Recruiting, Selecting and Hiring Someone
One of the most significant decisions any employer makes is to hire someone as a "permanent" employee. Remember:
You must have just the right number, type, and cost structure of people so that your two-legged costs don’t create a profit problem for your business.
While your business may be different in terms of how you "account" for things, you need to determine if you can afford to hire a new person without negatively affecting your bottom line. Here is some food for thought in terms of how you might evaluate whether or not it makes sense for you to add someone to your staff. You need to answer this question BEFORE you spend a lot of time and money on recruiting, selecting and hiring a new employee.
Can You Afford to Add to Your Staff?
Assume you want to hire a good Customer Service Representative. The base salary cost (we’ll talk about how you determine this later in this article) for this person is $28,000 per year and let’s assume you are spending 25% of base salary for employer taxes and benefits.
- Determine total annual new hire cost (add 25% to the annual pay) = $35,000/yr.
- Divide total new hire cost by your average gross margin (this examples assumes 25% average gross margin). $35,000 divided by 0.25 = $140,000.
- Divide total new hire cost by your average net income expressed as a percentage of revenues/sales (assume 5% for this example). $35,000 divided by 0.05 = $700,000.
- Depending on the characteristics of your business, to cover the cost of the new hire will require you to substantially increase your sales, (somewhere between $140,000 and $700,000 in increased sales) while keeping all your other costs constant.
The point is obvious, but just to reinforce it, do not make the decision to add someone to your staff lightly. When you make this decision, please understand that if you get it wrong, you have just committed your business to substantially increasing its annual revenues to cover the cost of the new hire. From a business perspective if you are going add a person, the "true cost" to your business in terms of additional revenues is somewhere between 4 and 20 times more than their annual salary and benefits. To make a good new hire decision, be prepared to invest a lot of your own personal/quality time and effort so that you "get it right," as it could cost your business a lot if you get it wrong.
This article will focus on the key topics that encompass hiring a new employee:
- Clearly define what you need and want
- Determine the "market rate" for this position
- Decide how you will attract the right applicants
- Detail the process you will use to "test/select" from among your applicants
- Making an employment offer
- What you must do to legally hire a new employee
Clearly Define What You Need and Want
This is probably the most important step in the new hire process as you will come back to this description/definition for all the steps you will take to make a new hire decision. When you have a minimum of thirty minutes (it may take more) of uninterruptible time, find a quiet spot, take some blank paper, and briefly summarize the major duties of the job and then make a list of everything you might possibly want in your new hire. This should be a free-flowing list (like brainstorming) that you then can go back to and consolidate throwing out things that, in retrospect, weren’t that important, etc.
To help you get started, here’s an example of a final description and "wants" list for a customer service person.
Customer Service/Help Representative (example)
Major Duties Description
"Using mainly the telephone and the Internet, answers inquiries from prospective customers regarding our products and services, including cost and availability; takes customers’ orders and processes them through our sales information system; collects and enters customer data into the sales information system database; processes the necessary documentation in order to correct billing errors; and may answer basic questions from customers encountering problems in the application of our products/services."
List of "Things" I Want in Applicants for Customer Service Position
- Previous experience providing direct customer service
- A "customer service" helping attitude; goes the extra mile to help a customer solve their issue/problem; not just a clearinghouse function that passes the customers’ problems on to someone else
- Articulate, pleasant, easy to hear and understand, patient, has a reassuring voice
- Has excellent listening skills and "reads" people very well
- Keeps promises to customers; returns phone calls in a timely fashion; meets time commitments to customers
- Able to learn our Company’s products, services, and employees so that she/he is conversant in all aspects of our business, products and services
- Computer literate --in a short time can learn and be proficient in the use of our sales system including order entry, returns processing, issuance of credits, billing, and the use of our on-line help information; can use spreadsheet and word processing software efficiently
- Able to create and maintain customer files that are complete and well organized
- Good at remembering customer names and reading their personalities so that she/he can adjust approach based on the uniqueness of each particular customer
- Has a good track record for being punctual and reliable (does not take a lot of unscheduled time-off and not often tardy)
- Works well with other employees; outgoing, friendly, cooperative
- Takes the initiative and looks for ways to improve both how she/he does the job and her/his own personal abilities and skills
- Highly regarded by her/his current customers
You might also identify something that you really want but may not find many applicants with this particular attribute. It is also okay to keep items on your wish list that you might otherwise rule out because you never know-you might get lucky. When listing these attributes on the applicable media that you choose to use for recruiting purposes, you might note it this way:
"Highly Desirable" - Previous experience with a company offering similar products/services and serving the same customer base as our Company. (Note: If this were part of an advertisement, you would describe those items-your products, services and customer base in sufficient detail so that the applicants can determine if they meet this "highly desirable" requirement.)
