Hiring: All About Decisions!

Hiring employees is a fundamental aspect of a growing company if done correctly, however if done incorrectly, the results can be devastating. Leo and Claudine break down the hiring process and offer business and legal input on how to successfully hire amazing employees, if and when you need them for your business.
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Speaker 0 00:27 Good morning. Good morning.
Speaker 1 00:31 Happy Saturday to everyone. As you listening to business in legal talk with Leo and Claudine, I am your host, Leo and Claudine. Good morning. Hey, I can hear you. Yes, you’re good. We’re just testing the equipment right now and just, you know, things happen. So happy Saturday. How are we doing today? Fantastic. The sun is looking great. I know. Wow. Imagine, you know, this is the first time what in seven, eight years that we’re out of a drought. We’re actually not in a drought and drought mode in this state anymore. It’s amazing. I know. It just watered everywhere. It’s amazing. We actually, um, uh, have irrigated land and we’re very thrilled this year that we don’t have to have the, um, our allotments cut. So, okay. So, uh, if you’re just turning into this show, and this is business and legal talk with Lee and Claudine, uh, we bring you the hottest topics in business and uh, if you are a business owner and a central Valley or otherwise, the topics that we talk about are here for you just just to, just the real, real talk.
Speaker 1 01:36 It’s the real deal. So we want to make sure that you are getting the information that you need so you can make actionable decisions on your business in our, and sometimes we talk about insurance and times to talk about the um, uh, topics. Uh, and particularly the had to do with, you know, running a profitable, sustainable business because that’s what we do. You know, Claudina is a lawyer and a, she is there to protect, you know, the sustainability. I’m all about the profit, you know, so sometimes we are, I mean, we argue on this show, but we both want the same thing, right? Absolutely. Staying alive and alive. And here’s the thing, we’re business. We’re fellow business owners. I mean, we, everything that we talk about on this show, it’s not really theoretical. We’re not sitting like a in a school as professors of, of law and business, you know, talking about conceptual stuff.
Speaker 1 02:21 We’re doing it right, that we’re hiring people, we’re getting the insurance, we’re doing marketing campaigns, we’re doing the sales cycles, we’re trying to get billable hours. We try to do everything. We’re trying to be profitable, you know, gross margins in line and everything. So today’s topic I think is particularly important. Um, we’re talking about hiring. Yep. Hiring and I’ll tell you, hiring is, is absolutely key. I mean, there’s so many things that are, that are very key to, you know, as sustaining a business and staying alive and, um, and being successful. And I don’t think anything, um, could be more key than your employees and how you
Speaker 2 03:00 get along with them and how they fit within the organization. And, uh, you know, when, when, when you go shopping for an employee, there’s a lot to be considered, you know, shop well, I considered shopping. I mean card, that’s it. But if you think about it, like when you know, you go to buy a car, you need to know what your needs are, you need to know what your budget is, you need to know, um, you know, specifically what is it you’re looking for and, and skill level and talent and, and, and then once you go shopping, how do you ensure that you are choosing the right person, the right fit? Um, it’s a difficult decision. I know myself, um, I have been very blessed on the hiring side, but I know that when you’re sitting across the table from a couple of candidates, um, maybe you interview four or five in a day and you’re sitting across the table and you’re having to make that decision. It’s, it’s tough.
Speaker 1 03:50 Well, the thing is, I mean, there are many cautionary tales as well when it happens, you know, where you hear the news is when things go wrong, but things are always going wrong. I mean, so I think some of the things that I want to talk about today are, are, you know, or w I think we want to develop this, you know, wages and salaries. You know, it’s, it’s a large expense for a business owners. So you must proceed with caution. We’re going to talk the caution, what he takes on the legal side, right? And on the business side, there’s also, can you afford it? Can you afford it? Can you really? I mean, there’s no point in, in growing a business and guessing if you’re going to need stuff, if you don’t have the sales to meet it and then you don’t have the money to pay the employees, then you have to lay them off. And it’s tragic. It is sad. Um, our employees and asset or liability?
Speaker 2 04:32 Well, it depends. It depends. I that took my breath away. I thought, well, I don’t think I can answer that.
Speaker 1 04:38 Is it time to change your paradigm? Um, we didn’t talk about it a bit about KPIs, key performance indicators that, that, you know, that you should be looking out for. And by the way, we’re taking callers today, so, so if you’re out there, you know, if you have a question, feel free to call a stop us anytime. A dial. The studio are five five one three four eight three Erica, 209-FIVE-51348Y-3. So, um, I think the way I was thinking about this today is just, let’s, let’s go from you. This was your idea of the topic. You know, like you say, I am itching to talk about this stuff because something has to happen or some regulation, something triggered you to want to talk about it today. So I, I’m, you know, wanting to just kinda get started. Well,
Speaker 2 05:18 you know, when, when we approach hiring and, and when I work with clients on hiring and oftentimes I’m brought in, um, at the end of the relationship when we have to do a termination. Um, and so we’re kind of looking back and, and we’re, we’re looking back over the relationship that we’ve had with an employee. Um, one of the things that I really work with clients on is when you hire, we hire with termination in mind. And I know that that sounds to some extent counter productive or, uh, so I’m it intuitive, right? Yeah. That, that, but the, the point is, is that we know what you’re doing when you hire, manage your hiring process correctly, and therefore, if the day ever comes that you actually have to terminate somebody. You have all your ducks in a row and you haven’t left yourself open for liability because the person who sues the employee, that SUSE is always the ex-employee.
