Little Napoleons

Some of the other authors on this site have commented about how rotten small businesses are in terms of interviewing and selecting employees.  I believe their reports.  But as someone who runs a small business, I feel compelled to report from the other side of the fence.  However, these are my own observations: I  don’t pretend to speak for small business people in general.

To begin with, the employer’s first commandment is, ‘Thou shalt pay thine employees all of their earned wages every payday.’  This is why, even though I’ve been very busy over the past few months, I haven’t hired anyone: the cash flow simply isn’t there to support new employees.

My second thought is that when you have a real business, you’re busy.  Serving the customer comes first, and then there’s inventory, bookkeeping, maintenance, and all the other things to keep the place running.  Hiring new staff comes after all that.

If a one- or two-person firm is genuinely in business, there is no time for a convoluted hiring process.  If they have time to give three interviews each to 15 candidates for a simple admin position, they’re not actually doing anything to bring revenues in the door.

That said, the decision of whom to hire is the riskiest decision for a small business person to make: even riskier than the decision to go into business into the first place.   The wrong employee can rob you blind, ruin your business, and sue your ass off.

But selecting the right candidate can be an arduous process in itself.  I read a report of what purported to be best practices for hiring someone:

  • By all means, ask for references, and then check them out.  But recognize that if you ask for a reference from a previous employer, all you’re likely to get is confirmation that the candidate worked there, with no further data.
  • On one hand, content on the Internet about a candidate, such as the candidate’s Facebook page and what you find when Googling the candidate’s name, is fair game in assessing the candidate.  But you shouldn’t Google the candidate yourself: you should hire a Googling consultant, so that you don’t find out anything that would lead you to illegally discriminate against the candidate.

Googling consultant?  I’m ready to run off screaming into the night.

I suspect that’s why real small businesses, that actually need employees to do things, don’t run ads and instead hire through their circle of friends, relatives, and colleagues: you can’t sue an employer for discrimination if you never knew the job existed in the first place.

But underneath it all, we don’t teach children anything about running a business in school, so that there are unrealistic expectations about the duties, risks, and rewards.  I suspect that kids don’t even choose up sides for team sports anymore, in the name of protecting the self-esteem of the kids who aren’t that athletic.  But choosing up sides is a very basic example of the problem of hiring from a pool of applicants.

So while I can say that I’ll strive not to be a little Napoleon when I get the point where I’m hiring someone, I can understand why it happens, and I doubt it will go away.

8 thoughts on “Little Napoleons”

  1. Another issue is how pay is set, which may be quite arbitrary, and based on what the employer thinks that the work is worth TO HIM to do, which may bear no relationship to the market rate for the work, particularly for short-term projects. Adding the marginal employee requires that one has a fairly clear idea of what the employee will do on a day-to-day basis, and not be a grab bag of things that the employer might do more effectively themselves. Otherwise, you wind up with the need to have an admin with pipefitting skills. Being a pipefitter pays a lot better.

    I’m involved in an earlier part of the hiring process, where we agree with a contractor on the number, types, and wages of the people to be hired. We have to go back job by job, and ask the contractor why they need a particular increase in the number of people.

    I must be warped by the kind of work that I do, which requires both a background investigation and a drug test (and the jobs are subject to periodic drug testing), because a “googling consultant” does not seem all that unreasonable from that point of view. I’ve filled out a form that can be upward of 10 pages for some jobs, so I’m used to a fairly intrusive hiring process. As a lady who fingerprinted me some years ago said, “Never commit a crime. You fingerprint beautifully.”

  2. Part of my response to your first point is that people have unrealistic expectations about running a business and what a realistic wage rate is. But if that was all there was, a relative handful of small businesspeople expecting to hire people for an unrealistically low rate, the market would take care of that. They’d be unable to find employees at the rates they were offering, and would have to offer more.

    But it’s worse than that. If business people in general offer lower wages, and enough people accept it, then wages go down. And people who are used to higher wages are stuck. Is it bad? Yes. Is it the problem of the employers who are now able to find employees at lower wages? Alas, I don’t think so. Unless you’re a civil servant, and maybe even then, there’s no guarantee in this world that you’ll do better next year than this year.

    Background investigations and the associated paperwork don’t really bother me. One of my clients insists that whoever works on his projects has to be background-checked. So if I were to hire someone, and I wanted him (or her) to work on projects for this particular client (very likely as it’s a big part of my business), then he would have to get background-checked.

    What bothers me is the idea that I should hide information about candidates from myself, such information being obvious the first time I meet the candidate, to protect myself against lawsuits. So I can’t Google the client myself, but have to hire a consultant.

  3. Depending on the contractor that is doing the work, a “fully-burdened” labor rate that counts the cost of benefits can be 133% or more OVER the wage that someone is being paid. If I want to pay someone $15 an hour, it can cost me $35 to do it. I can estimate that the cost of benefits is at least 45% of payroll in my case for health insurance, paid time off, social security, medicare, and retirement benefits. It will be somewhat higher for a lower-paid employee or an employee who requires health insurance coverage for their family because health insurance premiums are a constant amount of money per person or group that is covered. I pay about 25% of my health insurance premium. The contractor will add an additional (large) percentage to all of these costs for overhead and profit.

    Now you know why I say that offering benefits would drive the wage that could be offered with benefits from $15 to about $9 were benefits offered.

    The flaw in the argument about not knowing the information is that ignorance is not a defense. What are the reasons that one can legally discriminate? Even though Colorado has legalized marijuana, the law does not restrict an employer’s ability to test for it and not hire people based on a dirty test.

