July 21, 2021 By SmartBiz Team

Are you ready to hire? If your growing business needs more support, there are legally required steps you must follow before bringing on a new employee. There are also systems and process you can set up to make managing and paying employees easier. Here’s a list of tips to help you get started.

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Before Hiring Your First Employee:

1. Set Up Legal Requirements

When you hire employees, you must get an employer identification number (EIN). You’ll use this number on tax returns and other tax documents you submit to the IRS. Note: Applying for an EIN is a free service offered by the IRS. Beware of companies that charge to set up an EIN. Apply for one online through the IRS website here.

2. Register with Your State's Labor Department

Paying state unemployment compensation taxes is required once you bring on an employee. Go to the Department of Labor's website for a list of state unemployment insurance tax agencies.

3. Get Set Up to Pay Withholding Taxes

There are three types of forms you’ll need to fill out to properly pay withholding taxes.

  • Federal income tax withholding . Employees complete Form W-4 which you submit to the IRS. Find the form here.
  • Federal wage and tax statement . Every business owner with employees must file a Form W-2 for each employee (even if the employee is related to the employer). Download W-2s from the IRS website here.
  • State taxes . Many states also have a state withholding form — find your state here to access the required form.

You’ll need to report payroll taxes as needed on a quarterly and annual basis.

4. Define the Role

What will your new employee be doing to help grow and strengthen your business? Start with a list of the most important tasks then flesh out the full job responsibilities. You’ll also want to have a solid idea about what success will look like for this role.

5. Find Candidates

Once you’ve defined the role, write a job description and decide where to place your help-wanted ad. There’s no shortage of online job boards and some may even be tailored for your specific area or industry. One effective way for a small business owner to find a new employee is by networking. Ask for suggestions from friends, family, vendors, industry colleagues and other professionals like your accountant or attorney.

6. Weigh Both Potential and Experience

Let’s say you’re ready to hire a new employee to complement your existing team’s track record. In that case, you may fare better if you seek candidates who can bring a new perspective rather than the same old experience to the table. On the other hand, if you’re hiring someone to launch a brand new service, experience in that area may matter more than bringing a fresh, new perspective company-wide.

7. Conduct Interviews

Craft questions that will help you determine if the candidate has the experience, skills, and attitude needed for the job. The type of interview questions you ask will vary depending on the position but there are some questions you should ask each candidate. Visit the SmartBiz Blog for a list of 7 questions every small business owner should ask.

8. Test Your Candidates

It’s one thing to find exciting or interesting applicants as you’re interviewing candidates. It’s another to see whether these applicants’ intriguing answers to your interview questions actually translate to great work. That’s why you may want to test your candidates or give them practice assignments before you hire them. This way, you’re less likely to hire an employee whom you later regret inviting onto your team.

9. Run a Background Check

Running a background check helps protect your business, other employees, and your clients. You’ll discover if the candidate has anything in their background to disqualify them and could help identify if they’ve provided misleading or false information. Check out the Best Background Check Service for Small Business 2019.

10. Make Sure Employee is Eligible to Work in the U.S.

You must verify that the person you want to hire in the United States is authorized to accept employment in the United States. For more information about the employment authorization verification process, see the “ I-9 Central” page on the U.S. Citizenship and Immigration Services website.

11. Discuss Required and Optional Employee Benefits

If your business has established employee benefit programs such as health insurance or a 401(k) plan, you'll need a sign-up procedure so employees can enroll, name their dependents, and select options. Some employee benefits are required by law, but others are optional. For example, all employers with 50 full-time equivalent employees must offer health insurance, but no company is ever required to offer employee retirement benefits.

Once you know which benefits you need or want to provide, reach out to a benefits administrator such as an HR outsourcing company to implement your plans. For information about legally required and optional benefits, visit the SBA website.

12. Discuss Incentive Programs

Employee incentive programs can boost morale and help attract quality job candidates. According to the SBA, common incentives can include stock options, flex time, wellness programs, corporate memberships and company events. Benefits administration software can make accounting easier and more efficient if your budget allows it.

13. Get Started Now

If you can afford to bring on your first employee, there’s really no reason not to post your job description on listing sites now. The sooner you start your search, the sooner you find that perfect first employee. That said, don’t rush the hiring process just to get someone in the door – it’s better to wait to find the best fit than to choose a “just-okay” candidate right this moment.

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After Hiring Your First Employee

14. Set Up Payroll System

You can DIY your payroll. However, dealing with tax withholdings can be complex and take valuable time away from your business. Most payroll services can do it all including calculating pay and taxes and sending filings when required. If you’re looking for a software program to help, visit Capterra to compare product features and ratings.

15. Obtain Workers’ Compensation Insurance

Most states require employers to have this coverage if they have even one employee, but the laws vary from state to state and depend on your industry. This coverage helps your business pay for employees’ medical and recovery expenses, replacement wages, dependent support payments, and liability expenses if your business is sued over work injuries or illnesses.

16. Display Required Workplace Posters

The U.S. Department of Labor requires that certain notices are provided to employees in the workplace via displayed signage. Note that posting requirements vary. Not every company is covered by every statute, meaning that your business may not be required to display a specific poster. Free electronic copies of required posters and additional information are available here.

17. Implement a Workplace Safety Plan

Workplace hazards exist in all offices, even those with few employees. Workplace safety can also extend to encouraging remote employees to achieve a mentally healthy work-life balance. Whatever you feel comprises workplace safety, build your plan based on guidelines from the Occupational Safety and Health Administration (OSHA). Once your plan is complete, write it down somewhere where employees – not just business owners like yourself – can see it.

18. Write an Employee Handbook

Your employee handbook is a great home for your workplace safety plan. It’s also the best possible way to prepare all your company policies for your new employee to see. Your policies should cover virtually every employee concern, ranging from time off to company culture to discrimination and harassment.

19. Get Paperwork in Order

To keep organized and stay compliant, set up an employee file for each new hire that includes important information like the employment contract and their emergency contact information. You can store these documents in their original printed form, but scanning them to your digital file management system is better for preventing data loss and organizing your records.

A thorough personnel file system should include the following for your first employee and each new hire thereafter:

  • The employee’s job description . If you ever wonder whether an employee is pulling their weight, you can reference their personnel file’s job description to find out for sure.
  • The employee’s complete job application . The information on a job application may come in handy if you need to check your employee’s credentials.
  • Job offer and acceptance . This way, you know the exact terms of your new hire’s employment for all HR concerns.
  • W-4 form . Your accounting service will need this document to properly calculate your employee’s withholding taxes, social security taxes, and payroll taxes.
  • Performance reviews . If you don’t see improvement and growth in subsequent performance reviews, you may want to consider changing the employee’s responsibilities or letting them go.
  • Attendance and discipline records . In the worst-case scenario, some employees may take so much time off from work that you struggle to track their absences or remember how (if at all) you disciplined them. Keeping attendance and discipline records in your personnel files solves this problem.

20. Keep Learning About Employee Management

Once you’ve brought on your new employee, check out the resources available on the SmartBiz Small Business Blog. We write about all aspects of employee management and cover the hot topics you need to know. Examples of our coverage include:

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