Speaker 2 06:12 It’s typically not your current employees. Um, typically your current employees, if there’s a problem, they will work it out with you. They’ll, they’ll bring it to your attention. You can work out some sort of an arrangement. Um, but the, the employees that Sue are usually the ones who have left employment. So if they have reason to Sue, it’s because we have done something during the relationship that has not been managed well. So, um, you know, now when you hire, we’ve got new regulations for example, um, I, I don’t know if you’re aware of it, but, um, you’re now not, uh, allowed to ask certain questions about, um, criminal background. Tell me it. And so, yo, no, it is, it is. So it is so, and it used to be a very common question and in fact, um, that the phrase that was used during the campaign to change the legislation, um, was ban the box and there was a box who checked.
Speaker 2 07:03 Have you had any on the box? Have you had any felonies or have you, have you been arrested or have you been convicted? And so, you know, it was literally just a box check and sometimes if you say yes and it would give you a place to explain and that’s on your application. Now we don’t do that. Um, we can’t do that anymore. And there’s really good reason for that. There’s really, really good reason for that. I know a lot of employers initially just were like, ah, you know, what do you mean we can’t ask about, you know, criminal background and you can’t rely on somebody’s arrest record. Um, because an arrest record could be just that they got arrested and they weren’t actually found guilty of anything and that shouldn’t prohibit them from, you know, being considered. And now, um, if you are going to ask about a criminal background, you need to do it after you’ve given a conditional hire and then that the person needs to sign an acknowledgement that, that you are going to look into their criminal history and it cannot be arrests and it cannot, you cannot base decisions on arrests.
Speaker 2 08:05 You cannot make decisions on, um, dismissals, um, or even, um, you know, anything that isn’t, um, a felony conviction. So you make the offer conditional. Yep. Right? Yep. And you have to look beyond arrest, um, in any has, you have to have a true conviction. Yeah. And you shouldn’t be even looking until after you’re at the conditional higher spot, which is hard for employers because now you’ve invested a lot of time and, and gone through, you know, hoops and time and so forth. And then then to have the candidate fall apart at that stage. You know, it’s time consuming, but there’s really, really good reason for it. There was, um, a study done a number of years ago, um, people two years after release from incarceration. Um, if they were employed, they, um, had twice as much opportunity to avoid another brush with the law. So what we find and then a three year study found that a year of employment reduced the Recita recidivism rate by 34%.
Speaker 2 09:11 That’s huge. Huge. It’s huge. So in one hand, just like so much of what goes on in California. On one hand you think, Oh my God, a kidding me. We have to go through this. And you know, it’s just making it more and more difficult on the business owner. But from a general community sense, um, if we can employ people in spite of, um, them having had a conviction, well, it’s second chances. Yeah. Right. We really do a great service to our community. It totally makes sense. And I, and I, you know what, I’m always willing to change my, if it makes sense, anything is, the truth is when you’re looking at employment application and you see, put the, you know the check on the box, huh? You become biased. Yep. So you become a, an N, you know what? I think we’re employers, we tend to be passionate about what we do and we want the best.
Speaker 2 10:01 But I think some times we may be wrong in our assumptions. Yeah. You know, don’t judge the book by its cover. Right? That’s right. And now if you have a business that requires somebody to be handling money or for example, I mean this is a classic example, law enforcement. So there are certain, there are certain, um, industries where, you know, depending on the conviction, it may eliminate your ability to be hired, but you have to show that relationship between what’s required from the job and that conviction. So wait, so, so if the job description onto itself States that you will be doing cash handling, right. So is it okay then to ask those questions or after you, after the conditions, you still need to get to that place. You need to look the other basically that, should they even enter your mind as an employer conducting interviews that shouldn’t even be in the realm of possibility?
Speaker 2 10:58 No, but you can make it known that, that, that this is a requirement of the job. So if you, if you go to apply for a job as a police officer, you’re going to know right from day one what the job requirements are. So, Hey, so you listen to business illegal talk. When Lee and Claudine, we’re talking about really a, an important subject is hiring. How do you hire, you know, and hire, right? And no, because yes, although you want to start with the end in mind that you want to just do things right by the employee. So we’ll be right back. Stay tuned. You’re listening to business, a legal talk with Leon Claudine
Speaker 0 11:29 .
Speaker 3 11:57 welcome back from the break. You’re listening to business legal talk when the Claudine, I am your host, Leo Lambert in my cohost
Speaker 1 12:05 here is while the insurance from the Sharon law firm for the Sharon law firm. We love this law firm. All right, so making it happen. So we’re having some fun talking about, well, I am having some fun. So, uh, learning about, you know, the strategies of hiring people, right? So let’s keep going on it.
