Can Your Interior Design Firm Afford to Hire an Employee? Find Out.

Picture this: An inbox full of leads, clients happily making selections and waiting on their furniture to arrive, and other clients living in their newly renovated homes. You are paying yourself. Your work-life balance feels equalized. Your accountant sends you timely reports, and your taxes are in order.

Sounds like a dream, right? When you get to this place, the natural question is, “Can I afford to hire a new team member?”

We LOVE this question because it means you are growth-minded and you are thoughtfully considering the implications of hiring a new team member instead of simply hiring and “figuring it out later.”

When our clients ask if they can afford to hire a new junior designer or assistant in their design firm, we start by asking them these key questions:

Do you want to hire an employee or a contractor?
Do you currently have payroll in your business, or do we need to set this up?
What does your benefits package look like?
Will this new hire be in an administrative or a billable role?
What’s the average salary for this position in your area?

There is a lot that goes into knowing if your firm is ready to hire a new person. Let’s break it down.

Should your new hire be an employee or a contractor?

The IRS defines an independent contractor as a worker who often owns their own business and usually enters into contracts with employers to perform a specific project, typically on a short-term basis. An employee works regularly for a single employer.

If you need to hire a contractor, you can move forward with your search for the right person for the job; just remember to collect a completed form W-9 from them before remitting any payments.
If you decide you want to hire an employee, you’ll need to answer a series of financial and strategic questions. (Fun stuff, we know!)

If you are unsure how to classify your new hire, you need to slow down your hiring process until you are certain whether to hire as a contractor or as an employee. There are significant consequences to misclassifying workers, which you can read about on the IRS website here.

Does your design firm already use payroll?

If you already have employees set up in a payroll system, GREAT!

If you do not have payroll yet, there are steps you must complete before you can hire your employee and start paying them. The payroll set up process requires at least 30 days before you can officially hire anyone.

The process for setting up your payroll system will require you to make the following decisions, which we will guide you through if you are our client:

Do you want to pay your employees weekly, bi-weekly, bi-monthly, or monthly?
Have you set up your State Withholding Tax and Unemployment Tax profiles with your state agencies? (This can often be done with your state’s Department of Revenue and Department of Labor.)
Which payroll provider do you want to use? We highly recommend Gusto and Quickbooks Online Payroll.

What should you include in your employee benefits package?

Do you have a company handbook? While this is important from a human resources standpoint, it also has a practical application for your payroll portal setup. When setting up the payroll module, we have to know the following information:

What is your paid-time-off (PTO) policy? Does it accrue? Does it roll over?
Do you offer paid holidays? If so, which holidays?
Do you reimburse expenses? If so, which expenses?
Are you going to contribute to your employee’s retirement plan? If so, what will be the contribution percentage?

Will your new hire be in an administrative role or a billable role?

Both positions are valid and important. However, billable positions are easier to discuss from a profitability standpoint.

For example, let’s say your business operates in the state of Georgia, and you hire a junior designer for a salary of $50,000 per year. If you include payroll taxes, the total cost of that employee will be $54,123. Based on a 40-hour work week (which adds up to 2,080 hours per year), her hourly rate will be $26.02. If you bill her time to your clients at $100 per hour (or use this fee in your flat fee calculations), your profit on her time is $73.98.

Pro Tip: To easily calculate the cost of hiring an employee, we suggest using this handy Employee Cost Calculator by Quickbooks.

But what if your new hire isn’t billable? The math is not as straight-forward but can still be sorted out through a meeting with your accountant. At the core, this administrative role must support the billable roles in your business by saving those other employees both time and effort.

What is your market's average salary or hourly rate for this position?

When we start discussing whether or not you can afford to hire someone, you have to know what you want to pay. There is a huge difference between hiring a part-time hourly admin and a full-time salaried senior interior designer.

As your accounting firm, we will be able to run various financial scenarios with you based on your unique financial situation and goals. When you book an appointment with us, be sure you come to the conversation with an idea or a salary range in mind based on your market.

Example Interior Design Firm Who Can Afford to Hire

*Financials are for illustration purposes only.*

Example Interior Design Firm Who Can’t Afford to Hire

Your Next Step in the Hiring Process

Many interior design businesses operate successfully with payroll percentages between 15% and 30% of gross revenue, while some high-labor, service-based businesses are profitable with payroll costs up to 50% of gross revenue.

Before you take the plunge and hire a new employee, speak with an accountant who deeply understands the interior design industry. Book a discovery call today or reach out to your accountant if you are already working with us.

This blog post is to be used for informational purposes only.