discriminate based on factors like age, race, or sex, you open yourself up to lawsuits. Now, if you worked for a large, established company, your human resources department would be up to speed on all of these rules and guidelines. But you are now flying solo, so it falls on you to figure out the rules and guidelines and follow them.

While you conduct interviews, you have the fun task of trying to find the best, most qualified person for the least amount of money. You also hope this will be someone with some experience that will take a salary close to what you have budgeted for the position. This is not an enviable task, as you typically get what you pay for. The people who will agree to a low salary may be unqualified, sketchy, or otherwise broken; those who are qualified will want you to pay them their worth, which is more money out of your pocket.

So, you have to prioritize. Which is more important, your budget and therefore your profits, or having a more qualified employee? If you do find a great person who doesn’t know their own worth (or the median pay for that particular job), don’t get too excited. The chances are that they will figure it out and eventually require more money to stay with your company.

If you don’t know the applicants for your job positions, you are going to have to do some research on their backgrounds. You obviously wouldn’t want sex offenders working with kids, embezzlers managing your cash register, or murderers working with your customers (no matter how frustrating your customers can sometimes be). Background checks are advisable (and, of course, cost money and take time). Many companies also like to do credit checks as well; there have been an increasing number of stories about people in financial straits doing lots of shady things at their jobs, such as stealing from their employers. It is good to find an employee who is hungry, but perhaps not starving.

Then, of course, you will want to check the applicant’s professional and personal references. This takes more time, but you should always do your homework, especially when you will be entrusting these people with your livelihood and your personal investment. You also may want to test for drugs. This may be a one-time deal or an ongoing procedure, particularly if the job you are filling is something where employee drug use can cause someone else harm (like an employee driving a company delivery truck for which you are liable).

If you find yourself in the awkward position of having people you know (friends, acquaintances, and/or family members) interested in the jobs that you need to fill, then you have a whole other set of issues to think about. It is very difficult to work with people with whom you have an existing personal relationship. On one hand, you know these people and hopefully have some level of trust in them. On the other hand, there is already an established protocol between you and that person for communication and interaction, which will get turned on its head once a professional dynamic is put in place. The person may be accustomed to viewing you as a peer instead of an authority figure, which will make it difficult for him to take orders from you once you are his boss. This can also be exacerbated if he is used to being some sort of an authority figure to you personally, such as an older brother or personal mentor.

Other issues arise when your friends or family members are used to a playful personal interaction, such as joking around with you most of the time. However, your business is not a joke, especially when you have a lot of your own money on the line, as well as your time invested in it!

Good people don’t always make good employees. I have heard hundreds of nightmare stories about people working with friends and acquaintances. Just because someone is nice, fun, or related to you doesn’t mean that he is qualified for a particular job. I once hired a friend who I thought would be perfect to work in one of my companies. He wasn’t; he was all over the place like a little kitten that needed to be constantly refocused. He wanted to chat about life, not about business. The business was my life, and eventually we mutually parted ways.

It is difficult to maintain an important personal relationship and do business at the same time. That is perhaps where the phrase “business is business” comes from. Moreover, it makes for an awkward birthday party or family dinner after you have had to fire a friend, a cousin, a spouse, or a sibling, so think long and hard about it before you take the plunge. It may be easier to have the uncomfortable conversation up front (i.e., I don’t want to ruin our friendship, relationship, sex life, etc.) rather than endure the issues if it doesn’t work out.

Fun with Logistics, Paperwork, and Benefits

Okay, now back to employee logistics. While you are interviewing, you need to make room for the employee. In a retail store, this may be easier. In an office environment, this may be exponentially more difficult. Either way, once you make the space, you have to outfit the workspace with all of the tools needed for an employee to do his or her job, including a desk, garbage can, chair, computer, pencil holder, filing cabinets, uniform, cleaning supplies, delivery van, makeup brushes, or whatever other items are needed.

You have found an employee candidate that agrees to your salary package. Great! Then, they ask about benefits. ##!!*@—you forgot about benefits! Some businesses can get away without offering benefit packages, but to be competitive, many businesses have to offer benefits at least comparable to those offered by other companies where employee candidates might also consider applying. This means that you have to put together or expand your health care plan. You may have to institute or expand your 401(k) program. You may have to plan a holiday party. Whatever benefits you choose to offer, they constitute more time, more paperwork, and more money out of your pocket. In fact, taxes and benefits can be an additional 20–30 percent or more (depending on your state and your benefits package) above the cost of the employee’s salary. So, if you thought you were paying someone $30,000 a year, you may find that you are really paying them $39,000 a year after benefits and taxes.