Speaker 2 12:22 So, um, something that’s also come up, um, is pre employment, drug testing and, and, um, uh, you know, with, with cannabis now being legal in California for adult use and recreational use, um, employers are still entitled to a drug free work environment. So it’s a really, it’s a little bit tricky. It’s, it’s a minefield. Yeah, it’s a little bit tricky. One of the things that has changed over the last couple of years is, um, utilizing drug tests, um, for employees, current employees, um, who maybe have had an accident on the job or just random drug testing. So now we, we are not supposed to be doing, um, random and random drug testing only under very, very narrow circumstances. So when the, when the decision was made and this changed, one of the examples that was used is if an employee had to go to urgent care because they were stung by a bee on the job site, they shouldn’t have to submit to a drug test.
Speaker 2 13:26 So there was a lot of, there’s a lot of companies that the policy was anytime you had an accident on, on the job, uh, you automatically were drug tested. Really? And yeah, and it, it, it’s now that unless the accident is, there is some sort of a, a correlation between the accident and the likelihood, um, of drug use that that would have caused the accident. So employers have to be very, very careful in that. Um, again, it was years ago, if you got into an accident, automatically you were sent over to, you know, get a drug test and you just can’t do that now.
Speaker 1 14:01 Wow. Well, if you’re just tuning into this show, I’m here with business and legal talk with Leah and Claudine and if you have any questions, you know, w w yeah, we talking about HR and hiring practices, but any business questions we’ll do, I mean, we want to hear our callers or you can call the studio line, Eric, uh, two and nine five (513) 483-5513, four 83. And we talked about, um, just a really all the new changes and, and I’m looking at this list, Claudine, and it’s just pages and pages and pages of stuff. Um, that, I mean honestly, who has the time to look at? I mean, if you’re, if you’re trying to generate some sales and if you’re trying to run a marketing campaign, when are you going to have time as a business owners to look at this stuff? Well,
Speaker 2 14:43 you know, I think, um, if for business owners, what, what we really work with them and we really recommend is, um, at some point, you know, if you’re new in business or you’re just beginning to hire, um, then, you know, obviously sit down with somebody, um, call our office, sit down with, with myself or one of the other attorneys in my office and, and discuss how do we go about doing this? What’s the best way to do this? Know that there are minefields. Um, and that it’s just not, it’s just not as simple as it may seem. And, and one of the things that we have right now, there’s so many things that we do as business owners that we just do from instinct. It just seems like, of course it seems like a, a natural, logical decision to make. So for example, social media in the hiring process, that’s a minefield.
Speaker 2 15:32 Um, employers do use social media to hire and in fact, social media is used to exclude sometimes well obtained candidates. How do we post jobs? We post them on LinkedIn, we post them on all sorts of media platforms. So we were using media, social media to obtain the potential candidate. And then what are we supposed to do with the social media when we want to hire them? And we want to look at their social media to see are they a good fit for our organization or not. Um, and, and we, we highly recommend that you just don’t start using social media to investigate potential candidates until the very end of the process, if at all. I recommend just not, not even bothering. Um, and it was interesting, I think yesterday there was an interesting conversation on Twitter, um, between several, um, legal folks. Um, what, what’s the potential if, um, somebody puts false things or fake information on their social media page to make them look like something that they’re not, they’re more embellished their social media profile yet to embellish it such that they can get hired.
Speaker 2 16:46 Because typically if, if, if you lie on your application or during your hiring process, if you lie and the employer finds out about it later, that’s a terminating offense. So, so is it considered lying if you embellish your social media platforms to make yourself, maybe you’re standing there with a picture of a degree that you don’t actually have, or maybe you’re standing there with an award or you’re having, you know, you’re, you’re putting information out there that makes you more attractive and potentially more hireable. Um, but it’s actually false. It would that be a fireable offense?
Speaker 1 17:24 Right. Well, you make me think about this. So, um, well, you know, I, I read in the news, you know, that uh, the bigger companies, particularly the recruiting agencies you know, are, are looking to make sure that, you know, just prowling really through social media yeah. Looking for something to uncover about their people that they are bringing in to present to companies. Right. So you’re saying that that could get us in trouble.
Speaker 2 17:50 Absolutely. Because consider this that you have a candidate and you’re very positive on the candidate and we’re going through the process and that candidate, um, has a social media platform and you go on that social media platform and you see pictures posted or activities or actions. Um, let’s just say the person is got photographs of them participating in the gay pride parade and at some point later on down the line, you decide not to hire that person. You know, for whatever reason. Yeah. That person could come potentially come back to you and say, you didn’t hire me because I was gay or because I’m a member of a protected class. Because when you went on my social media, you saw that. How would they even, okay. Well, let’s, how would they even know that somebody looked at their social media? Okay, so we’re back to, okay, so we’re back to, it never pays to defend yourself.
Speaker 2 18:45 So that person may not be correct. Maybe you decided to not hire him for for legitimate reason, a completely different reason. Well, they may be a legitimate reason, they’d just not qualify for the job. Okay. But now you have to defend that lawsuit to to what end. And, and it happens. I mean, Hey guys, if you’re listening to this, you know, and our audience, this is big deal. This is, this is this important, this is important. And you know, if honestly we spent generations hiring people without social media, right? That’s why I, that’s why I right? And, and do I think a lot of our society is coming to the point now where we recognize that what people put on their social media is not necessarily their true self, the true representation in some stories, right? It’s, yeah, it’s made up, made up belief, make belief, right?