Determining a "Fair Market Rate" for a Position
Establishing a competitive and affordable "market rate" has to take into consideration two major factors - internal and external comparisons.
Where should the salary of the new job fit into what I am paying my current employees? It may be more than "X" position, but less than "Y" position.
In my geographical area (from which I will try to attract applicants), what are other companies paying for similar positions?
For the internal comparisons, you should have both an intuitive sense of where the new position fits in terms of its relative value vis-à-vis your current employees. You might ask yourself this question: "If I pay this new Customer Service position $28,000/yr. will my people perceive this as fair versus their pay, especially those employees whose current pay is slightly higher and those whose pay is slightly lower?" This "bracketing" will give you a good range of what would be internally acceptable.
For external comparisons, you are trying to make sure you set the "recruiting" salary at a point that is attractive for job seekers. You can get at this external information a number of ways. At your next gathering, ask your fellow small business owners what they are paying their people for similar positions. You can also check the local job ads (newspaper and on-line) for similar advertised positions. Other sources of information are available online by searching on "competitive salaries for positions" or gathering information from the U.S. Bureau of Labor Statistics.
Two things to remember: first, the applicant to whom you offer a position will be looking beyond the base salary and will view compensation as pay, benefits, commute time/costs, and whether he/she thinks there is a good personality/value "fit" with your company. Secondly, labor-market dynamics will change what turns out to be an "attractive" compensation package. When the unemployment rate is twice the "normal" rate because of a recession, there tend to be more applicants than normal, so it becomes a buyer’s market rather than a seller’s market.
Decide How You Will Find/Attract the "Right" Applications
The objective in recruiting is to find the "right" applicant as quickly as possible while spending the least amount of time and money to do so. To accomplish this, you first need to prepare a brief "Position Requirements Description" that you can give to people so they know what you are looking for as you fill this need. Using the same Customer Service Representative example again, here’s what such a description might look like:
Customer Service Representative Position Requirements (example)
This position answers inquiries regarding products/services, their cost and availability, processes orders, resolves billing problems, and answers basic product/service application questions. The position requires someone who has two to three years of prior Customer Service experience and a personality and attitude that is customer friendly. Successful applicants will have good communication skills and the proven ability to use automated sales information/order systems and spreadsheet and word processing software. Previous experience in a company with products and services similar to our company, included serving the same customer base, is highly desirable.
Please refer back to earlier pages of this article and note how this "Position Requirements Description" is based on the "Major Duties Description" and the "Wants List" that were previously developed.
To meet the objective of spending the least amount of time and money to fill a position, you might consider the following recruiting activities in the order presented:
- Promote a current employee who has displayed the skills, initiative and desire to move forward to this new role.
- Ask your current employees if they have someone they would recommend (Note: This also alerts them to the fact that you are contemplating adding staff to support the business-not a bad thing. Also, you might consider a reward if you hire someone they recommend; like a day off with pay or a "dinner for two" gift certificate, etc.)
- Ask your friends, acquaintances, other small business owners, etc., if they could recommend someone.
- Use your social media contacts or your e-mail contact list to ask folks you know if they have a recommendation (Note: the reason this is listed separately is that once it goes on- line you have less control over how widely it is dispersed and, consequently the number of responses/inquiries you will receive.)
- Contact your state’s Unemployment Office and provide them with the "Position Requirements Description."
- Place an advertisement in your local newspaper or on-line with one of the sites that provide this service (e.g., Monster.com).
- Contact a temp agency and "try before you buy"
- Place the position with a local contingent recruiting agency (Note: The cost of contingent recruiters is usually from 20% to 25% of first year annual compensation if you hire someone through such an agency.)
Detail the Testing Process to Qualify Applications and Make a Selection Decision
Choosing whom to hire from a group of applicants is probably the most complex and difficult personnel/HR task you as a small business owner will be asked to complete. At the outset, please take note that interviews alone are about 60% reliable in terms of a stand-alone testing/selection tool. In other words, the odds of making a good new-hire decision based solely on an interview are only slightly better than a coin toss. Please be aware that the qualities of being pleasant, articulate, convincing, smooth, well-spoken, likeable, etc., are phrases often used to describe con-artists. The key point is that you must not rely solely on what you see and hear in an interview to make a hiring decision. Conducting a good interview is an important element in this decision-making process, but you will need to gather additional information outside the interview. To do that, having a well thought-out selection plan for each of the items on your "wants" list before you begin interviewing is quite important.
