Chapter 2

Building a Recruitment Strategy for Finding the Right Person

In This Chapter

arrow Working out whether a new employee is worth the investment

arrow Considering job analysis and the form of employment when designing a job

arrow Outlining your position description and key selection criteria

A horse! a horse! My kingdom for a horse!

William Shakespeare, Richard III

S hakespeare’s King Richard III must have been pretty desperate to offer his entire kingdom for a horse when he finally met his fate in the Battle of Bosworth Field in 1485. Of course, it was pretty clear by that stage of the play that his business (England), was on the verge of a hostile takeover! (Richard III was the last king of the House of York and his defeat ended the War of the Roses and began the Tudor Dynasty, with the ascension of Henry Tudor to be Henry VII.)

Small-business owners are resourceful, adventurous and up for a challenge. But please don’t go all Richard III and start offering big dollars to find someone to work like a horse in your business. In this chapter I guide you through the steps to developing your own recruitment strategy, including the initial planning, and job analysis and design.

As a part of your business strategy, your recruitment strategy should be founded on sensible business planning — your decision to employ staff should be an investment in your business. In this chapter, I provide an analytical approach you can use to justify the investment to yourself before you proceed, including some simple measures to help you calculate the return that you can expect from your investment.

I then provide simple steps to help you analyse what sort of employment position you need, and cover designing a job that has a clear purpose but that also incorporates some flexibility. The proposed position must be flexible enough to allow your employee to work successfully both today and the next 500 days. Finally, I explain how to use all your analysis to write a position description that’s really useful to your business.

Calculating the Investment in Your Staff

Congratulations if you already understand the concepts of marginal revenue and marginal cost — you’re probably an economist and not a small-business owner. Please stop reading this book immediately and go back to your university! Thank you.

Are you still with me? Good, please keep reading.

Comparing costs with revenue

Many different ways of estimating the financial return to expect from an employee exist, but I’m going to give you the easiest: Comparing costs with revenue.

When looking at costs versus revenue, the following terms are important to understand:

  • Marginal cost means the cost of producing one additional unit of whatever it is you sell. A unit of production can be a good or service. For example, a unit could be an hour of work or a consultation with a client or patient, a haircut, or a meal served to a customer. It could also be a cake produced by a bakery.
  • Marginal revenue means the revenue that you receive for producing one additional unit of whatever it is that you sell. Once again, the concept can readily be applied to services as well as goods.

Your objective when investing in staff is to increase the return to the business in the form of profits. Employing additional staff means you can provide additional products and services. If the marginal revenue received from the additional products and services is greater than the marginal cost of producing these products and services, the investment is a profitable one. You’re making more money. If not, the new employee is costing you money.

remember_4c.eps When looking at the bigger picture and considering costs, you need to calculate all of your costs — both fixed and variable costs, as follows:

  • Fixed costs are the costs of running a business that remain the same even if you don’t produce one item for sale. These costs may include plant, equipment, property, rent, insurance and marketing costs.
  • Variable costs are the additional costs that you incur in order to produce each unit of whatever it is that you produce. These costs include the wages that you pay employees in the business, service charges on utilities where usage depends on production levels (including lighting, water, heating and telephone calls), and raw materials.

So to calculate your total costs, you can use the following formula:

Total Cost (TC) = Fixed costs (FC) + (Variable costs (VC) × Quantity (Q))

For example, a physiotherapist may spend a total of $20,000 per year on the property lease, equipment, communications, utilities installation, layout of premises, marketing, insurance and professional license fees before she consults her first client. She may also want to extract a set profit from the business — say, $60,000 per year. These are her fixed costs. You can divide this amount ($80,000) by the amount of working days that the business is open (approximately 260 per year) to get the fixed cost per day — approximately $300.

Variable costs now need to be added to these fixed costs. In this example, the variable costs could be $30 per client consultation (these variable costs could come from use of diagnostic equipment, heat treatments and non-reusable materials), meaning the total costs per day are

$300 + ($30 × Q)

If the physiotherapist sees ten clients per day (Q = 10), her total costs would equal $600 per day.