Speaker 2 19:41 Or it’s just a portion of their life and it’s not really the sum total of, of that candidate. Um, I recommend not relying on social media. It’s just a whole bucket. So if you’re talking to employers right now, anywhere from, if you have one employee, if you’re driving right now around town and listening to this, if you have at least one employer, what can you, we say to you? Or what, what will you say to somebody who’s thinking about hiring somebody and as it pertains to social media? What would be an actionable thing? Well, I would say ask yourself, do you, do you really feel like you need, what is the reason you need to go into their social media? What is the reason? It’s on one hand right now, it is so common that we think, of course, why not? But then I say it say to you, what do you really think you’re going to gain off of their social media?
Speaker 2 20:31 Um, it’s just a Pandora’s box. It’s a Pandora’s box. There are laws that apply. Um, and, and we couldn’t go into all of that now, but there, and if you’re gonna do it, you need to do it correctly. You want to have somebody in your HR department do it or somebody who handles HR, who has the level of comp confidentiality within the organization. You never, never want to ask for passwords to people’s social media stuff. Um, and I don’t know, a lot of people have their stuff protected, so you know, their Twitter account may not be public or you know, their, their, uh, um, Facebook account or whatever may not be public. You want to do,
Speaker 1 21:12 we got a, we got a call her coming in here. Um, Sandra from, uh, Fresno. Alright. Ah, let’s put her through. Hello. Hi there, Sandra. Good morning. Good morning.
Speaker 4 21:26 Okay, so there are a couple of other, like a couple of questions. Um, thank you so much for all of the knowledge that you guys are putting out. Um, but one stood out to me when I heard you guys talking earlier was meeting highly, um, Oh. When you are thinking of adding somebody to your team that you know whether they’re an asset or liability, what did you mean by that?
Speaker 2 21:50 Ah, well it depends if you ask them the numbers person for the leader,
Speaker 1 21:54 no, for the attorney. So for, for me on the business side, a really could be an asset. So perfect example. So if you are running a staffing company in you, your job is to sale the, the, the staff, the talent onto companies for a margin in that, that’s what it’s employment agencies do. So then you need those people to bill right to the, to the employer. So they show up to the, to the job assignment and then you payment at a dollar amount and the difference as your profit. In that case, they’re an asset, right? They’re generating revenue for you for every hour that they worked. So they become variable costs. So it’s a variable cost. Now in a liability would be if you didn’t do things right and some of the things that cloudiness talked about today, then then the cost of them leaving the company and not in good terms and a disgruntled employee, it may turn out to be a liability that lead to legal action. What do you think? You know,
Speaker 2 22:51 from our side, from the legal side, I’m somebody who is a liability. Is, is going to be somebody who, for example, if you have a painting, uh, you’re a painting contractor and you have a paint company and you have to send your employees into people’s homes. Um, you want to have that employee who is somebody who generally makes good decisions, you know, moment by moment decisions, you know, knows when to not say something, knows when to say something. Um, because if you have somebody, they may be a great painter and they may be, um, you know, really good person at heart, but they just don’t have the filter or they just don’t have the, um, ability to present themselves in a, in a way that doesn’t create problems. Um, I’ve worked with a lot of contractors over the years and I can’t tell you how often employees will go in and make a comment that didn’t need to be made. That created a problem that wasn’t even there to start with. Um, and so depending on your business,
Speaker 4 23:47 right. And then they, I understand that because they’re on that client, but you have that customer is not going to refer her out.
Speaker 2 23:55 That’s right. And they’re now they’re questioning you or they’re questioning the job or they’re questioning, you know, well so-and-so said such and such, you know, when he was here on Friday and, and now, you know, we just, we just have a lot of liability. But the person who, Oh, go ahead.
Speaker 4 24:12 One other question. Um, so as far as when you’re hiring somebody, any you might assign to you that the more knowledgeable somebody is and you know, if they’ve been doing their line of work for a while, they’re not as readily, you know, to learn how you do things. And you know, in my own business I heard that my next hire, if I want them to be somebody who could be teachable and learn and grow and maybe have some time, you know, versus the person who kind of knows it all, but then they want to do it their way.
Speaker 2 24:53 Right. And, and I think that that’s the classic question. Do we hire somebody who’s, you know, maybe less years in the industry and really coachable and poised to learn or do we hire somebody with, you know, extensive experience who may be already kind of does it their way, character. You know, I, I always think at characteristics, experience, you know, character me trumps it all. You got somebody with the right character, you can teach them somebody with a lot of experience but not the right character. Long term may hurt you. Yeah. Does that answer your question?
Speaker 4 25:27 And then the classroom and you don’t really know them so well and then you know, Oh yeah, I guess you have to really go by their, the cost that they are, you know, what they write on their station and you know, questions to ask her in the interview. That’s my,
Speaker 2 25:44 yup. Yup. I think you pick it up. I mean, you must take a lot of notes. I mean we’re that that’s all the things that we’re talking about today. So Sandra, thank you so much for tuning into the show and asking them the great important question
Speaker 4 25:56 they see on the .