Paperwork continues to increase because you have hired employees. The paperwork that personally annoys me the most is the paperwork related to payroll and taxes. When you are a one-man band, if you set up your corporate structure properly, you can just file a “Schedule C” on your personal income tax statements each April and be done with it. When you have employees, you have all sorts of new paperwork that you need to fill out and keep track of, from W-2s to quarterly payroll filings. You have to deduct certain taxes from each employee’s paycheck (and any benefits if you are doing that). It takes time, and it is tedious. You can hire a service company to do it, but that costs money. Also, hiring a service to do your paperwork doesn’t absolve you of the responsibility of making sure it was done right and not forgotten. Outsourcing of responsibility does not mean you no longer have any responsibility. You have to be on top of everything, because if you forget to do a particular filing, the government isn’t going to blame your payroll service; they are going to blame you, the person whose name is signed on the dotted line for the business. (The Blame Game mentioned in the last chapter does not work with the IRS!)

In addition to governmental and tax paperwork, you will want to have new employees sign other paperwork, including confidentiality agreements and non-compete agreements, codes of conduct, mission statements, and more. You will have to write these or find someone to do it for you. Not only do you need to have the employees fill out these forms and agreements, but you also have to keep track of each form and agreement to make sure that they are current and being followed.

Then, depending on your size and industry, there are all sorts of other administrative things you need to do in relation to your employees, from complying with Occupational Safety and Health Administration workplace safety guidelines, to licensing and continuing education requirements if your industry is heavily regulated. You have to make sure you are complying with minimum wage requirements, workers’ compensation laws, civil rights laws, child labor laws, environmental laws, Americans with Disabilities Act, labor laws, immigration laws, policies and laws designed to fight terrorism, and all sorts of other crazy things the government has thought up that suck up your time and resources. Some requirements are lessened if you are a small company; some are not. Unfortunately, this means that even if you have just a few employees, it may be close to a full-time job to deal with the all of the rules, regulations, and guidelines, not to mention the mountain of paperwork.

On-the-Job Training

Are you exhausted yet? Well wake up, because you haven’t even started training your new employee! But before you can do that, you have to create procedures and systems that the employee can follow. You need to develop each procedure and break down each task to a level that is so basic and simple that virtually anyone can do it. That is the secret of the majority of successful businesses—they leave nothing to chance and everything to a clear procedure.

Once you create the systems, then you have to train the new employees and keep monitoring their progress. You need to tweak your procedures. You need to positively reinforce good work and find uplifting ways to change bad work. You have to be a shoulder to cry on when your employee breaks up with her boyfriend, and you have to be a stand-in if the employee gets sick. Then, you need to cross your fingers and hope that the employee stays for a while; otherwise, you will have to do this all over again with her replacement.

So, you have searched for the perfect employee, taken on the paperwork, abided by rules and regulations, incurred expenses, built a plan, and trained your new team member. After all of that, you will likely still have a mediocre employee. At the end of the day, many employees don’t care if they do average work (and they definitely won’t care as much as you do, because it is not their business). Ultimately, it is just a job to them, and if they don’t want to be there, they can just leave; they have very little at risk.

Employee apathy can lead to bigger issues because your employee is a representative of your company. A rogue employee can damage a company in unimaginable ways.

Several months ago, my husband and I drove through a very well-known coffee chain on a Saturday afternoon. The attendant asked through the speaker, “What would you like today?” My husband ordered a black coffee. The speaker came on again, and we could hear giggles, which basically sounded like a few teenagers screwing around at work. The attendant replied, “I am sorry, can you repeat that?” Again, my husband ordered a black coffee. More giggles came through the speaker, and for the third time, the attendant asked, “What was that again?” My husband was getting annoyed and told the attendant that he wanted a black coffee and that he wasn’t going to repeat himself again. The attendant apologized and asked us to pull around to the window.

The bad customer service was less than impressive, but what happened next was unthinkable. The attendant apologized again and after asking if we wanted any cream for the black coffee, mumbled something about it “being crazy in there” and gave my husband the coffee. When we got home, my husband removed the lid to pour some milk in the coffee and noticed something foreign floating in the top of the coffee. We inspected it, photographed it, and after it didn’t dissipate in the scolding hot coffee an hour later, we were pretty sure that it was spit. Yes, the employee spit in the coffee and served it to my husband. I won’t go into the details about how we handled the issue, but as you can imagine, this severely damaged our relationship with that business, one that we—and mostly everyone we know—patronized frequently.