Your total revenue (TR) (what you derive from the sale of the goods and services) should exceed your total cost (TC). In the example, if the physiotherapist charges a fee of $65 per consultation, TR will be $650 each day if she sees ten clients per day. (The fee of $65 equals marginal revenue. This is greater than marginal costs and average total costs are only $60 per consultation.) The return for the business is $50 per day or $5 per consultation ($13,000 per year).

Increasing revenue through adding staff

Perhaps business is going well for the physiotherapist in the preceding section, and she’s thinking of hiring another physiotherapist so she can look after more clients. Employing another qualified physiotherapist to work in the business with her makes sense if the expected added revenue from doing so exceeds the expected added costs.

Say the physiotherapist business owner decided to employ a qualified physiotherapist to work full-time in her business, paying $60,000 per year inclusive of superannuation and salary. Variable costs may increase to $50, but fixed costs would still be $300 per day (the salary paid to the new physiotherapist is part of variable costs because the employment occurs only to treat new patients). With two physiotherapists working in the business they could consult up to 25 clients per day, because they could coordinate work over lunch breaks and perhaps extend business hours per day.

This would mean TC are

$300 + ($50 × 25) = $1,550 per day

Dividing these total costs over the 25 clients means average total costs per client increase to $62 with the employment of a physiotherapist; however, these costs are still less than marginal revenue ($65 per client). Total revenue each day increases from $650 to $1,625. The return to the business increases from $50 per day to $75 per day (or $19,500 per year).

Employing more doesn’t necessarily mean more profit

Most businesses will experience a reduction in at least average costs as they increase the amount of business. But this doesn’t last forever and, at some point, employing more staff will lead to diminishing returns to the business — unless further investment is made in the infrastructure or capacity of the business.

Continuing the example from the preceding sections, say the physiotherapist business owner was considering employing another physiotherapist, meaning variable costs would increase to $70. The increased variable costs are in wages, and the costs associated with actually treating clients such as the use of diagnostic equipment and non-reusable materials. But what if the building space didn’t allow for additional consulting rooms, meaning the number of client consultations per day was limited to 32?

This would mean TC are

$300 + ($70 × 32) = $2,540 per day

Dividing these total costs over the 32 clients means average total costs per client increase to $79, where marginal revenue remains at $65 per client. In this scenario, the marginal and average costs would exceed the marginal revenue, eating away the profit of the business.

The business owner would have the following options to ensure her business remained profitable. She could

  • Not employ a second physiotherapist
  • Employ a second physiotherapist who will accept less remuneration, such as a new graduate
  • Employ a part-time physiotherapist
  • Reduce the time period of consultations (but not the fee charged)
  • Increase fees charged to clients

remember_4c.eps When considering whether a new position is required in your business, the first thing you should do is calculate all the expected added costs from that position. You can then work out whether the expected added revenue covers these added costs and makes the new position worthwhile. If your production or service is limited by factors such as building space or capacity, you will reach a point where the costs of adding a new position outweigh the potential profits from that position.

Designing a Job that Suits Your Business

You don’t need to be an economic genius to identify the reason that you should (or shouldn’t) employ staff (refer to the preceding section for more on comparing the expected costs with the expected revenue of a new position). You must, however, have a good understanding of the tasks that need to be performed and how decisions are made in your business. This knowledge is fundamental to designing a job to suit your business.

Analysing the job

Job analysis is a really boring technical phrase used by human resources professionals to describe the process of discovering what people do all day at work. (And I don’t mean surfing the internet or checking their Facebook page — although I’m sure some of that is going on in workplaces throughout this big wide brown land of ours!)

For your small business, job analysis simply means deciding how you will structure a job to ensure whoever performs it works efficiently and effectively. Performing a thorough job analysis at the start of the recruitment process helps you design a job that’s right for your small business.

The process of job analysis means marrying the following two concepts in a simple analytical procedure:

  • Workflow design is analysing the tasks necessary for the making of a product or service, including the knowledge and skills required to perform the tasks prior to allocating and assigning them to a particular job or person. In basic terms, a job is the sum of the tasks that are performed within the chain of command of an operational system. So mapping the flow of tasks from beginning to end provides a clear picture of how to structure a job.
  • Organisational structure refers to the formal network of vertical and horizontal relationships that exist between the small-business owner and staff. This network outlines the chain of command to make decisions in the business. You need to think about where the job fits in the overall organisational structure.

remember_4c.eps Terms such as workflow design and organisational structure may seem rather technical, and remote and daunting. However, understanding the flow of work within the organisational chain of command provides a solid foundation for deciding to employ a person and the responsibilities that person must perform to provide the best return on your investment.

