Employees

I spent a long time writing about employees. I got sidetracked and I eventually scrapped the whole thing. Payroll is our biggest operating expense after rent. It should be the highest, but our sales per square foot ($185) is too low. We could double our sales without needing to be in a bigger place.

I thought I knew what it would be like to be an employer. I had been an employee and even a manager. However being an employer is different. I know I said that the employees should be our biggest expense, but they are also our biggest marketing expense. Because it is hard to quantify the employees impact to sales and a lot of the work they do is not with customers they get classified as an operating expense. So if they are the biggest marketing expense in my budget I need to treat them as such.

The temptation is to get the most labor from lowest cost. Part time college students seem like a good match. WRONG! College students might be bright, hard working and fast. They might learn fast and never make a mistake. But they have other goals. Rightly so they should not care whether I am in business next year. Can a part time college student be a great employee? Yes, but they would be the exception.

Minimum wage workers might seem like a good value. NO! If someone is not earning more than minimum wage then I am not doing my job. They should do more than minimum wage work and I should pay them more than minimum wage. I am a liberal but I against minimum wage laws and I disagree with Bill Clinton. We do not have a skills and training gap. We have a wage gap. Every single job that goes unfilled would be filled in a minute if the wage for that job was correct.

An ideal employee would be a clone of my wife Kim. She will talk to people and makes them feel so good about coming in. She is also a woman. This is not popular (or even legal) but it matters what the store looks like and that includes the employees. The number one marketing tool, and this is true for large corporations and small businesses, is the customer. If a customer likes coming into the store and they tell other people about their experience, no marketing can be more effective. So how do you quantify this? You can’t.

When money is tight and you are looking for a way to cut expenses payroll is a nice fat big target. I am not saying never, but would you ever turn out the lights to save money on your utilities? No. People would think you were closed and that would make the situation worse.

One interaction with the employees caught me off guard. I thought that paying the employees would elicit some gratitude. No. Once someone has worked paying them is expected. I am not doing them a favor by paying them.

Ok so here are some details of tools I use with employees. There are more, but I consider these the essentials. There are 2 forms that need to be filled out by employees when you hire them. First there is the W-4. You will need this information anyway if you are using a payroll service. I use
Intuit payroll service

They are cheap about $80 per month and $2 per employee. I like them because of their support. I had some issues because I bought a business and there was some confusion about who the employees worked for. The previous owners did not close their accounts such as the Employee Employment Development Department (EDD). So the EDD wanted to know why the employees taxes weren’t paid. They were so helpful when I went down and spoke to them. This has been my experience with every government agency I have had to talk to. So Intuit has been great. I did two things that made my life easier. 1. I insisted that they all get direct deposit. 2. I decided to pay them once a week. I bounced around with how to do that, but settled on entering their information into the Intuit web interface on Monday for the previous week and they would get their deposits on Wednesday. Now one complaint with the payroll service is that if there is a holiday on Monday they do not get paid until Thursday. I tell them that they get paid on Friday. If their paychecks arrive a day early, yeah for them. Other payroll companies (Wells Fargo, ADP, Paychex) have pitched me on their services, but no one can do it for less and the added benefits are not worth it. I am a small employer (2 fulltime employees).

One of these pitches to try and get my payroll business mentioned workman’s compensation insurance. I had been paying employees for a year and I had no idea how to do workman’s comp insurance. I called Intuit and they hooked me up with a company. I would have preferred if intuit had just handled it. So now the workman’s comp company gets a payroll feed from Intuit and takes the money out of my account. Because my industry is low risk I pay 3% of payroll. Construction companies can pay as much as 25% of payroll.

After the W-4 you will want to get an I9

No one has every asked me to produce this or prove that I have filled this out. I am too small to worry about. But it makes me feel like I am doing the right thing.

Another form that I think I am supposed to fill out is EDD New Employee Form

but I think that Intuit does it. I should check into that sometime.

The last paper that I think should be in your tool box is a release from liability. When you let an employee go you want that to be the end of it. You do not want an employee coming back and claiming that you made them work during lunch or that you made improper advances. Whatever they can come up with even if it is true. You want them to leave and be gone. The California employee release lawyer letter is a general release that says they are releasing you of claims.

You must give them something in exchange and you must give them time to think about it. What you give them in exchange does not have to be anything real valuable. A check for $100 would be enough. I have given 2 weeks worth of pay. If they come back and claim that the law was broken and they were fired for being a male, or Asian, or Mormon. They would have to explain how they could not possibly have known about that before they signed the letter. Now this is California specific. I will also add that courts are not 100% predictable. My experience is that you do the best you can, but there are no guarantees. If you view it as nothing more than a parting gesture to an employee that will now have to find another job then I think giving them something in return for signing this letter should be a normal part of the exit process.

In closing I want to add that as a small business it is easy to get away with stuff that would never happen at a larger company. That can be a good thing. When I was at Bank of America they hurt their business by not letting sales people give out their personal phone numbers. The fear was that the employee could later claimed that they were not paid for hours worked when they answered their phone on their own time. A small business can be more flexible and take a little more risk and out perform larger companies either in service and value or even in price.

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