Step 1 in this testing/selection process is to review the potential candidates based on what they have submitted to you before a decision is made on whom to invite for interviews. You will probably have a resume and possibly a cover letter. At this step in the process, you are accomplishing three objectives - first, do the applicants have the basic background you require for the job; second, do you have a suitable number of applicants based on your "wants" list; and third, were you able to find an applicant who had your "highly desirable" background? If the answers to the first two questions are "yes", then you are ready to move to Step 2 of the selection process. If the answer to the third question is "yes" then count your lucky stars.
Step 2 is to put together your detailed selection process based on your "wants" list. To help you understand what this might look like, the Customer Service Representative "Wants" list will be used to show what a written, detailed selection plan might look like.
Customer Service Representative Selection Plan (example)
- Previous experience providing direct customer service - Review the resume/application form and verify this information during the interview, and when references are done prior to an employment offer.
- A "customer service," helping attitude; goes the extra mile to help a customer solve their issue/problem; not just a clearinghouse function that passes the customers’ problems on to someone else - In the interview, ask the applicant to give you specific examples that show how she/he handled the responsibilities of their prior customer service position(s). Please ask each candidate for the name and contact information for someone you can call after the interview to verify what the applicant has claimed. ALSO, ask the applicant if they have an example or two when they weren’t able to help a customer and ask for the contact information for these customers (this is very important to do). Be aware that interviewees may be subject to confidentiality agreements with their current or past employers that prohibit them from disclosing customer names. If this is the case, ask them for a different reference who is knowlegable about their customer service skills. After the interview, contact the references the applicant has provided and verify the information the applicant has provided.
- Well-spoken, pleasant, articulate, easy to hear and understand, patient, has a reassuring voice-you will know this based on your face-to-face interview. When you ask the applicant to give you negative information, as was requested above for item 2 you will see and hear how they respond under pressure. Also, when you call references, you can ask them to describe how the applicant came across to them in their business interactions.
- Has excellent listening skills and "reads" people very well-- you will know this based on your face-to-face interview. When you call the references, you can ask them to describe how well the applicant listened and "read" them.
- Keeps promises to customers; returns phone calls in a timely fashion; meets time commitments to customers-- Ask this question of the applicant in the interview: "Give me two examples of when you kept your promise to a customer." Another good question would be: "Have you ever failed to return a customer phone call on a timely basis? Tell me about that incident and why it happened." When you call the candidate’s references, you can ask them to describe how well the applicant did in returning phone calls on a timely basis and keeping promises/commitments.
- Able to learn our Company’s products, services, and employees so that she/he is conversant in all aspects of our business, products and services-Please ask the candidate in the interview how long it took to learn this at the prior company(s). Ask what was the most difficult to master, why, and what the applicant did to get over the hurdle. If this applicant is tentatively selected (sometimes this is done by making a contingent employment offer pending the outcome of reference checks), thoroughly explore this with past employers as part of the reference check.
- Computer literate-in a short time; can learn and be proficient in the use of our sales system including order entry, returns processing, issuance of credits, billing, and the use of our online help information; can use spreadsheet and word processing software efficiently. To evaluate an applicant’s skill in using a sales order system you will have to check with the applicant’s references. In the interview, get the applicants perception by asking "If I called your boss or talked to your co-workers and customers and asked them about your proficiency on the sales order system, what would they tell me?" Also, when you have the applicant in your office, sit them down in front of a computer, give them a letter to type and a spreadsheet to populate and watch how they do it and how long it takes. This is known as a practical exam and it is a good tool for items like this (proficiency using specific software required for the job).
- Able to create and maintain customer files that are complete and well organized - Prior to the interview you might ask the applicant to bring along an example of their work. Again, during the interview let the applicant know that this is an area that you will explore when you do references and ask for his/her perception on what his/her bosses and co-workers will say in terms of how well the applicant kept and managed customer files.
- Good at remembering customer names and reading their personalities so that she/he can adjust his/her approach based on the uniqueness of each particular customer - Ask this question of the applicant in the interview, "Give me two examples of when you didn’t remember a customer’s name. How did that affect your relationship with them?" Give me two examples of when you adjusted your approach to customers based on what you learned about their personalities. How did that affect your relationship with them? " Another good question would be: "Give me an example of a time when you just couldn’t read one of your customers. Tell me about that incident. How did that affect your relationship with that customer? What will that customer tell me about you when I call them?" (Get the contact information.) When you call the prior customers or other reerences, you can ask them to describe how well the applicant did at remembering their names and reading their personalities.
- Has a good track record for being punctual and reliable (does not take a lot of unscheduled time-off and not often tardy)-- If this applicant is tentatively selected thoroughly explore this with past employers as part of the reference check.
- Works well with other employees; outgoing, friendly, cooperative-In the interview ask for the names and contact information of one person with whom the applicant worked well together and one with whom the applicant did not work as well. If this applicant is tentatively selected, thoroughly explore this with past co-workers as part of the reference check.