Workflow design

Workflow design starts with describing the raw materials, equipment and human resources (knowledge) required for producing the required goods and services, as follows:

  • Raw inputs: List the information, materials, data and supplies that are needed to produce your goods or services.
  • Equipment: Take note of the work systems and equipment or tools needed to transform your raw inputs into your goods and services. For example, many aspects of businesses can now be automated or at least tracked via computer software programs — from purchasing supplies through to registering retail sales. You need to include these systems and programs in your workflow outlines. Trades-related businesses need equipment such as trucks, power tools, ovens, knives, electrical equipment and business premises.
  • Human resources: List the knowledge, skills and abilities required to take the raw inputs, apply the systems and use the equipment to produce the goods and services. This could include, for example, technical knowledge, proficiency in sewing fabrics into garments or good organisational skills.

Using a whiteboard, spreadsheet, or even pen and paper, now list the individual tasks that must be performed in the job — that is, applying the raw inputs, using the equipment, and employing the required knowledge, skills and abilities to produce your goods and services. Group the tasks (including the use of equipment and the human resources required) into discrete functions or activities that can be performed by one or more persons. Estimate how long it takes to perform these tasks to produce the goods and services.

This simple exercise provides the building blocks for deciding what type of new staff to recruit, and for designing the job that best suits your business.

Organisational structure

An organisational structure highlights lines of communication, authority and accountability, and so adds the dynamic elements to complete your job design.

Imagine the situation when you use the drive-through of a fast-food restaurant. When you place your order, you know that by the time you reach the window to collect and pay for your hamburger and fries, various tasks will have been performed to take the raw food stuffs, prepare them, cook them, package and deliver them to you. The people inside the fast-food restaurant will have applied knowledge, skills and abilities using equipment in established work systems to do all of this work. However, the process doesn’t happen spontaneously and without a clear chain of command and communication between staff. This chain of command and communication is established through the organisational structure.

You can map your organisational structure using a similar approach. Ask yourself: Who leads and who then follows? And what must be communicated and to whom?

Combining your organisational structure with your workflow design (refer to preceding section) gives you the basic building blocks required to design jobs that suit your business.

Considering the form of employment

An employee isn’t just an employee. You have various forms of employment from which to choose when employing staff — including full-time, part-time, casual or independent contractor.

The form of employment is important because it affects your obligations to employees — for example, whether or not they get holidays and sick leave, and the circumstances in which you can end the employment. Selecting the most appropriate form of employment flows on from having a clear idea of how you intend to use employees in the business. In other words, decide what you need and then choose the form of employment that matches that need.

In the following sections, I outline the characteristics of full-time, part-time and casual employment, and cover the use of independent contractors and temporary (instead of permanent) employment.

Full-time employment

If you need an employee working most business days, full-time employment may be the form that best suits your needs. Full-time employment means 38 ordinary hours of work per week. This is the traditional standard working week for the majority of employees in Australia, and the form that suits most small businesses that are open for business for between five and seven days per week. Full-time employees usually attend work during times of the day and on days of the week that follow a reasonably predictable pattern over the full year. Although some variation exists on the theme of full-time employment — for example, averaging of ordinary hours over two or four weeks and using rostered days off work — the typical pattern is 7.6 hours per day, five days per week.

Full-time employees are entitled to paid annual leave (to go on a holiday), personal leave (when they are ill and unable to attend work or are caring for an immediate family member who is ill) and parental leave. They’re also entitled to contingent entitlements such as redundancy pay and notice of termination of employment.

remember_4c.eps Although the maximum ordinary hours of work per week is 38, a full-time employee may work reasonable additional hours where that suits the business. However, rules exist to limit the circumstances when that can occur, and overtime payments may apply under a modern award. See Chapter 4 for more on the rules regulating maximum hours of work.

