Monday Mornings with Madison

STAFFING UP: PART 1

DECIDING WHEN TO HIRE AGAIN

The economy has been in the doldrums for a while. To stay afloat, many businesses – from real estate and financial firms to retailers and manufacturers – have shed staff in order to pare down their payroll. Still, despite rebounds in the stock market, stabilization of the banking system, and some signs of growth, the national unemployment rate remains stubbornly stuck at about 9 1/2%. Businesses, particularly small businesses which make up the vast majority of jobs in the U.S., have resisted hiring new staff or hiring back laid off staff. Why? Businesses won’t hire until consumers start spending again. In turn, consumers aren’t spending because they either don’t have a job, don’t have a high-enough paying job or are worried about losing their job. It is a catch-22.

So when is it time to hire again? While that seems to be the question challenging economists, policymakers, and many of the brightest minds in the nation, it can only be answered by business owners themselves. Here are some questions business owners and managers can ask themselves when deciding if it is time to start hiring again.

1. Has your company’s revenue increased for several quarters in a row?
Although some sectors have begun to show signs of improvement, others have not. Many economists believe we are in a fragile recovery. Thus, it is best to closely monitor revenues for several quarters to ensure that there is a clear pattern of improvement rather than just a seasonal effect. Once a steady pattern of improvement is established, it may be time to consider a return to hiring.

2. Is your business keeping up with orders?
With some signs that the economy is coming back to life, many major industrial companies are finding it increasingly difficult to secure parts from suppliers. Caterpillar and Boeing, for example, recently complained that suppliers haven’t been able to meet the groundswell of new orders. The problem is especially acute in the technology arena. Altera, a maker of semiconductors, recently indicated that its lead time on orders increased from 16 weeks to 26 weeks.  If your business is having trouble keeping up with orders, which can hurt opportunities for future business, this may be a sign that it is time to start hiring.

3. Are your competitors and clients buying new equipment?
June marked the first month in two years in which the country’s manufacturing base didn’t shrink on a month-over-month basis. Businesses are spending on new equipment at the fastest rate since 1995.  According to top economists, many of these investments are replacement purchases, equipment bought to replace what’s broken or outdated.  If your competitors and/or clients are buying new equipment, this may be a sign of their confidence in the economic future. That confidence may be a sign that business is picking up for your industry.

4. Is your staff morale and energy depleted?
If your existing staff is showing signs of fatigue and morale is low, then it’s usually advisable to offload some of the added workload by hiring more staff.  If, on the other hand, they are happy and things are going well in terms of sales, it may not be necessary to hire additional staff yet. The best people to ask are your staff. They will tell you. 

5. Is your company losing sales?
Have you seen your competition landing more deals but your company is still struggling? If you are losing deals or your sales funnel is weak, this may be a sign of a tired workforce. If so, hiring additional resource may be a smart decision. You may benefit from hiring talented people who were laid off but are eager to get back to work.

6. Is there a business opportunity being missed because of insufficient staff?
If there are new business opportunities available that are not being explored because there simply aren’t enough hours in the day for current staff to pursue them, then it may be time to hire. Like the mouse who went in search of a new source of cheese in the management book/parable “Who Moved My Cheese”, smart businesses should be pursuing new opportunities. That may require additional staff.

For example, Thomas Murphy, Jr. of Coastal Construction, a commercial and multi-family residential construction company based in Miami, FL, laid off many loyal employees when the real estate market collapsed. To keep from having to make deeper cuts, the company began to look at markets it normally wouldn’t consider such as the Caribbean, where economies are bouncing back.  They also expanded their disaster recovery business. After the earthquake in Haiti, Coastal was on the ground 60 days later and anticipates having four projects in the next three to six months. Coastal also became involved in the Gulf oil spill cleanup, helping to design and build oil recovery vessels that pick up oil as deep as three feet below the surface. To pursue these new opportunities, Coastal has been hiring staff back.

7. Are there any financial incentives for hiring now?
There are some benefits to hiring now, depending on who the business is hiring. The Hiring Incentives to Restore Employment (HIRE) Act offers employers two potential tax benefits for hiring workers who are currently unemployed. The first tax break offsets the employer’s portion of Social Security taxes on the new employee’s wages from March 19, 2010, to Dec. 31, 2010. The 6.2 percent of the employee’s wages normally contributed to Social Security stays in the business. This does not alter the employee’s future Social Security benefits. The business is still responsible for withholding the employee’s share of payroll and income taxes, and paying regular Medicare taxes.

The second tax benefit from the HIRE Act allows businesses to claim a general business tax credit for each new hire still employed after one year, as long as that employee’s wages did not significantly decrease over the course of the year. The credit is worth up to $1,000, or 6.2 percent of the employee’s total wages, whichever is less. Since the credit can only be claimed after the employee completes one full year of service, the benefit would not be reaped until the 2011 tax return.

There are also some tax benefits available for companies hiring employees covered by the Work Opportunity Tax Credit. The WOTC was designed to encourage the hiring of people from disadvantaged groups or backgrounds. Who does this include? In part, it includes:

  1. Recipients of Temporary Assistance for Needy Families
  2. Disabled or unemployed veterans
  3. Food stamp recipients
  4. Residents of a designated Empowerment Zone, Renewal Community or Rural Renewal County
  5. 6- to 17-year-old summer youth
  6. Social Security Income recipients
  7. Hurricane Katrina employees
  8. Disconnected youth between the ages of 16 and 25

The Work Opportunity Tax Credit is very specific in determining who is a qualified member of the above groups.  Businesses can either check with the Department of Labor or their accountant for detailed information on who is eligible. While eligibility is restrictive, the tax benefits may be worth it. For instance, tax credits can be:

  1. Up to $2,400 for each new adult hire
  2. Up to $1,200 for each summer youth hire
  3. Up to $4,800 for each new disabled veteran hire
  4. Up to $9,000 for each new long-term TANF recipient hired over a 2-yr. period

There are no limits on how many employees a business may claim under WOTC. Additionally, 39 states also offer state credits for hiring employees from specific disadvantaged groups.

Ultimately, the decision to begin hiring again lies squarely in the hands of the business owners and managers responsible for the financial health of an organization. For many, the decision to cut staff was difficult but necessary. Now, as the economy rebounds, it seems that the decision to start hiring again may be as difficult… but thankfully also as necessary.

Next week, we’ll look at what to look at and what to look for when hiring new staff.

QUOTE OF THE WEEK
“I am convinced that nothing we do is more important than hiring and developing people. At the end of the day, you bet on people, not on strategies.” Larry Bossidy

© 2010 – 2011, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.

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