There are few more significant steps in a small business’s early life than when you hire your first employee. It’s essential if you ever want to grow your business, but it represents a big change in how things operate.
When you first start a business, there are so many moving parts and variables, but you remain in control of it all. You hire an employee so that you can accomplish more, but in a way, it also allows you to do less. Your employees take on work so that you no longer have to do it.
The difficulty is that this requires letting go of some of your control. Hiring employees is a big step because it means trusting someone else enough to delegate a part of your business to them. It’s like the first time you drop a child off at daycare or preschool. It’s hard to trust someone else to take care of your baby, but it’s necessary for the child’s healthy growth.
So if this is such an intimidating but important step in the process of building your small business, how do you handle it? How do you know when the right time is?
When Should I Hire My First Employee?
Hiring your first employee is essential for growth, but it can also be expensive and complicated. It would help if you waited until you’re ready to bring someone else on. You need to have the work for an employee to do and the funding to pay them.
If you’re wasting time on work someone else could do and your business is suffering because of it, it’s time to expand your workforce for sure. If you hire employees before your business is ready, you might not be able to pay them or give them an appropriate amount of work.
However, if you wait too long to begin the hiring process, you’ll be likely to rush through the hiring process to find someone to share the work with.
How Do I Hire for a Small Business?
It’s essential to take your time when hiring for your small business, especially when hiring your first employee. You’re not just finding someone to do what you tell them. You’re building your team. You want your employee to feel like they’re truly a part of your company and to act accordingly.
Here are the key steps to go through as you start your hiring process:
- Define the position: what will they do, and what will the pay range be? What kind of skills are you looking for?
- Advertise the job in a way that will attract applications from the talent you’re looking for.
- Interview potential employees.
- Screen your candidates’ backgrounds and check their references.
- Make an offer!
If you have any colleagues or business partners that can help you during interviews, and throughout this process, you should request their assistance. Your instincts may mislead you more often than not when first meeting candidates and a partner to discuss interviewees with can help you make the best choices for your company.
3 Things to Consider When Hiring Your First Employee
Everything becomes more complicated for small business owners when you start hiring employees. Not only are there laws governing the way you conduct the hiring process, but there are many federal laws that protect employees in their work that you have to comply with.
When you begin hiring employees, you will have to adapt your business’s structures in several ways to meet your obligations to them and the government. You’ll also have to make some decisions about their precise legal relationship with your company.
Here are a few of the top considerations you’ll have to make:
When you take your first new staff members on board, you need to be ready to set up your payroll system. This means setting up the system to get your employees paid on time, but it also means registering and paying taxes on their behalf.
If you don’t already have an employer identification number for your small business, you’ll need to request one from the IRS. You’ll then be prepared to appropriately withhold tax from your employees’ income and pay into Social Security and Medicare. Depending on the state, you may need to withhold some employee income for state taxes as well.
2. Employee vs. Contractor
However, most of these payroll requirements only apply for your business’s official employees and not for independent contractors. When you hire someone to take on some of your company’s work, you have a choice about whether to hire them as employees or contract workers.
You may want to hire someone as a contractor if the work is temporary or tangential to the core of your business. You pay contractors directly, and they are required to handle their own tax withholding. They are essentially self-employed people that you are asking to take on specific tasks.
Hiring someone as a direct employee means more obligations for you as an employer, but it also gives you a chance to invest in them for the long-term. As an employee, they will officially be a part of your business, and you’ll have more authority to control their hours and duties.
Do you want a new member on your team, or do you want to delegate specific tasks to an outside contractor?
3. Tax Records
No matter what kind of position you offer a new staff member, that job will represent another tax filing obligation for you when tax season comes around. The forms will be different, but you will need to report to the IRS about all the wages you pay and to your staff about the wages they’ve received and the taxes you’ve paid on their behalf.
You should keep careful records all year long of every payment you make to your employees and contractors and of any payments you make on their behalf to federal or state governments. This will help with the paperwork when it’s time to report those payments.
Adding to your business team means taking on some extra work to make that possible. You may have to start paying into your state’s unemployment insurance fund, and you may also be required to sign up for workers’ compensation. Small businesses often need more than one insurance policy to meet legal employment requirements.
But despite all the effort and investment required, hiring employees more than makes up for it in the difference it can make for your growing company. Stop trying to handle it all yourself and start putting together the team that can realize your vision. Once you have the right team and systems in place, you can focus on the big picture and how to grow your business.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.