Part-time employment

Part-time employment means employment for fewer than 38 ordinary hours of work per week. A characteristic of part-time employment, and something that distinguishes it from casual employment, is the pattern of employment — that is, the employment is regular and the hours of work predictable over the full year.

In most other respects, part-time employment is the same as full-time employment. The employee is entitled to the same entitlements as full-time staff, such as paid annual leave and personal leave (refer to the preceding section for more). Although a part-time employee works fewer hours, the employment is continuous in the same manner as full-time employment.

Casual employment

Casual employment is intermittent or irregular employment where the hours of employment aren’t predictable. As the employer, you’re not obliged to offer continuing employment beyond the period in which the casual employee has accepted work — for example, one day or one week.

Casual employees don’t receive the entitlements that full-time and part-time employees receive, such as paid annual leave, personal leave, parental leave and contingent entitlements such as redundancy pay and notice of termination of employment. Instead, casual employees are paid a loading on their ordinary hourly wage to cover these entitlements.

Independent contracting alternative

Independent contractors are people engaged under a contract for service as opposed to employees (whether full-time, part-time or casual) who are employed under a contract of service.

An emerging trend in new businesses is to collaborate with independent contractors to perform specific tasks — for example, project work or manage logistics, provide additional expertise, or a multitude of other business functions that in the past may have been performed by employees in a traditional business structure. When using a contractor, you engage a person to perform work for your small business, determine terms for the completion of the task and, once the task is complete, pay the person the agreed fee. The person usually has an Australian Business Number (ABN) and provides an invoice for payment for the work performed. This is a contract for service.

Because you’re only engaging the contractor to perform a specific task, this modern business model enables small businesses to grow and adapt in highly flexible and efficient forms to meet market demands. However, you need to be careful your use of contractors doesn’t cross over to a more employment-like relationship, because this affects your obligations to:

  • Apply the minimum national standards for annual, personal, parental, long service leave and public holidays
  • Insure the person for accident compensation
  • Pay modern award rates of pay and conditions
  • Pay the superannuation guarantee

Engaging a person as an independent contractor when he’s really an employee may mean penalties from the Tax Office and Fair Work Ombudsman and repayment of award wages, penalties, overtime, annual leave and superannuation — see the sidebar ‘Independent contractor versus employee’ for more information.

Temporary versus permanent employment

Many small-business owners refer to their regular full-time and part-time staff as permanent employees; however permanent employment doesn’t exist as a form of employment.

You can have employees who are regularly employed and whose employment may be terminated with written notice — for example, notice of between one and five weeks. The vast majority of full-time and part-time employees in Australia are in this group. On the other hand, you can employ people for a specified task or period and this employment may be terminated only if a serious breach of the terms of employment occurs, or when the period expires or the task is completed. This form of employment is referred to as fixed-term employment.

Fixed-term employment is often incorrectly applied to the more common practice of employing a person for a specified period or task but where that employment may be terminated by providing written notice before the expiry of the specified period or completion of the task. This latter form of employment is more accurately described as temporary employment. As a small-business owner you’re less likely to employ a person on a truly fixed-term employment, because to do so would require the full payment of salary owing on the balance of the fixed-term if the employment arrangement isn’t working out to your expectations and you terminate the contract before it expires.

The following example illustrates the difference between fixed-term and temporary employment. Say a person is engaged for 12 months to replace an employee on parental leave. If the person doesn’t perform to your satisfaction during the first few months of employment, you would normally be able to dismiss the person with one week’s notice (or payment in lieu of notice) and then find someone else to do the job. This is temporary employment. Under a fixed-term employment arrangement, however, you have no capacity to dismiss the employee with notice. You dismiss the employee immediately only if that employee has seriously breached the fundamental terms of employment — otherwise, you need to pay the balance of the 12 months’ salary.

tip_4c.eps Get into the habit of describing your employees correctly, according to the form of employment that best fits the nature of how they are employed. The consequences of misapplying the form of employment are real. For example, a common mistake of business owners is employing staff on a rolling series of short-term contracts, because they assume this means they can avoid the scrutiny of an unfair dismissal application by not renewing the employment beyond the expiry date of the latest contract of employment. If you do this, you may be in for a nasty surprise. The tribunal entrusted with responsibility for dealing with unfair dismissal applications only excludes employees who have been engaged under genuine fixed-term employment. Temporary full-time and part-time employees will have their day in court. See the sidebar ’some casuals are more equal than others — exceptions to the rules’ for more information, and Chapter 17 for coverage of who may, or may not, apply for a remedy if unfairly dismissed.