Speaker 2 25:58 Thank you. Bye. Thanks so much. Okay. So yeah, so I um, that’s a really good question that she brings up that, you know, and I think that the answer to that, I don’t know if she, if she got that was a really knowing yourself. Well, great, good. Great time for a break. So thank you for listening to business and legal talk with Leah and Claudina power talk through two 60. We’ll be right back.
Speaker 5 26:38
Speaker 1 26:47 Hey, welcome back. You’re listening to business illegal talk with Leah and Claudina. I’m your host, Leo Landa Verde with Greenland HQ, Greenland advisors, and my cohost, Claudine Sharon from the Sharon law. Now we’ve been talking a lot about it and we just had a call or talking about, you know, an employee being an asset versus a liability. We’re talking about hiring practices today. Now on the business side, how we, how Claudine and I compliment each other as we really come at different angles. We are the ying and yang for your business. So if you have questions on the business side, I am all about building, scaling and profitable. And you can find us at www dot Greenland as in the country of Greenland. Then hq.com headquarters. So is Greenland, G E R R E N L a N D H q.com. And please, uh, Claudine w shameless plug. Where do we find you at?
Speaker 1 27:36 Www sharon-law.com and that’s S H E R R O n-law.com. Awesome. So if you’re tuning into this show that we’re talking about, you know, if you’re, if you’re listening to us for the first time, we give you actionable things that you can take. If you re, if you just take one thing that we talk about today and do something about it, I guarantee you you’ll be, you’ll be much farther on than most people. Now, do you guys add a additional law firm? Do you guys work with some type of toolkit? Do you get what? Like if, if a new client is coming in right, and he meets with you guys and I know you guys, we think alike, did they walk away with some type of um, strategy or how do you keep it making sure that they are following these things that you know, that they don’t get into trouble? Proactive.
Speaker 2 28:20 Okay. So depending on what industry the clients in. So we have, um, we have the certain say packets that we have set up.
Speaker 1 28:29 Hey, we got a caller. A hold on, hold on, hold on. I thought Chad call in right now. Social media. Hey Chad, are you on the call?
Speaker 6 28:39 Yeah, I’m Eric. Can you hear me?
Speaker 1 28:40 I can hear you. How are you?
Speaker 6 28:43 So if I’m an employer, I do a lot of hiring. I was so look at up typical candidates, social media wouldn’t be, you know, to look at if they’re gay or straight or white or Brown or black or whatever. I’d be looking to see what he said about his past employer kind of nonsense. He posted about that and you know, he posted a whole bunch of garbage disposal it past employer that was a designer, a decided lack of character. And then I’d want a dot that guy like a
Speaker 2 29:12 absolutely. Absolutely. Absolutely. Well, no, and you’re absolutely right Chad. The reason why you’re looking is not necessarily because you, you want to discriminate because the person’s a member of a protected class. And actually the reality is, my personal opinion is there’s a lot less discrimination than there is discrimination lawsuits. Um, people are not necessarily attempting or really they don’t care to discriminate against somebody. They just want an employee who’s going to be a good employee. However, those, um, lawsuits are available and it’s a claim that somebody can make. So once you’ve learned something by going onto their social media sites, then you can’t unlearn it. And, and that’s where the problem comes in is that now somebody can come back to you and say, well, you didn’t hire me because you found out through my social media that I’m a member of a protected class. Um, and again, it’s back to the adage is it doesn’t pay to defend yourself, but you’re absolutely right. And I, everybody I’ve ever talked to, um, on the subject employers, they’re not looking to discriminate against somebody because they’re disabled or, you know, correct. Member of a class. They just want a good employee. Yeah. Does that make sense? Chat?
Speaker 6 30:23 Yeah, absolutely. If you took a snapshot of that, uh, you know, that posting about him dog and some past employer and you say, no, this right here is why I didn’t hire you and I don’t need that here. And then is that going to be actionable for the lawsuit?
Speaker 2 30:37 No, no you, it, it’s, it’s only actionable if they can demonstrate that you, um, did not hire them because they were a protected class and the member of a protected classes, race, religion, national origin, sexual orientation, California has a number of extra ones thrown on there. Um,
Speaker 1 30:56 but you know, you’re your basic protected class categories and Chad, you know, I, I’m all about, and we’ve been talking about this all throughout the show is I’m all about character, right? You want a character embedded in that person. You know, I, I don’t know how you feel about that, but I think he cared and trumps everything. You can have all the experience in the world, but if you can’t keep your mouth
Speaker 6 31:18 fired for who you are,
Speaker 1 31:19 right. That’s exactly it. That’s exactly it. The, we answered your question.
Speaker 6 31:23 Yes sir. Thank you.
Speaker 1 31:24 Hey, thanks for tuning in. Have a great day. Thanks Chad. Keep listening. Enjoy that sun. Okay, so where were we? Um,
Speaker 2 31:33 just continuing on the social media.
Speaker 1 31:35 Yes. It’s a hot item.
Speaker 2 31:37 And the subjects of, how do you consider when you’re bringing somebody on, how do you financially consider it? I know you and I have worked through that in my business. Yes. And you taught me quite a bit and helped me crossover to a new way of thinking.
