Remember these 10 things when hiring your first employee – “I learnt not to mix business and friendship”
Employment contracts, salary and overheads, legislation – Suomen Yrittäjät has published a guide to what entrepreneurs should consider when hiring their first employee. What experiences does entrepreneur Willem van Schevikhoven have of hiring?
Willem von Schevikhoven hired his first employee in spring 2008 when he turned his sole trader operation into a limited liability company. He was then in his twenties.
“My business was growing and I wanted to expand, too. There was more work than I could do alone.”
Van Schevikhoven’s company, Race Performance, which sells car spare and tuning parts, currently employs him, two full-time and one part-time employee.
The company has a shop in Pornainen, Uusimaa, but delivers parts all over Europe via two online stores.
Willem thought about his hiring decision for a long time and spent a lot of time talking to his future employee.
“I hired a good friend of mine I’ve known since I was eight. If I’d had to hire someone I didn’t know at all, the threshold would have been a lot higher.
“I’m sure every entrepreneur thinks about what happens when you hire someone you don’t know, and the probation period ends and the day-to-day work begins,” van Schevikhoven says.
Hiring his friend was not without its problems. When Willem fell on hard times and had to sack his friend, it was tough.
“We’re friends again now,” Willem says.
“Never mix business and friendship. You should act professionally in business,” Willem says.
“You should always think two steps ahead and also about possible future challenges, even if they seem distant at the time,” he says.
He encourages entrepreneurs to think about hiring their first employee to calculate in advance what their finances will be like when their costs double.
“I had a rough idea of things like salary overheads, but I’d never calculated salary in detail.
“In hindsight, I should have asked experienced entrepreneurs for advice. I didn’t, though. I’m a ‘learning-by-doing’ type of guy. I don’t know if I knew any entrepreneurs I could ask at the time – nowadays I have a lot of contacts through Suomen Yrittäjät”, Willem says.
1. Plan the job description in advance
What will your first employee do? It will probably be the same work as you, but think carefully about the division of labour in advance. You will hopefully have more time for things like sales and marketing after the hire.
2. You pay employer’s contributions on top of salary
If a full-time employee’s monthly salary is €2,500, as an employer you pay about €3,000 when various contributions are added.
The Suomen Yrittäjät website has a salary ready reckoner (unfortunately at the moment it’s only in Finnish) you can use to estimate your actual costs as an employer and see if hiring makes financial sense.
Employer contributions are about 20–25% on top of salary, depending on the sector. These contributions include pension, health insurance and unemployment fund contributions, as well as accident and group life insurance premiums. (See point 9)
3. All costs: gross salary times 1.5
Multiply an employee’s gross salary by 1.5-1.6 to work out your actual costs. Thus, a gross monthly salary of €2,500 would cost the employer €3,750 a month on average.
In addition to employer’s contributions, the other costs include annual holiday pay, holiday bonuses and, based on the collective bargaining agreement, salary paid for public holidays falling on weekdays. In addition, costs may arise from employee orientation, clothing, equipment and facilities. As employment progresses, costs may accrue from occupational healthcare services, sick leave and substitution costs.
4. You can get support for hiring
The most common form of support is wage subsidies, which TE services (labour exchange) can grant to assist an employer who hires an unemployed person. TE services also offer help for entrepreneurs who are searching for and hiring new employees. For example, you can take advantage of the free “Hire with Skill” (“Työllistä taidolla”) service.
5. Do you know the law?
The key laws affecting the employer-employee relationship are the Employment Contracts Act, the Working Hours Act and the Annual Holidays Act. Other laws regulating employment rights and obligations include the Non-discrimination Act, the Act on the Protection of Privacy in Working Life, the Occupational Safety and Health Act and the Occupational Health Care Act. Employment legislation can be found free of charge at finlex.fi.
6. Collective bargaining agreements define salary and evening pay
Before signing a contract, a prospective employer should work out which collective bargaining agreement will apply to the employee. It is also possible that no collective bargaining agreement will apply.
A collective bargaining agreement generally defines the working conditions to be met during employment in more detail than legislation. The most important of these concern employment and working hours, such as evening pay.
7. A collective bargaining agreement may be generally binding
The Employment Contracts Act provides for the “generally binding” nature of collective bargaining agreements. This means that all employers in a given sector must comply with the generally binding collective bargaining agreement in that sector, if one exists. This obligation does not depend on whether the employer is the member of an employers’ confederation that negotiated a collective bargaining agreement. In unclear cases, it is a good idea to ask for advice, such as from the Suomen Yrittäjät advice service.
8. You must provide occupational health services
You must arrange free occupational health services for your employees. You can agree the provision of occupational health services with your municipal health centre. It must offer occupational health services to employers who want them. You can also purchase services from a private medical centre.
Kela compensates some of the costs of providing occupational health services to a maximum of 50% or 60% of the calculated maximum costs.
9. Arrange statutory social insurance
You must also provide social insurance coverage for your employees from a pension insurer of your choice. The statutory social insurance contributions are to pension, occupational accident and illness insurance, unemployment insurance, employer’s health insurance and insured person’s (employee’s) health insurance. In addition to the statutory contributions, group life insurance premiums based on collective bargaining agreements must often be paid.
10. Draw up a written employment contract
Always sign a written employment contract. The contract should show whether the employment is permanent or fixed term, full-time or part-time, and if a collective bargaining agreement applies. The basic information is, of course, salary, working time, work duties and probation period.
It is also a good idea to agree on things like pay during sick leave, notice periods, the definition of annual holidays, employment benefits and other employment conditions.
You can read more about hiring your first employee in our guide that will be published in English very soon!