Hiring Your First Employee

When opportunity knocks, people answer. In 2020, a surprising number of new small businesses and sole proprietorships applied for business licenses. It's impossible to know if this business boom will continue, but if you're one of those businesses you may be at a crossroads, wondering whether it's time to hire your first new employee.

Some legal steps are involved in hiring your first employee, but before that you should be sure your fledgling company needs another full-time worker. Read on to learn some questions small business owners can ask themselves before posting a job. Then, learn what you need to do to make your job offer legal.

Do I Need More Employees?

Small businesses walk a fine line in their first years of operation. They need employees to help make a profit, but they can't afford employees until they have a profit. At the same time, increasing services for existing customers becomes more than one person can manage, and profits suffer. It's at this point that many small businesses fail.

Before your business reaches collapse, ask yourself these critical questions. Take time to review the answers and seek help from human resources management services. The Society for Human Resource Management (SHRM) has online resources for small business owners who need help acquiring their first employees. Things to consider:

• Are you turning down work that a potential employee could do? Remember, you'll pay someone to be at your workplace daily. If you don't have enough extra work for a full-time employee, consider a part-time worker or giving some of your overflow to an independent contractor.
• Are you spending nights and weekends on office tasks? Taxes, invoicing, accounts receivable—these important tasks all take time. If you spend all your business hours with customers or in the field, you have to spend other time doing your paperwork. If you find you have no free time, you need help.
• Is your output beginning to suffer? If you have less time for manufacturing because you're spending all your time with customers or can't talk to customers because you're busy making up orders, then it's time to get help.
• Do you need skills you don't have? As a small business owner, you won't have the luxury of reviewing lots of applicants and hoping you find the right one. Think about your job description so you can find the right candidate as soon as possible.

Finding Qualified Candidates

Avoid desperation hiring, the downfall of many startup businesses. Take time to craft your job ad, even if you're only looking for part-time sales help. Create a job title and description that accurately describes what you want.

Tell job seekers what you expect in a one-person office or business during the interview process. You're creating a new role, and you'll need as much input from them as they will from you. Your first hire should be someone whose skill set includes working with startup businesses or solo practitioners, and you should be willing to learn from their experience.

Some of the best candidates may come from referrals from other business people. Networking through social media or business organizations is a good way to find qualified candidates with the skills and experience you need. Asking your friends and colleagues for resumes can find better candidates than combing through job boards.

State and Federal Hiring Requirements

The U.S. Department of Labor requires businesses to pay their employees and file state and federal taxes as required by law. Before you can make any job offers, you must complete the paperwork and file it with the government.

• Obtain an Employer Identification Number (EIN): You use your employer tax ID to report employee withholding taxes and other information to the IRS. You can obtain an EIN at the IRS website or by calling (800) 829-4933.
• Find out whether you need state or local tax IDs: A few states, such as Nevada, do not have a state income tax. If your state has a state income tax, you need a tax ID number for payroll purposes. You can get this information at your state's Small Business Administration website.
• Set up a tax withholding system: The federal government requires you to keep employment tax records for at least four years. Upon hiring, your new employee must complete a W-4, and you are responsible for withholding the specified amount from each check. Every year, you'll need to file a W-2 telling your workers how much you paid them and how much was withheld in federal and state taxes.
• Verify the employee's eligibility to work in the United States: You must complete and file the Employment Eligibility Verification Form, or I-9, within three days of hiring. You must also keep a copy of the document for three years after hire or a year after termination, whichever is later. The I-9 has an instruction sheet explaining what documents are acceptable proof of identity.
• Register the new employee with the state's reporting system: You must complete new hire reporting within 20 days of hiring. Each state's office is different, so you should check with your state employment office or labor board for clarification.
• Insurance requirements: Depending on your state, you may need to provide disability, unemployment, or workers' compensation insurance. State laws in every state but Texas require businesses to provide workers' compensation for businesses with even one employee. State labor laws may differ about disability or unemployment insurance. California, Hawaii, New Jersey, New York, and Rhode Island require business owners to purchase disability insurance for their workers.
• Post Required Notices: State and federal laws require posting legal rights notifications, even if you have only one worker. You can obtain these notices at your state labor relations board website.
• Remember to report payroll taxes: You must report and pay taxes quarterly and annually. This includes Medicare and Social Security withholding, even if your state does not have an income tax.

Other New Hire Considerations

Before leaping broadly into hiring your first employee, there are a few more things to keep in mind. You want someone you can work with since you will have two people where there was only one before. The first hire for a small business will not be a C-suite executive, but you can still get top talent in your niche. Be realistic about a few things, such as:

• Employee benefits, such as health insurance, might be a few years down the road. Be honest and mention this upfront. Consider other perks, like flex time or remote work.
• Background checks and drug screening are legal, but you should handle them carefully at this stage of your business. You can only ask for a drug test after a conditional offer of employment. Background and credit checks require the employee's consent and may take several weeks to complete. You cannot ask interview questions about current substance abuse issues, and your state may not allow questions about prior criminal convictions.
• New hire paperwork should be ready for your new employee to complete the first day of work. Unlike a big company, you don't have an HR team to assemble a hiring packet. Have all the documents waiting for your new worker so you and your business look professional.

Although you won't have an onboarding process for your first employee, take notes about what you do, what works, and what doesn't. Someday, when you need more workers, you'll make new job postings. You will need an employee handbook with job descriptions and then you'll be ready for business.

Learn More About the Hiring Process From an Attorney

If you're new to hiring employees, ensure you understand the laws protecting employees, applicants, and you. The best way to ensure compliance with employment laws is to speak with a skilled employment law attorney near you.