Table 2-1 provides a checklist of the different forms of employment and the situations each form is best suited to.

Table 2-1 Choosing Forms of Employment Checklist

When is the Employee Needed?

Form of Employment

Most or all business operating days throughout the year

Full-time or part-time

Regular peak trading times during the week or hours of the day

Part-time

Covering absences of regular employees on annual leave or absent due to illness

Casual

Pre-Christmas trading peak for no more than three months

Casual or temporary full-time or part-time

Fewer than ten hours every week to assist in administration

Part-time

Temporary replacement of employee absent on parental leave

Temporary full-time or part-time

Temporary work to manage or assist in a project

Temporary full-time or part-time

Seasonal work

Casual

Deciding when you want staff to work and for how long

The number of 38 hours of work each week isn’t a magical one conjured up by the great wizard of human resource management or the result of some major mathematical formula designed to calculate optimal working arrangements. This is an arbitrary number of hours per week resulting from the combination of political and social forces following the days of the industrial revolution. You can deviate from the norm of 38 hours per week. Going over 38 hours per week just might cost you more than it’s worth, but deciding to employ for fewer than 38 hours may work out to be more efficient for your business.

Follow these steps to calculate when you want staff to work and for how long:

  1. Estimate the optimal number of hours each day or week in which you can usefully employ staff.

    That is, how long does it take a person working at a reasonable pace to complete the tasks in the manner required by you?

  2. Work out the hours of the day and days of the week in which the work would be most usefully performed.
  3. Map the hours and the days of the week you would prefer the work to be completed in a simple weekly calendar.

You can use this map of hours and days to determine the form of employment you require — full-time, part-time or casual.

Describing the Job: Creating a Position Description

I’m not sure who invented the position description, but whoever it was did the world a great disservice. Over the years, I’ve seen hundreds of position descriptions and 99 per cent are useless. They may be great for consultants but they’re useless because they don’t reflect the inherently dynamic nature of the employment relationship.

In this section, I explain how to create a really useful position description that fits in with the other 1 per cent, a description that gives you a tool to outline the role correctly, find the right person for that role, and so drive efficiency and productivity from your staff.

Setting out useful headings and information

In this section, I outline how to create a position description using specific headings that cover a theme relevant to the job, which makes the task much easier. Each heading is a succinct theme directly relating to the information you can discern after completing a thorough job analysis (refer to the section ‘Designing a Job that Suits Your Business’ for more on this). All you need to do is translate the relevant details under each heading and ensure the terminology and descriptions are consistent.

Adding the job title

Inserting the job title is a pretty obvious beginning to any job description. But how you name the job is important because the title is the key phrase that prospective employees will use to search for the job. If you don’t describe it accurately, you have less chance of attracting the right candidates. Try to work out what these recently advertised jobs are:

  • Front Office Agent
  • Strategic Sourcing Specialist
  • Customer Service Champions

I hope you worked them out because I have no idea. Something to do with hospitality, perhaps? I am intrigued (especially the about the champion job) but you can’t bank on intrigue being enough to inspire an enquiry. Make sure your job title clearly captures the position you’re creating.

tip_4c.eps Check online to find out what job titles are used for similar positions to yours. You may be able to spot certain key words that prospective employees are also likely to use when job searching online.

Describing the business context

Your position description should also describe what your business does and what you’re in business to achieve. This also allows you to describe the characteristics that make your business unique. For example, a coffee shop isn’t just a place where coffee is served. It could be

A vibrant and energetic hub in the heart of the city’s legal district, making great coffee and producing fresh and delicious food served in our relaxed cafe, or delivered to our customers at work within the CBD. The City Larder is a unique experience in food service combining casual ambience with an uncompromising approach to quality in service and produce. Our fair trade–certified coffee is selected from the finest plantations and treated with love and affection all the way from the highlands of New Guinea to the cup that we pour for our customers.