The point is that it wasn’t the business that spit in the coffee; it was a rogue employee acting on his own accord and against company policies. But our only recourse and relationship was with the company, not the individual employee. I hope this illustrates some of what you are getting into when you have other people to manage, some who don’t care about the business even a fraction as much as you do and who may act in ways that are unacceptable to you.

The Literal (Pizza) Pie-in-the-Face Incident

By the way, my spit-in-the-coffee story isn’t an isolated incident (gross, but true). In April 2009, two Domino’s Pizza employees made a video while working one evening at a Domino’s Pizza store. The disgusting video shows one employee putting ingredients up his nose and then on top of food to be served to the customer, as well as sprinkling other non-sanitary items (I won’t mention them here, but feel free to Google the incident) on top of customers’ food. These special employees, in their infinite wisdom, then posted the video to YouTube, which as you can probably imagine, made the rounds to millions of internet viewers. The brand exposure, which was obviously very negative in this case, was probably more than Domino’s spends on television commercials in a month.

Patrick Doyle, president of Domino’s USA, swiftly took to YouTube with his own video to apologize, explaining that it was an isolated incident in one store in North Carolina and expressing his gratitude to customers and dedication to regaining customer trust. In addition to talking about the action Domino’s was taking—firing the two employees, pressing charges against them, and sanitizing the store from top to bottom—Mr. Doyle made the following powerful statement: “The independent owner of the store is reeling from the damage that this has caused, and it is not a surprise that this has caused a lot of damage to our brand. It sickens me that the actions of two individuals could impact our great system where 125,000 men and women work for local business owners around the United States and more than sixty countries around the world.”

This is an incredibly powerful example of the employee issue. Two rogue employees again could cause incalculable brand damage to an established company with rigorous systems and procedures. When you think about starting a business and evaluate the risks and rewards of entrepreneurship, think about having employees and keep these two situations in the front of your mind.

Passing the Buck a Different Way (a.k.a. into Their Pockets)

If that wasn’t enough stress, you also have to worry about your employees putting their hands in the cookie jar. Whether it is taking money from the cash register, not ringing transactions through the register and keeping the customers’ money, shorting customers their due change, or stealing inventory, employees account for a large percentage of “shrinkage” in many businesses. You may have to install security cameras, you definitely have to build appropriate procedures, and most of all you need to keep an eye on your employees. I have heard of all kinds of stories regarding employee theft from entrepreneurs, from workers who would bag up inventory with the garbage, throw out the “garbage” and go back late at night to collect the goods and later sell them on eBay, to employees who were in charge of purchasing who ordered unrelated products and supplies for themselves.

There are employees who punch the time clock on behalf of other employees who come in late, to have the favor returned when they themselves leave early (in management classes this falls under the “exchange” principle). There are employees who steal the credit card numbers of the company’s customers. You name it, it happens, and it happens more often than you would think.

Cash and inventory aren’t the only items that can be stolen. Business secrets, customer lists, contract information, computer codes, and other prized business assets, tangible or intangible, can be taken by employees with access. In 2006, three people were arrested for trying to steal trade secrets from the Coca-Cola Company (including the formula for a new beverage) and sell them to PepsiCo (it was PepsiCo, by the way, that turned them in). If that can happen in a large company with tons of security, think of how vulnerable your small business is to theft.

The Burden of Responsibility

There is an additional burden to having employees, one that is emotional. That burden is a sense of responsibility toward your employees. The longer that your employees have worked with your company, the more a sense of family is engendered, making business decisions sometimes increasingly stressful.

I interviewed an investment banker recently who told me about one of his clients who was struggling due to some operational challenges in the business. The business had been around for more a decade and had around $75 million in sales. Due to recent issues, the sales started to decline, and the business was unprofitable. The investment banker paraphrased what his client told him about his sense of obligation to his employees:

We are a very transparent business, meaning that we share everything with our employees so that they know how we are doing. This includes our financial statements. This is very easy to do when the business is doing well and growing. It has become increasingly more difficult as things are not going well. We had the first layoffs ever in the history of the company, which was very difficult for all. The employees are like my family and now I am responsible for these people not being able to provide for their families. The employees that remain are now very concerned about their jobs as well. Now, I have the stress of trying to return the business to profitability and managing the anxieties of the employees. If I fail, it will impact all of us.

While of course the employees can find other jobs if let go, having employees creates extra stress and burden for an entrepreneur in the form of feeling responsibility for the employees and their livelihoods.

So, you need employees to grow and to make more money, but you need to make sure that they are doing what they are supposed to be doing and also not doing anything they shouldn’t. Remember how you wanted freedom and to be the boss? Was this the picture that you had in mind? I think that maybe you would have more freedom and authority teaching kindergarten.