Speaker 1 31:54 So great. So you want me to, okay, so let me, let me get into the business side. So if you’re running a business today, your wages, your payroll will most likely be your largest expense. Yes. If you provide, you know, a below the line, meaning that if you don’t have any cost of goods sold, right? Like if you’re, if you are in a manufacturing world, then you have to buy widgets, you know, the materials to, to, you know, to create the, the product that you sailed, then you’re going to have a cost associated with that. And that’s going to be a substantial cost that is going to go up and down with sales. But below that, right, you’re going to have employees. And uh, it this different, there’s not a fast rule that there are some indicators per industry. So industry is different. For instance, your industry, um, you’re in the professional services category in which you produce. You have no widgets to produce your sell a professional service, right? You’re your, you know, your wages are going to be substantial, right? How, what was the, what’s the sweet spot, right? I always tell employees, if you have no cost of goods sold, you want to stay as much as you can below 40%. Now some articles we’ll save, some analysts will say, well, 50% it’s fine. It’s all relative.
Speaker 2 33:11 So when you say 40% explain that your sales, so your, your overall payroll should be 40% of your overall sales.
Speaker 1 33:20 What I’m going to say to you as little as possible right now, but, but if you must choose a number, we’ll say 40% now think about it in terms of what if you produce $1 million worth of sales in one year in an, and then you have no cost of goods sold. So your gross profit, it’s $1 million. So you have a million dollar business that basically, um, w with nozzle shaded cost and now you start chipping away and the first expense is going to be your payroll line. Now if your payroll is 40% and you considered all things equal and that are within range, like you rent, you know, you rent, it’s going to be what it’s going to be. If you are a law firm, you gotta have, you know, decent space, right? You want to have a conference room, you want to be in a nicer building.
Speaker 1 33:59 You know, all those kinds of things that go with your profession. Being in industrial areas is noggin. So you may get a dollar triple net on, on your lease and have this fantastic space and nobody’s going to want to come to right. Some things are expected of your profession. Now, if you’re a white collar, if you’re, if you’re a dentist, if you’re a doctor, if you’re a chiropractor, you need to be a nicer space. You’re gonna spend a little more, perhaps two to 3% of your sales is going to be go to rent, but payroll is always going to be higher. Now, here’s the problem. Does that answer your question?
Speaker 2 34:32 it does. Um, it does, but I, now I have another question. So let’s just say you’re, um, you’re just starting in business and you’ve been running your business by yourself for, you know, the last whatever year, two years, and now you’re at that place now, now I’m getting it to a point where I need to hire somebody, I need to bring somebody else on. How do you know how, where to put them in terms of the pay scale? I mean, I, I understand that there’s a general wage range. So in my industry the wage range is quite substantial. I mean, somebody coming fresh out of law school easily can get started at 60,000 a year. Right? And somebody who’s, you know, five years out of law school can, you know, easily demand 120. So there’s a, there’s a big range. How do you work with clients to cross that bridge?
Speaker 1 35:22 It’s a, it’s a good question. 90% of the time. And here’s how I answer it. I first look at the historical, if I’m coming in and if I’m engaging you, if you’re a business owner, say if I’m engaging you, first thing I’m gonna do is like historical data where, where you been, are you profitable? Can you even afford staff? Right? You can have $300,000 worth of revenue and no employees and be in losing money every month, right? I don’t know that until I start asking those questions, I start looking at your profit and loss. I used to looking at your balance sheet, your profit and losses. You know, it’s a historical thing for the w the one year w whether you’re a fiscal year or calendar year, they said 12 months will tell me whether you’re profitable or not, right? So if you generated $300,000 worth of sales, right? And it’s just you and you have no cost of goods sold and you’re very, um, uh, frugal and your expenses, and you have $200,000 a fall to the bottom line, you gotta have a lot of tax liability, right?
Speaker 1 36:15 Then you start investing in your business. So if you generate $300,000, right? In two thirds, fall to the bottom line, you’re very, very profitable. Now, very rarely will a startup be profitable, right? Where does the money come from? What a startup? It comes from the, you know, injection of the founders or alone, right? Um, the a, and you know, you only raise capital through sales loans or capital, right? So are you profitable? Number one, if you are profitable, are you collecting your AR? If you produce, you know, if you’re not a restaurant, you got to send them bills. You know what it’s like sending a bill to a client that doesn’t pay. It’s very hard to answer that without looking at multiple variables. So I would say, are you profitable on an accrual basis? Then are you profitable on a cash basis? How much profit? Now, if you’re going to bring in, so back to the example you made, $200,000, and you’re all this, this discretionary cash as you’re sitting in your bank account, now you have this potential tax liability. You need to invest. Now we bring in another attorney, right? Then you pay him a decent weight and I would expect him to be a revenue producing entity.
Speaker 2 37:23 Right. So now that’s the, that’s the crossover is how, how, how does, uh, I guess I guess it goes back to having your books done and making sure that your books are squared away. Because when you do hire somebody, let’s just say you’re the landscaping company and you, you know you’ve got a lot of accounts and you now you need to bring on somebody who can go take over and do some of that work. Then you have to manage their profitability. Meaning are they working enough hours and doing enough jobs and then you have to do the analysis.