- Takes the initiative and looks for ways to improve both how she/he does the job and his/her own personal abilities and skills-In the interview ask the applicant for examples that would demonstrate "taking the initiative" both on the job and in personal development. Ask for an example where the applicant did not take the initiative and ask what they personally regret not having completed in terms of his/her own self development. If this applicant is tentatively selected, thoroughly explore this with past bosses and co-workers as part of the reference check.
- Highly regarded by his/her current customers-Check with past bosses and co- workers as part of the reference check process.
What selection "tests" were suggested in the example above?
- Review & screening of resumes/cover letters
- Interview (Note: It is highly recommended that you involve one and possibly two of your current employees with whom this new hire will be working in some or all of these selection steps, including the interview process.)
- Previous employer reference checks
- If recommended by someone you know, personal reference check
- Previous customer reference check, if possible
- Previous co-worker reference check
- Proficiency test (e.g., use of spreadsheet software)
- Review of work product
In addition to these selection devices, follow the suggestions in the HR Policy, and also conduct drug and alcohol screening tests. The point being made is this:
You need to gather a significant amount of verifiable information from a variety of sources before you make an employment offer.
Plus, if you follow the suggested HR policies, you have one more test-- the new hire must successfully complete a probationary period of from three to six months-the final test to make sure you have made a good employment decision.
(Note: If any of your positions require the use of a private vehicle for company business or if you provide a company vehicle to conduct business you need to also require the applicant to submit a copy of his/her State Department of Motor Vehicles current report. It should give you at least a three year look at the applicant’s driving record. A DWI in the last three-years, operator at fault motor vehicle accidents, excessive speeding tickets, etc., could disqualify an applicant for a job requiring use of a vehicle. If the new hire is to use his/her private vehicle for company business, you must verify his/her insurance coverage and make sure these activities are covered under the company auto insurance policy or general liability policy, if applicable.)
There are many methods you can use to compare the qualifications of multiple "finalists" for your position. You can get as sophisticated as devising a "weighting system" for each criterion and assigning a rating from one to five on each of them (please refer again to the "Needs & Wants" list example above, as this is a list of your criteria) and then total up the scores. You probably won’t have that many "finalists" to compare, so it is suggested that you start by force ranking each candidate on an overall/global basis and then double check this perception by force ranking each candidate on each criterion to see if the final "score" agrees with your overall impression. Having done this, you are now ready to choose the person to whom you will make an employment offer.
Making an Employment Offer
The process of getting to a final deal is usually one that involves some dialogue between the Company (you) and the final candidate. While it is recommended that all employment offers are in writing, it is typical to get to the point of having a verbal understanding on the following items before anything is solidified and formally presented to the finalist candidate:
- Pay Rate
- Overtime Pay Status
- Start Date
- Job Title
- Reporting Relationship
It is highly recommended that any offer you extend be done in writing and signed by both the Company and the candidate. Also, and this is very important, if you are going to ask the candidate to sign a Confidentiality Agreement and/or a Non-Compete Agreement, both of these documents need to be signed and dated on the same day that the written employment offer is signed and dated.
In your offer letter, you’ll want to address overtime overtime compensation. The "tests" for what constitutes an "exempt from overtime" position (exempt) versus a position that must be paid overtime (non-exempt) are convoluted and you are urged to consult both the federal guidelines and your state’s guidelines on how to determine if a position is exempt or non-exempt from the laws governing mandatory overtime compensation. Better yet, seek guidance from a labor lawyer.
You can make the offer of employment contingent on passing the company’s drug test. Such tests can only be administered (legally) after an offer of employment has been extended to an applicant. You cannot drug test someone (legally) until you have made her/him a formal offer of employment.
What You Must Do to Legally Hire a New Employee
Legally, all employers, no matter their size in terms of number of employees, must complete the following to be in compliance for hiring a new employee:
- Complete and file a Federal W-4 Form (search: Federal W-4)
- Complete and file an I-9 Form that verifies the legal status of the employee to be in this country and to work (search: USCIS employment eligibility verification). The I-9 Form must be completed by the employee no sooner than at the offer of employment and no later than the first day of employment. Employees have three days to provide the documents required as proof of legal status. As part of the employment eligibility verification, some states may require employers to verify eligibility through eVerify (www.uscis.gov/e-verify), an internet-based system, that compares the information from the I-9 to data from U.S. Department of Homeland Security and Social Security Administration.
- Any new hire reporting required by the state in which the employee is paid (search: [State Name] new employee reporting)
These forms and instructions for filling them out are available online as shown above. Please note that you are required to maintain originals of these documents in your files while the person is employed and it is recommended that, after termination, such files are maintained for a period of seven years from the date of termination.