Good description — I’m hungry already!

The description is clearly over the top but no doubt you understand the message I’m trying to convey. If you want to attract suitable candidates, you need to sell your philosophy and your style — the candidates you wish to attract will need to fit your business, not the other way around.

Primary purpose

Under this heading, describe in no more than 100 words the primary purpose of the job — that is, what the employee is there to achieve. For example, for a medical practice manager job you might describe the primary purpose as follows:

The Practice Manager works with the practice partners, leading our team of committed medical, allied health and support service professionals in the delivery of high-quality medical care to our patients. The Practice Manager will coordinate the daily clinical schedule, manage accreditation and quality standards, implement our business plan, manage the business accounts and oversee compliance with all legal, financial, employment and health and safety regulatory standards.

The primary purpose of the job should clearly summarise the fundamental nature of the role and what it’s supposed to achieve for the business.

Responsibilities

Under this heading, list the duties of the job. Try to be as succinct as possible and don’t go overboard describing every little task. Divide the duties into groups or themes for clarity. Continuing the example of the medical practice manager (refer to the preceding section) you could list the responsibilities as shown in Figure 2-1.

9781118640401-fg0202-fmt.tif
Figure 2-1: Example responsibilities for a medical practice manager.

Conditions

Under this heading, state whether:

  • The position is full-time, part-time, casual or temporary
  • The employee is required to work shifts, be on-call or work overtime
  • Allowances are paid and/or fringe benefits are included
  • An industrial instrument such as an award or enterprise agreement applies

Listing the fundamentals of the job is really important because you must comply with applicable modern awards and the National Employment Standards (NES). If unsure of the applicable modern award, seek advice from the relevant government authority. (See Chapter 4 for more information on NES.)

Authority

In the employment context, authority means the power to make a decision for, or on behalf of, your business — such as expenditure of petty cash, advertising, pricing or engaging suppliers and negotiating agreements.

Say you have a small retail business and you want to engage a manager for this business. You may delegate authority to this manager to manage the petty cash, negotiate the telephone, internet and utilities supplies, and organise stock orders. The manager may also have the authority to resolve customer disputes and respond to enquiries from suppliers.

Include in your position description what sort of authority the role involves.

Accountability

Everyone has to be accountable to someone else in the business. In your position description, outline the level of supervision or direction that the employee is subject to in the performance of the job. This means the extent to which you allow the employee to make decisions on how the job is performed and how closely you or others supervise the performance of the job. For example:

  • Close supervision means employees receive detailed instruction on job requirements, methods to be adopted and unusual or difficult features. Employees’ work is subject to progress checking.
  • Limited direction means employees receive limited instructions but with clearly stated objectives. Employees have a significant degree of competence and experience and are able to achieve their objectives by conforming to instructions but with minimal guidance.

Where a line of accountability exists through an intermediary supervisor, you should be clear about the nature of that supervision. Many businesses fail to make this line of accountability clear and this can lead to issues down the track. For example, at any one time during a busy period at a restaurant or bar the food and beverage attendants (or wait staff) may be told to clear and clean tables by the service manager, attend to a dissatisfied customer by the owner and pour drinks by the bar manager. The poor wait staff may not know what to do and may end up pleasing no-one. Avoid a situation such as this by clarifying who may direct who and in what circumstances.

tip_4c.eps Go to dummies.com for a sample job description template, which includes a glossary of useful employment terms you can use within your description.

Outlining your key selection criteria

Separating the description of the job from the criteria that you will use to select successful candidates for the job is useful. I discuss key selection criteria, and how you can use them within the interviewing process, in more detail in Chapter 3, but you should also include a summary list of the criteria that a person who is to perform the job should possess with your job description. This enables those interested in applying for the job to understand the type of skills, knowledge, ability and experience that must be demonstrated to be offered the job.

Having in place key selection criteria also enables you, as the employer, to measure the performance of employees objectively during the course of their employment, particularly when assessing how well they’re performing during the first 12 months of employment.

tip_4c.eps List your key selection criteria in order of priority, starting with the most important skills, experience, knowledge and/or qualifications required to perform the position. You can also divide the criteria between mandatory and desirable skills.