I'm turning work away. Can I afford my first hire?

The question

An illustrative letter.

The answer

My dear, turning work away every week is a good problem, but it is still a problem. Each job you turn down is income lost and a customer who may call someone else next time. You are right to be careful about a first hire. You are also right to be thinking about it, because a business that only grows as far as one pair of hands can carry it will always be capped by your own hours.

What does a $22-an-hour helper really cost?

More than $22, and it is wise to know how much more before you decide. As an employer you pay your share of Social Security and Medicare, which is 7.65 percent of wages. You pay federal unemployment tax, which for most employers comes to a small amount on the first $7,000 of each worker's wages, and your state's unemployment tax on top. In a trade like plumbing, workers' compensation insurance is often one of the larger costs, and many states require it from your first employee.

Then there are the costs that do not show on a pay stub: tools and safety gear, time spent training, perhaps a change to your liability insurance, and any paid time off you offer. Ask your insurance agent for a workers' compensation quote for a plumbing helper, and your accountant for your state's unemployment rate. With those, you can work out your own full hourly cost. For the example below, say it comes to $27 an hour.

How many extra jobs would pay for a helper?

This is the question that decides it. For one month, write down every job you turn away and roughly what it would have left you after materials. That is the work a helper could unlock.

Say you start with a helper for 20 hours a week. At a full cost of $27 an hour, that is $540 a week. If having a second pair of hands lets you take on three more jobs a week, each leaving you $250 after materials, that is $750 a week, and the helper more than pays for themselves. If it is only one extra job, it does not, at least not yet.

A helper can also make the jobs you already do quicker and safer, and that counts too. Heavy lifts, crawl spaces and long days go better with two.

Why start part-time?

Because it lets you learn with less at risk. A helper on your busiest days, or for a set number of hours each week, shows you how much more work you can really take on before you commit to a full-time wage. You learn how to train someone, how to hand over tasks and whether your customers are happy with the result.

Set a review date, perhaps three months in. If the numbers hold and the work keeps coming, you can add hours. If they do not, you have learned it at a cost you could carry.

Who you hire matters as much as when. A local trade school or apprenticeship program, or other tradespeople you trust, can point you to someone keen to learn. Look for reliability first. Skills can be taught on the job; turning up on time, being honest and treating a customer's home with respect are much harder to teach.

Can I hire a helper as a contractor instead?

Only if the work truly is a contractor's. In general, if you decide when someone works, how they do the job and what tools they use, the IRS is likely to see them as your employee, whatever you call them. Treating an employee as a contractor can mean back taxes and penalties later. A helper who works on your jobs, on your schedule, under your direction is usually an employee. A CPA or attorney can tell you how the rules apply to you.

What paperwork comes with a first hire?

Less than you fear, but it must be done right:

• An employer identification number from the IRS, which is free.
• Forms for your new hire: a W-4 for tax withholding and an I-9 to confirm they can work in the U.S.
• Your state's rules: new-hire reporting, registering for state unemployment tax, and any licensing or registration your city or state requires for plumbing helpers or apprentices.
• Payroll: withholding tax from each paycheck, paying it over on time and filing the returns. Payroll software or an accountant can handle much of this for a small monthly cost.

How do I know it's working?

Keep counting. Each week, note the jobs you took that you would have turned away before, and what they earned. Compare that with what the helper cost. After three months you will not be guessing any more. You will know.

Your first hire is the moment your business starts to become more than your own two hands. Go carefully, count honestly, and let the numbers tell you when you are ready.

One thing to do this week

Write down every job you turn away for the next month, with what each would have earned after materials.