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As a small business owner, you try to keep overhead expenses low and juggle many responsibilities as you launch your business.  When the enterprise starts to earn and tasks get too overwhelming, hiring the company’s first employee may be necessary. Labor costs can be a large part of the overall budget – but are necessary if you want to grow your business. Adding an employee means additional costs, compliance issues, and legal considerations. Thus, entrepreneurs must consider certain factors before bringing on new staff. Let’s discuss them.

1. What kind of employees do you need?

The process of hiring begins with determining the nature of the need. Identify which tasks take up the most time and can be delegated. How long does it usually take you to finish these tasks? Is the volume of the task consistent or seasonal? If these assignments consistently take at least 30 hours of your time, it would be reasonable to bring in a new employee to take over these. If it only takes 10-15 hours to accomplish the tasks or if the increase in the volume of work is seasonal, you may want to consider hiring a part-time employee or an independent contractor (but be sure you know the difference so that your business stays in compliance).  

2. Take care of the compliance and legal stuff

Once you have established the necessity of hiring new staff, prepare the state and government paperwork required to avoid legal issues.  All of this may seem daunting, but that’s why companies like CRI Payroll Services exist to make it easier for you to navigate these items. Contact us today to schedule an appointment and see how we can guide you through the process.

  1. Obtain your employee identification number (EIN) – The EIN is required for all tax-paying businesses to submit their taxes to the IRS. It may easily be obtained through the IRS website.
  2. State withholding account number – to submit state payroll withholding taxes (only a few states do not require an income tax)
  3. Register with your state’s labor department – When you hire employees, you must pay unemployment taxes. These payments go to your state’s unemployment compensation fund, which provides workers short-term relief when they lose their jobs. For more information on how to set it up, go to the Department of Labor’s website for a list of state unemployment insurance tax agencies.
  4. Get workers’ compensation insurance – Workers’ comp insurance is required in most states. It protects your workers and your business in the event of a work-related injury. Check the requirements for your state, then look for insurance within your price range.
  5. Set up a payroll system to withhold taxes you will need to withhold a portion of an employee’s income for federal income tax, Social Security, and Medicare tax payments and remit it to the IRS. For more information, check the IRS website at IRS.gov. There might also be a need to withhold state taxes, so don’t forget to check with your state’s tax agency.
  6. Fill out Form U.S. Citizenship and Immigration Services (USCIS) Form I-9 (Employment Eligibility Verification) – Companies must verify that all new employees are legally eligible to work in the country. Familiarize yourself with Form I-9.
  7. Federal Income Tax Withholding Form W-4 and Your State’s Income Tax Withholding form – New hires must fill out a Form W-4 Employee’s Withholding Certificate and a State income tax withholding form.
  8. Report each new employee to your state’s new hire reporting agency – The New Hire Reporting Program requires employers of new hires to report the hiring. Read more about it on the Office of Child Support Enforcement website.
  9. Familiarize yourself with Labor Laws The U.S. Department of Labor website is an excellent resource for labor laws and updates regarding employee hiring. Check the website regularly.

3. Organize your finances

Hiring a new employee can seem like a big investment, so you’ll want your bank accounts and business records to be ready. It requires withholding for taxes and IRS documentation. Thus, as a small business owner, you should ensure that your business is financially ready. It is wise to open a business bank account if you don’t have a separate one for your business yet. Doing so helps you keep track of the actual financial status of your business.

Also, ensure that you have a payroll system before hiring an employee. A payroll system manages everything that involves paying employees and filing appropriate employment taxes. This includes timekeeping, wage calculation, withholding for federal taxes, Social Security, Medicare, and state taxes. The payroll system also considers any benefits set up for the employees.

4. Start creating an employee handbook

Before you hire an employee, having an employee handbook describing your business’s employee policies and company rules and regulations helps clarify handling your human resources. Your employee handbook may be simple, but you can improve it as the business expands. What is essential is that there are clear-cut guidelines for the employees, which would help protect the company and the employees.

5. Write a job description and job specification

Before posting the job opening, ensure that you have written a job description that includes the job title, the primary duties, responsibilities, and working conditions. The job description also includes the name of the person to whom the hired employee should report.

A job specification must also be laid out when hiring. It describes the duties for the position, the required knowledge, skills, abilities, and minimum qualifications a person should have to be considered for the job opening.

Ensure that the job title, description, and specification align with each other and the position being filled. Start writing the appropriate interview questions depending on the requirements for the job.  Want help developing the questions? Let CRI Payroll Services help you with your HR processes.

6. Post the job listing

After you have written a job description and specification for the position your business is hiring for, you may post the job listing on different websites, such as Indeed, and your business pages.

Make sure you offer competitive benefits to similar job postings by other companies. This process can be tedious as you might have to run through many resumes and applications. Always select based on your predetermined criteria to narrow down the applicant list.

7. Interview and Orientation

Once you have narrowed down your choices, you may start interviewing applicants using the same set of questions. Select the candidate that best fits the needs and specifications for the job you are hiring for. If it would be helpful, you could run a background check on your candidates to verify the information on their resumes. Ensure the interview and hiring process are done objectively and without bias.

During orientation, they discuss their job title, job description, and immediate supervisor. Review the employee handbook, which will serve as their guide, with the newly hired employee to ensure they are aligned with the company’s business objectives and rules. Require them also to fill up necessary documents and legal paperwork. Submit all pertinent legal documents immediately to avoid conflicts.

Final Thoughts

Never doubt that hiring your first employee is a big decision. It could be expensive, but there are certain necessary expenses for a business to expand. Review your needs and budget, then determine if it is time for you to welcome your first team member. 

For new small business owners, HR and payroll systems could be intimidating. There is a lot of information and documents to prepare when a business is planning to hire its first employee. CRI Payroll Services is ready to ensure your business’s hiring process proceeds smoothly. Let us assist you with your human resources needs to focus on growing your business.

With a full range of HR and payroll-related products, tools, and support, CRI Payroll Services can help provide immediate and personalized service to help with many of your Human Resource needs.

Learn how CRI Payroll Services can help support your employees & your business.