Small Business Hiring Hints for a Stagnant Economy

Four years ago, The Donaldson Clinic was comprised of four physical therapy locations and 50 employees. Today, after years of high unemployment has left many patients with no health insurance coverage to pay for therapy, owner James Donaldson has a single clinic in Bothell, Washington, and employs just 25. But that’s about to change, because Donaldson is ready to wade back into the hiring market.

“We’re looking to hire an additional three people before the end of the year,” Donaldson says, speaking with the gravitas of a general contemplating going to war. The weakness of the economic recovery makes that metaphor appropriate, according to Donaldson, who stands more than 7 feet tall and starred as an NBA center before opening the clinic in 1990. “It’s called the art of survival now,” says Donaldson, who wrote about his strategies for success in the recently published Standing Above the Crowd. “You survive to fight another day.”

Donaldson is primarily looking to fill key positions, including physical therapy assistants and aides. This will allow him to add evening and weekend hours, which he sees as the most cost-effective and least risky expansion mode open to him right now. “I’m proceeding with caution,” Donaldson explains. “I want to continue to grow our business, perhaps not back to multiple locations, but to be able to offer more services and efficient use of the location that we do have.”

Small Business Hiring Warms Up

Like Donaldson, many small business employers are now finding themselves nervously optimistic. A recent report from Paychex Inc. said during the three months ending in February 2011, its processing of small business payroll checks rose 2.8 percent from a year earlier. That represents the biggest gain in two years, a strong indication that small business hiring is finally on the mend. A May report from Intuit found firms with fewer than 20 workers added 60,000 new positions in April, an improvement from 50,000 new jobs in February and March.

But not all results are so rosy. SurePayroll, a payroll processor specializing in small businesses until it was acquired by Paychex in March, noted that the hiring index it calculates for small business employers actually declined in April, marking the sixth straight month the index has dropped. “We are seeing some hiring,” SurePayroll president Michael Alter says. “I’m not going to tell you we are seeing robust hiring.”

Just as important, small employers are not hiring in the same way they have done in the past. For one thing, they’re being more selective about whom they hire. In part, that’s because they’re nervous about adding too many costs in the slow recovery.

It’s also because they can.

Help-wanted ads these days get a lot more responses than they used to. “In boom times you were lucky to get 10 or 20 resumes and were hoping that one was good,” Alter says. “Now you might get 500 resumes.”

When small business employers get that many candidates, they have to be more selective. Alter says SurePayroll’s surveys indicate small employers are looking first for experience relevant to the specific position, then for experience in their industry, followed by a record of quantifiable achievements. What’s most striking, he says, is how much emphasis is being placed on how well a candidate’s attitudes and energy level match the corporate culture. “They’re not looking for skills,” he says. “Now all they care about is your fit. That’s different from three to four years ago.”

The Road Less Risky

Employers who want to expand their workforce should cautiously consider temporary or contract workers, says Neal Devlin, director of operations for CBIZ Payroll Services in Roanoke, Virginia. Using temps lets employers evaluate workers for permanent employment without taking on the trouble and commitment of hiring them outright, he says.

But employers need to carefully choose which positions to fill with temps, says Devlin. For positions that don’t require a great deal of training, such as customer service representatives for a simple product, temps can be a great solution. However, for jobs that require months of training to reach full productivity, temps don’t make much sense. In those cases, employers probably need to bite the bullet and return to the full-time “permanent” employee market.

Part-time workers are another attractive alternative to hiring full-timers. It’s easier and less costly to add hours or, if necessary, reduce hours for a part-timer if conditions require it, Devlin notes. Again, however, part-timers aren’t the right solution for every need. If you’re filling just a few full-time positions or looking for someone to handle overflow, hiring part-timers is worth looking into. But if you’re trying to fill 10 or so full-time vacancies, hiring 20 part-timers is likely to require too much interviewing and paperwork to make it worthwhile. Rather than hire a large number of part-timers, employers should consider making the commitment to a smaller number of full-time employees.

One approach that’s working well for Ben Kirshner is hiring interns. The chief executive and founder of New York City search engine marketing firm Elite SEM avoided layoffs throughout the recession and even grew his firm over the past year from 15 employees to 25. “Now we’re in expansion mode again,” Kirshner says. By the end of the year, the company would like to add another five full-time positions.

But Kirshner faces a shortage of skilled search engine marketers, meaning those with experience can command six-figure salaries. Furthermore, he’s had trouble with “salary shoppers” who come on board for a while only to leave as soon as they get a better offer.

His solution? Hire inexperienced interns, paying each a fraction of what an experienced person would get.

“We bring four to six people in for three months,” Kirshner says. “After three months they love the job or hate the job. The ones that stay, we slowly and gradually grow their salary as their experience goes up.” He’s not just looking at wet-behind-the-ears college students either. The strength of the market for search engine marketing professionals encourages people with several years in the workforce to consider SEM as a career change, he says.

Interns differ from other nontraditional workers in the level of potential commitment to the company. “With interns you can expect a deeper buy-in with your [company’s] and clients’ goals, whereas temps and part-timers typically limit themselves from the outset to come in for one to three months to complete a project and then leave,” Kirshner says.

Contrary to popular perception, though, you do have to pay interns, just like any other workers. Even though an intern position may be cast as a try-out, regular employment laws still apply. And you can’t expect inexperienced, low-paid interns to be as productive as fully trained professionals. Finally, when the economy heats up, finding talented individuals willing to work as interns, with low wages and no job security, is likely to become more difficult.

Hiring Without Growth

Some small businesses are going even further to reduce their hiring risk. These businesses are so cautious they’re hiring new employees without actually increasing their total workforces. They do this by trading up, hiring new, better-qualified workers to replace existing ones, often at similar or even lower salaries. This practice offers the potential to improve efficiency, productivity, and quality without adding costs, notes SurePayroll’s Alter. Upgrading can make business sense right now because the job market is still soft and wages haven’t returned to pre-recession levels.

“Upgrading” employees can be controversial, though. Employers need to make certain they aren’t violating employment laws when replacing workers. Because employment laws are complex and may differ from state to state, such as in the degree to which a state recognizes the principle of , upgraders should consult with an attorney before engaging in this practice. In many cases, problems can be headed off by offering a severance agreement that waives the employee’s right to sue.

Nevertheless, upgrading can carry serious potential costs in employee morale, loyalty, and goodwill. This is especially true in small companies where employees may have close relationships with co-workers. Though trading up may bring in fresh, skilled talent, it could damage the company’s culture and employee-relations in significant though hard-to-quantify ways. For most small businesses, hiring is about making things better, not figuring out how to avoid lawsuits.

Smart employers may be hiring differently and more cautiously than they did a few years ago, says CBIZ’s Devlin, but they are hiring when they can justify it. And that makes sense. Devlin anticipates that the job market will be less employer friendly in six to eight months. “A year from now, chances are it’s going to be more expensive to get that talent,” he says. “It really is a good time to start investing” in people.