Speaker 1 37:54 We’re going to have to go on break soon, but one thing I want to talk about in the next segment is it’s the biggest cake. Keep key performance indicator and they’re looking at businesses, profit per employee. Some companies will look at revenue per employee. I want to talk about profit per employee. If your employees are profitable, I’m going to say hire them all day long. You are listening to business and legal talk with Leah and Claudine here on power talk 1360. We’ll be right back.
Speaker 5 38:16
Speaker 1 38:33 welcome back. You’re listening to business legal talk with Leo and Claudine here on power talk am 1360 serving the central Valley, California. I’m here with Claudine Sharon from the Shannon law firm and they are, I your go to no bias there. You’re there should be your go to law firm for all business matters. And I am Leo Landa Verde and I’m all about a Greenland HQ building profitable businesses. And the last segment we were talking about,
Speaker 2 39:10 this is such an important subject and I have to just, you know, give Greenland a shout out because I really didn’t understand how to deconstruct the employee the way you’ve taught me how to do it and you’ve taught me, uh, something that will help my business grow and has helped my business grow. But it’s a lesson that is less than a lifetime and will continue to. I’ve never been able to do it quite as successfully as I have since you taught me how to do this. Cause I’m keep driving those numbers and those metrics every week. Right? That’s right. Because when I look at a candidate, when, when I look at a, um, a potential, uh, say a new attorney coming in, I’m looking at their experience, I’m looking at their competency level, I’m looking at, you know, will they be timely, will they, you know, be able to effectively do the research to give clients the correct advice. I’m looking at something completely different, but in the, at the whole entire time, I know that, that they’re expensive. Attorneys are expensive and, and the, the payroll’s significant. Um, and so I have to pay attention to that. How do I make, how do I cross that bridge? How do I make those two things work in tandem? And it’s really, you’ve taught me, it’s all about the number.
Speaker 1 40:22 Yeah. So let’s talk about the numbers a little bit. So to me, it’s you, you made a statement on the last segment about having your books in order. Yes. If your accounting and finance is no, is not an order that would be like building a house on sand. Correct? It is the foundation. It is the bedrock to me. You are absolutely need to invest in an accounting software in either you need to do your books yourself or hire somebody or hire somebody like my company and do it at a fraction of the cost that it would cost you to hire somebody full time. You must have your accounting done. I start with that now as a CFO. I come in and I’m assuming uh, that their books are not right. I take a look at and making sure that their right, once they write, I start thinking about the business model. It’s all about your business model, right? If you are a professional services Indian, you’re selling those services out. The cost is going to be the staff that you have doing it and what the metrics are. Right? So you look at the first thing that we talked about when with you was breakeven, right? What is the breakeven scenario per person? So once you reach breakeven, anything above that is profit, is just deciding how profit. And I think it’s just being a good steward of your time
Speaker 2 41:36 business. It really is. And I think that, gosh, if from experience, I can tell you, having been in the construction business for going on 30 years, um, and in that we were in the janitorial business and um, you know, years before that and, and not ever having that connection where somebody, we were so worried about our business, we were so worried about the project. We were so worried about getting through it and that we didn’t put the emphasis on having the books done and the books right. And boy, let me tell you, you can grow if you’ve ever sat back. And if there’s people out there listening to this who are in business and, and have thought to themselves, Oh, how do I grow to that spot? How do I get to be that big, you know, construction company? Or how do I get to be that, you know, big, successful company. It’s all about the numbers.
Speaker 1 42:28 So let me give you an example. All right. So let’s, let’s talk about the easiest way to kind of wrap your head around profit per employee is on the sales salespeople. Yeah. Right? Yeah. Because it’s very quantifiable. It’s very objective. Um, you know, the days of having hiring people in commission or it just becoming harder and harder. There’s a lot on Jupiter, you know, there’s a lot of hoops to jump through to make it right, but say you pay somebody and you just throw some random numbers, $100,000 a year. Now you know better than that. When you pay somebody $100,000 there are hidden, there are other costs associated with having that person on staff. Right? You know that pay roll, the bennies, the perquisites, and if you give them an auto allowance, all of that adds up to a factor. I like to stay, I like to put a factor of 1.2. Okay, so 20% costs above and beyond Spain, somebody. So the a hundred thousand dollars sales rep is now, you know, let’s just say they’re selling software. You know, it’s a higher, a higher, you know, longer sale cycle, higher per item, price per item, et cetera. So you have $120,000 cost in cash that you have to come up with, right? Every year. Now they, easy question, how much sales does that person need to do in that calendar year to pay for themselves?
Speaker 2 43:46
Speaker 1 43:46 it would be 120,000 right? Nike then that’s your break even is that zero. Zero to me is a very important number. I need to know how quickly can I get to zero on any investment, right? That’s when you start really recouping your cash. It is your return on investment comes beyond that, right? Are you following me? Right? So if you’re a business owner, you need to be very objective. If you pay somebody $15 an hour, it doesn’t cost you $15 an hour. It cost you a whole lot more than that. A little bit more. So just as a buffer added 20% to that, that is that. So if that person is in the counter and if you’re looking at your business, so if you have, you know, a million dollar business, uh, and I don’t want to put anybody through a math test, but you know, you’re, you’re, you’re operating, you know, your cost of good soul is 50%.
