How to make smart hiring decisions

January 5, 2012

If you look beyond the crush of discouraging data, you’ll see a few bright spots for small business: As a whole, the enterprises that survived the downturn are hiring and extending more hours to their workers.

Still, make no mistake: The Great Recession has been very tough on small businesses.

While payroll employment is down about five percent from its peak at the end of 2007, self-employment is down 12 percent from its peak, with no recovery as yet. Did self-employment expand to absorb wage and salary workers who lost their jobs? Not in this recession.

A look at industry reveals the details behind the drop in self-employment. The biggest decline is in retail; those little stores selling hardware, stationery or dresses are disappearing nationwide. Their decline began not with the recession, but in 2005, succumbing to competition from online merchants and big chain stores. Some small retailers will come back with full recovery, but many will not. The change is, as we say, structural.

The next two industries suffering big declines are the likely suspects — construction and real estate services. Their falloff began in 2006, more than a year before the recession began in December 2007. These categories will bounce back. Between 1990 and 2006, builders constructed 1.2 million houses per year. In 2010, they built about half a million. That leaves the nation some 2 million units behind the trend for the shortfall from 2007. At some point, there will be a building boom. And that, in turn, will trigger an increase in real estate services.

What about small employers calling it quits? One-third of those who are self-employed run a business with employees. Those with 20 to 100 employees took the bigger hit; 9 percent went out of business from peak to trough. Firms with more than 500 employees declined by less than 5 percent.

The good news: Survivors are hiring. State unemployment insurance records reveal that small businesses hired throughout 2010 and into 2011. More detailed and timely information comes from the Intuit Small Business Employment Index, built with data from Intuit’s online payroll service, on which I consult.

This real-time monthly series shows that small businesses began hiring before bigger businesses did — in the fall of 2009 — and are still hiring. There are other signs of recovery, too. Hours worked, the fraction of full-timers, and the hiring rate have all picked up from the trough.

Based on our analysis of hiring trends, here are some tips from Intuit Payroll on how small business owners can make smart hiring decisions in 2012:

Hire people who can do things you can’t do. Hiring a new employee gives you the opportunity to add a skill you need, without having to spend the time to learn it yourself. You can always work harder, work longer, add efficiency tools, outsource lots of your tasks and find other ways to increase your own personal contribution to your business.

Use the hiring process to get something for your business that you don’t already have. Think of hiring as an opportunity to make your whole company smarter than it is now. That will mean more success down the road.

Add people who can help you accomplish your goals. This should always be the case. Otherwise, why are you hiring them? But too often, once the interview process begins, there is a tendency to hire the people you like the most, not the people who can help you the most. It’s a better idea to hire the people who can help you the most, and find a way to like them, too.

Hire an intern or a young person for their first job. You’ll get enthusiasm and an eager­ness to learn. And you’ll have a blank canvas upon which to por­tray what a great boss is like. They’ll never forget it. And they may have friends who would love to work for you, too.

Think about compensation. Pay your employees as much as you can, even more than the going rate. When you do, you’ll get the best people, and they’ll more than pay you back with loyalty and performance. Add benefits if you can afford them; if you can’t afford them now, plan to add them in the near future.

Paying your employees on time is an important facet of business, as many people live pretty much paycheck to paycheck. They’ve got regular bills to pay, and they count on their paycheck arriving on a predictable day. When they aren’t worrying about when they will be getting paid, they’ll pay more attention to your business.

Susan E. Woodward is a financial economist and consultant at San Mateo, Calif.-based Intuit Inc., which provides financial management services to small and medium-sized businesses.

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