How To Hire Your First Employee
Our hiring guide helps make sure you hire an employee – whether it’s your first or fifteenth – well.
There comes a point in the life of every independent venture when demand simply cannot be met without the involvement of additional hands. In many cases, this help can be sought from freelancers, who can fill immediate needs for specific services as they are needed. But eventually, if a business is to grow, most of those services will eventually need to be brought in house.
How do you know when it’s time to make the shift and hire your first employee?
There are a number of signs that might signal to a business owner that the time has come to shift certain duties from independent contractors to full- or part-time employees.
- An independent contractor is spending all of their time working on projects for your company anyway
- Deadlines have to be extended because your talent has projects ahead of yours
- Your product or service would improve if the talent involved had more intimate knowledge of your particular industry, product, or service
- You’re starting to feel like a puppet-master and wish you didn’t need to keep your fingers on quite so many strings
- Clients are asking for a specific service that you aren’t able to provide on a broad scale because you don’t always have the resources
- Per-project payment is becoming unprofitable
- You’re outsourcing more work than you’re doing in-house
- You really like the people you’re working with and would like to work with them every day
- You’ve planned to expand your staff all along and you now have enough work and enough revenue to justify an employee
For a freelancer, a simpler (and less expensive) tax scheme and benefits like insurance and paid time off can make becoming an employee an appealing option. For you, while you may find that the direct cost of providing benefits and having someone on the payroll seems greater than a per-project payment scheme (though in some cases it may not) having someone in house gives you greater control over how and when projects are completed, increases your ability to collaborate for a better quality outcome, and can often even open up new revenue streams. Plus, it is often the case that employees coming it at the ground level are able and willing to take on tasks to keep the company moving forward that might not otherwise have fallen within the normal scope of their duties, freeing you up to take care of the business of growing your business.
What is this going to involve?
There are, of course, a host of legal implications involved in hiring employees for your small (or larger) business. The good news is, once you’ve set everything up for one employee, the process becomes much simpler for bringing on future employees.
It is fairly easy to find a checklist of logistical and legal matters you’ll need to take care of, mostly related to taxes and payroll. Here are the basic steps as laid out by the U.S. Small Business Administration though it should be noted that certain details many vary from state to state:
- Obtain an Employer Identification Number (EIN)
You can do this on the IRS’s “Apply for an Employer Identification Number” page.
- Set up a system for obtaining and maintaining records related to withholding taxes, which include, but are not limited to:
- Federal Income Tax Withholding (W-4)
- Federal Wage and Tax Statement (W-2)
- Forms required for State Taxes: These vary from state to state and in some places, like here in Texas, there are no state income taxes. However, if you hire an employee that works in a state that has income tax, even if your company is based in one that does not, you will need to withhold state taxes for that employee)
- Employee Eligibility Verification (I-9)
This is the form that gets filled out after the presentation of the valid forms of ID and eligibility to work in the U.S. It’s for the Department of Homeland Security. The I-9 form and its accompanying instructions can be found online.
- Register with Your State’s New Hire Reporting Program
In our great state, you do that with the Texas Workforce Commission
- Workers’ Compensation Insurance
Again, the requirements for workers’ comp insurance vary from state to state and, again, here in Texas it is not always required by law. Nevertheless, it is advisable to do some research into the matter of workman’s compensation so you can make an educated decision about whether or not to get it.
- Post required notices regarding workers’ rights
Of course the requirements in this regard are a bit different for folks taking advantage of alternative working environments like coworking spaces or remote working arrangements. Just be sure to look into the legal requirements for notifying workers of their rights and obtaining the necessary documentation to prove you’ve met them (the requirements, not the workers – the government doesn’t care if you meet your workers or not).
- File Your Taxes
We hope you’ve been paying your taxes as business owner already, but after hiring an employee, tax paying gets a little more complicated. Here is a 70-page publication from the IRS to help you understand the breadth of your new tax obligations: IRS Employer’s Tax Guide also fondly known as “publication 15” or “Circular E”. By whom, we don’t know.
Fortunately, there are a lot of services that can help you make sure you do everything right. We’ll take a look at some of those a little later this month.
- Get organized and stay organized
It’s not just you now. Much like having a child, your responsibilities don’t stop at setting up the nursery. You’ll need to choose (or create – not recommended) a payroll system, enroll in benefits, design an onboarding process, stay on top of labor laws, etc. Unlike having a child, proper preparation actually can smooth the road ahead significantly.
Like we said, we’ll talk more about some of the employee management tools that can simplify all of this and help move things forward into the future in another post later this month. Stay tuned. Hiring a new employee can feel daunting, but going in with a clear understanding of what you need to do will go a long way toward easing the pains of growing your company and developing your company culture.