3 Considerations When Hiring Your First Employees in an LLC

September 27, 2019

As an entrepreneur or small business owner, you’re always striving for growth and success. It’s part of the game for you. When you’re working, you’re always thinking ahead to the next big choice, or amazing strategy that will really set you apart from your competitors.

As your business grows and you see an increase in sales and customers, there comes a point where you realize that you need to make a change. The time has come where you need help – it’s time to consider hiring your first employee!

Initial Considerations

Of course, there are many pros and cons to hiring an employee. So the first step for any responsible business owner is to sit down and decide what exactly you need.

Do you need another body to help you out full time? Do you need part time help? Or could your problems be solved with a freelancer, or even some kind of software or automation? These are all things you need to consider before you even start crunching numbers.

1. Cost vs. Gain

Once you decide if you want to hire an employee or freelancer, it’s time to sit down and crunch some numbers.

It’s important to figure out what you’re going to pay your new employee, and how many hours you’re going to offer them – or if you’re going to hire a freelancer and pay by the project. 

Whatever you choose, you need to know the costs up front, that way you can take a look at your business growth and make estimates on how much you’ll gain by bringing on extra help.

Once you figure that out, you’re ready to take the next step toward bringing on an employee.

2. Employee or Contractor?

The next important consideration is whether you want to bring on an employee or a contractor. 

There tends to be a lot of confusion around the difference between employees and contractors, but that’s no excuse for misclassification. 

The major difference is that employees are often hourly or salaried – and contractors submit invoices for work. Additionally, it’s the employer’s responsibility to deduction taxes from an employee’s paycheck, but they are not held responsible in the same way for contractors.

A good rule of thumb is that if you, as the boss, control when and where the person works – that person is an employee, not a contractor.

Make Sure You’re Legal!

Be careful when you’re hiring to ensure you’ve classified your employee correctly! The IRS has cracked down on the misclassification of employees – which is viewed as tax fraud. If you misclassify, you run the risk of being fined, having to make back payments, and being charged with criminal penalties

3. Get an EIN

If you’ve weighed all the above considerations and still want to hire an employee, great! The next important step before you start the hiring process is to get an Employer Identification Number (EIN). 

First, ensure you’re eligible for an EIN. To apply, you have to meet these requirements:

  • Your principal business location is within the United States or its Outlying Territories.
  • You have a valid Taxpayer Identification Number (SSN, ITIN, etc).
  • You are the responsible party for the business (the person who owns or controls the entity).

If you meet all the requirements, then you’re ready to start your EIN request. You can do so by completing the SS-4 form and submitting it via mail, phone, fax, or online using the IRS application portal.

Get Hiring!

Once you’ve figured out that you want to hire someone, whether that someone will be a contractor or an employee, and you’ve secured your EIN number – the next step is to start looking for the perfect candidate!

Of course, you also need to figure out how your payroll system is going to work, and how you’re going to keep track of your records with the new employee on board. 

Take a moment to consider the milestone of hiring your first employee, and look back on where your business first began. Think of how far you’ve come from that first step. That’s cause for celebration!

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