I guess there is always a place for negotiation, but here is how I see it, you are talking about spending between 32-40k per year to this potential employee, and all you have described in your post is what you will do for him. It sounds to me like you need stress what job requirements and goals the employee will have, otherwise he is going to continue this habit, and negotiate with you all year round on every issue until he is sitting in a chair doing nothing all day. He has been with you for 2 years, not 10 or 20. I'm not saying that time buys more respect, but in this case, it does not appear that this particular employee is helping further YOUR cause. Let him shop the package that he wants with a few of the other companies in your area. If you let him go with an open door policy, you can accept him back, on YOUR terms. It sounds like you can handle the management responsibilities that he is supposed to anyway, so why not buy two 20k laborers for yourself and spend more time managing? Furthermore, how are you going to respond when he asks for another 30% raise next year? What else can you give this guy or others?