    We background-check everyone as a matter of course, and it costs $50-100 per person, plus another $50 or so for the drug test. We also require an I-9 (proof of citizenship) from all new hires. If you transfer from site A to site B, within the company, they don’t always do a new background check. There is afinancial disclosure that is required of government employees that is not required of the contractor. They want to be sure that we don’t own stock in any of the companies that we do business with directly, so that it doesn’t look like we have a financial interest in aligning with the contractor. Having an index mutual fund is fine.

    Federal employees are about to enter their third year of wage freeze, and should we get a pay raise in 2013, it will be all of 0.5%. It is possible to get a pay increase by moving to a higher cost of living area or by getting a promotion or “quality step increase” for doing good work. I am at the top of my pay scale, so I have to get promoted to get a pay increase. I can get a one-time cash award, which is usually around $1000, which is much less valuable than the quality step increase, which is 3% of pay and is permanent.

    I have watched two big trends in the federal workforce: the decline in the number of adminstrative personnel hired, which has lasted 30 years, and a decline in the maximum pay grades for professional work at the journeyman level. It turned out that engineers were not a lot more expensive to hire than admins back in the mid-1980s, which is understandable when they were starting at $17-21K in 1982, which was on a par with admins, though their maximum salary was considerably higher. Engineers could expect to make GS-12 in no more than 42 months, roughly doubling the GS-5 salary, where admins might make GS-7 as a terminal grade. For a while in the 1990s, the journeyman grade for engineers was raised to GS-13, which makes a difference of about $20K in final pay. This was withdrawn around 2004. Jobs that used to have a “full-performance” grade of GS-13 were now advertised as GS-12 “full-performance”. You could get noncompetitive promotions through GS-12 at one-year intervals, but you’d have to compete for the promotion to GS-13 or higher.

    For those starting out in federal service, holding a masters degree in any field qualifies you for a GS-9 job, and most of those jobs go to at least GS-12. If you start as a GS-9, you’d be promoted to GS-11 after a year and GS-12 a year after that. If the full-performance grade is GS-13, you’d get that promotion a year later. More likely, you’d wind up working as a GS-12 for several years before making GS-13.

    A point of view that I have trouble agreeing with is: “I have X degrees, you should pay me more.” There are a lot of “educated idiots” out there, and I might be one of them. I got a professional engineering license, which is more time-consuming than difficult, because some jobs require that I have one as a selection criterion. There are an awful lot of worthless degrees out there.

    I’m also applying for some jobs that are out of my field, but somewhat close to it. For instance, I was just found to be “eligible, but not best qualified” for a job as a field manager with the Bureau of Land Management. I’m also up for promotion for a business manager position with my current agency. I doubt that I will get the job, but that’s okay. I can hope that I will not have to do invoice review anymore once that person is hired.

  4. I’ve come from a different place, but we’re basically in agreement. Dividing the monthly premium for health insurance (I think I’m getting a good, but not spectacular, deal for New York) by the number of hours worked in a week yields an hourly rater of about $3.50/hour for an individual and $6.75/hour for a couple without children.

    If one is hiring a professional who gets paid, say, $30/hour or more, the cost of health insurance can be tucked into overhead. By the way, the 133% rate you cite is typical, but it includes not only benefits paid to the employee, but the cost of running the office (rent, utilities, equipment, supporting staff, etc.), and, yes, profit. But if you’re running a simple business where you don’t have to calculate overheads, etc., then health insurance, as a rule, costs about $6-7/hour.

    As far as drug use, or unfavorable elements in a candidate’s background, I’m totally OK with finding them out before hiring the candidate. The piece I was reading suggested that one use a consultant to review and summarize a candidate’s presence on the Internet so that the summary would not include information by which one could illegally discriminate against a candidate (age, race, gender, etc.). I believe you had commented elsewhere that it’s unlikely, as a practical matter, that a candidate might actually sue on that basis. You’re right. But one lawsuit can ruin your whole day, and for many employers, it’s simpler to focus their hiring efforts on people they already know.

    My particular field of endeavor isn’t taught in college in the US, so I don’t hear the ‘I’m entitled because of my degree’ argument very often. I’ll agree that it’s bogus.

  5. When it comes to jobs:”Birds of a feather flock together.” So make lots of new friends, and hopefully you will soon be ‘flocking’ like crazy. :< ).

  6. I think I’ve had more problems with large companies but it seems most companies hiring are way too bizarre anymore.

    I am going to do some marketing for the pet store guy and while talking to him (we are talking more and more)he is struggling financially.

  7. If you expect the pet store guy to pay you for your work, you’ve picked the wrong client. Often friends will be “slow pay”, because they figure that they can put you off and you’ll understand because you know their situation, even though you might need the money to pay your own bills. If you’re doing the work for free to get in his good graces, that’s another issue, because then the marketing had better succeed, or he’ll just be pissed at you.

    I started noticing an influx of contractors who were willing to be hired by the government around 2005-06 that has continued until now, though it is more pronounced in the capitol region. When I asked people why they were willing to work for the government, they told me that the pay and benefits were about the same, but the work was more stable. True, it is better in certain ways to be part of the entity that awards the contracts than the party that executes them.

    There is arbitrarness in hiring. We started off wanting engineers with prior experience in chemical plants, a skill set that is harder to find in this part of the country than in other areas of the country. Once that requirement was dropped for prospective engineering hires, we were able to hire several people fairly quickly. Geography goes against us here, because eastern Colorado is not the most exciting place to live. We also had to accept that there would be a learning curve for nearly anyone, and often quite a steep one.

  8. With him I hope to make it a joint venture where he helps me in return for my struggling website business. I have put that on a back burner though because he is concentrating on other things. My thought for getting involved was so I could have a marketing campaign that is recent on my resume as well as working with him.

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