Speaker 1 44:33 So you have half a million dollars and you know, and you have five employees, right? Your gross profit over those five employees. So each employee is a hundred represents $100,000 over the profit, right? I guarantee you that if you pay him less than a hundred thousand in all things remaining equal, you’re going to have a profitable business. Now, I’m oversimplifying a pretty tough concept because there’s a lot of metrics that go into that, but to me is, you know, companies like Google and Facebook, they say, well, you know what? We know that, uh, we just reached the milestone, $1 million of revenue generated per employee. If you are a Facebook and you have 2000 employees, that’s $2 billion, right? Worth of sales divided by under 2000. That’s, you know, that’s, that’s, that’s a lot of revenue. That’s a very high threshold. I guarantee you that, that if there’s somebody bring in that kind of revenue per employee, they’re going to be very profitable. But that’s, those are the unicorns, right? Right. Not every business has light. Now,
Speaker 2 45:36 I mean, again, 1% of all business, I’d go back to the reality that, yeah, let’s go back to the, you know, the guy or the gal who’s, you know, cleaning houses or you know, a carpet’s for a living or,
Speaker 1 45:46 so if you’re, if you’re listening to the show right now, if, if you go back, go back to your profit and loss from last year, right? 2018 look at how much net income you had, right? Let’s go with an accrual basis. And if you had $100,000 worth of net income, then go back and add all the employees that you had on your payroll. Divide the a hundred thousand dollars into it, and that’s your profit per employee. Are you happy or sad?
Speaker 2 46:11 Okay. So then step number two comes, and this is what w what I have embarked on myself. Here is the, um, then you track it, setting up the metrics for the employee after they’re hired. Now you have it. Okay. So we have an idea of of how many, you know, sales that this particular person needs to make in order for, for us to break even. And then we look at that and then we have to set up the metrics going forward. How do you, how do you measure that? And I know how you and I do it for my business. You know, we do it on a weekly basis and yeah, and then ultimately on a monthly basis and it rolls into quarterly and so forth. Um, and do you recommend that business owners do it that often? I think, I think
Speaker 1 46:56 it really depends on the sensitivity of cash. You know, businesses that are growing at are consuming a lot of cash. You want to look at those metrics on a weekly basis. If you’re a seasoned business to over 10 years, you’d be profitable year over year. You probably don’t want to look at on a weekly basis. If you have half a million dollars in the bank and you’re looking at your P and L you profit and loss and your profit only month. Maybe you don’t want to look at on every week, but fast growing businesses like yours, they need to be looked at every week. And we look at the billable hours against, you know, uh, per employee that turns into revenue. And then use of Strat, you know, you, you take away whatever is payroll and the in the Delta, it’s you really your profit for, for, for that workforce. Um, but that’s just one indicator.
Speaker 1 47:35 You also want to look at, you know, the customers that, you know, they’re there. I mean, actually we didn’t even talk about it today. Um, speaking of KPIs, which is one of my favorite things to do is key performance indicators. There are many for our business that are predicable now in law firms. You know, billable hours is one, but if you are in another business, you know, you can have a, um, you know, I’m looking at this list, employee satisfaction index. Um, percentage of employees, they’re co, you know, that are culture KPIs now. Uh, you know, the, the, the, you know, you’re no pro net promoter score absenteeism, you know, like somebody is, there are things in the HR world that okay, there are things in the HR world that you have to make sure that you are, um, that you’re measuring. Um, for instance, um, I know from working with um, manufacturing company that the Cal OSHA, they want to make, you know, a number of incidents number of days without an injury.
Speaker 1 48:37 Right? Right. You, you know, you, you, the manufacturing world is big on that. You know, if you have an injury, your mot modification rate for workers comp, it’s, it’s, yeah, it’s a big expense and you can drive down your costs, but you don’t have to worry about that because your workers’ comp Claudine is negligible. Right? It’s very little. But you have all the insurance that you have to worry about, you know, like your malpractice general, your general liability, professional liability and this are the kinds of things. And you know, at the w because we’re running out of time, it’s hard to, we’re going to have to just probably expand on this topic, um, soon. But you have been listening to business illegal talk with Lee and Claudine and you know, I appreciate the callers today. We care about this stuff. We want you guys to be, you know, who wants, you know, what’s the point of making $1 million a year if you’re losing $1 million out the door and in litigation, right?
Speaker 1 49:26 Right. And then it goes fast and he goes fast and it goes quickly, right? So, um, you have, um, you know, some of the topics that we’ve got coming notes it next week we actually going to be talking about growth marketing. We have a great host. Uh, they’re going to be talking about just really how you do marketing for a growth company, which I’m very, very excited about that. We’re going to learn about that. So I’m the hope everybody has a great Saturday. Stay tuned. We’ll come back next Saturday with business illegal talk with Leo and Claudia. So empower. Talk a M 1360 have a great weekend. Thank you.