As you hire your first-ever employees, choosing the wrong people can cost you. You can’t get time and money back after you spend it training someone who just isn’t a fit, and as a new business owner, you need to be fairly conservative in how you use time and money. Below, learn what your company needs to do before hiring employees, what legal requirements are necessary to hire employees, and steps for selecting the best candidates for your business.
Why good recruiting practices save you time and money
Good recruiting leads to better business. According to one study, companies with stronger onboarding practices than their competitors grow 2.5 times as fast and have profit margins 1.9 times greater. When you choose employees who, from the start, are clearly good fits for your company culture and job responsibilities, you gain a competitive advantage.
While all recruiting processes come with associated costs, poor recruiting practices come with far more costs than good ones. That’s because if you hire small business employees who ultimately don’t work out, you have to go through the recruiting and onboarding process all over again. When you repeat these processes, you spend twice the time and money you would have using better recruiting practices. And that’s before the time and money you’ll spend to even be able to hire employees in the first place.
Take these seven steps to ready your small business for employees
Before you make your first hire, you have to take several steps to prep your business to handle
1. Get an EIN
An employer identification number (EIN) is a unique identifier for a business just as a social security number is a unique identifier for a person. You can’t hire employees without it. If your business did not register for an EIN upon incorporation, the time to do so is now.
2. Register for unemployment insurance tax payments
The moment you begin paying wages to employees, you also begin owing taxes that pay for federal and state unemployment insurance programs. You must register your business with your state labor department before hiring your first employees to prepare your company for its unemployment tax obligations.
3. Get insurance
In almost all cases, you are legally required to provide your employees with workers’ compensation insurance. This insurance protects your employees in the event of workplace injuries or illnesses that keep them from working. You may also want to purchase general liability insurance to shield your business from lawsuits for these events.
4. Set up your payroll process
Although workers’ compensation insurance is generally the only benefit a brand-new business must provide its employees, you must deduct Medicare and Social Security taxes from all wages you pay your employees. Before hiring your first employee, set up your payroll process to deduct these taxes in compliance with federal law.
5. Administer benefits
When you begin hiring employees, you should decide whether or not to offer them benefits such as health insurance, retirement plans, and college savings. Once you’ve decided which benefits you’ll offer, you may want to contract a third-party company to which you can outsource your benefits administration ahead of your employees’ first day. Typically, employers will turn to professional employer organizations (PEOs) for these outsourced HR services.
6. Create an employee handbook
Even if you’re hiring just one employee, you may want to have concrete company policies in place to guide your employees’ workplace conduct, grant them vacation and sick leave, govern their in-office social media use, and more. You can gather these policies in an employee handbook that your employees read and sign on their first day. Make sure this document is ready in advance so you can properly manage and onboard your new hires from the start.
7. Decide if testing is right for your business
Some sectors require drug testing or psychological screenings before a candidate can formally accept the job. The acceptable standards for these tests vary depending on the profession and the location, so it’s best to consult an HR specialist, a consultant in your industry, or an employment law attorney before making this decision.
Legal responsibilities as an Employer
Once your new employee is ready to begin, don’t forget about some important legal responsibilities that you as an employer need to uphold:
1. Fill out Form I-9
Some candidates whom you want to hire might not be eligible to work for you – or any American employer. Make sure your new employee fills out Form I-9 the first day of the onboarding process so their identity and citizenship status can be verified.
2. Take immigration issues seriously
If your company plans to hire employees who aren’t U.S. citizens, you could encounter immigration issues in your hiring process. In fact, small business employer statistics from a recent survey indicate that 28 percent of small business owners rank immigration policy as a key workplace concern. These issues will manifest primarily in regards to foreign employees whom you intend to sponsor for H-1B visas, also known as professional visas.
3. Report your new hires
Once your new employee accepts your job offer, you’ll need to report your new hire to the relevant state agency. Once you take care of that, you’re off to onboarding – and, hopefully, a new employee whose work will benefit your company for years to come.
4. Register for workers’ compensation insurance
As a business owner, you must purchase workers’ compensation insurance to cover your employees. Workers’ compensation insurance not only covers your employees in the event of work-related injuries or illnesses, but it may also shield you from liability.
5. Ensure you’re withholding and paying the right taxes
Whenever you pay your employees, you’ll need to withhold certain taxes from their paychecks and pay your own taxes on top of that. On a federal level, these deductions include Medicare and Social Security taxes as well as federal income taxes. Each state has its own taxes as well, which may include state income taxes and other money that funds certain state programs.
6. Set up payroll
To collect taxes and ensure proper tracking of paychecks, you’ll need to set up payroll. Whether you calculate all your payroll deductions manually or use a payroll software program to do so, you should make sure that you know all the rates at which you must withhold federal and state taxes from your employees’ wages and deduct benefit premiums, if needed, from their paychecks. If wage garnishments apply, you must also deduct these payments.
Tips for hiring the best employees for your small business
Feel confident that you’re onboarding employees who not only have talent and skill, but upload your company’s values. Take these best practices into consideration while conducting interviews:
1. Don’t go on just instinct
It feels great to meet a candidate you really get along with, but don’t conflate the good energy for ample qualifications, or even a guarantee that your new hire will gel with the whole team. You shouldn’t hesitate to confirm that the most exciting prospects live up to the first impressions they make. Consider verifying all the information on candidates’ resumes, as lying on a resume is not as uncommon as you think.
2. Administer skill tests
Skill tests can tell you whether your prospect actually boasts the talents they claim to have. These tests will provide you with an unbiased assessment of how much your prospect actually knows about the work with which you’ll task them. If your prospect tests well, it’s a good indicator that they have the skills to support the workload, and your business, for the long haul.
3. Have the candidate talk to the team
One of the fundamental tenets of good business is to not go it alone – after all, that’s why you’re hiring employees in the first place. If you get a great first impression from a job candidate, have them speak with your colleagues to assess their fit for your company. You can set up a formal interview or just have the candidate swing by the office for a bit – as long as you respect both your candidate’s and your coworkers’ time, either option works.
4. Ask about the candidate’s most recent workplace
Often, job interviews focus mostly on performance and tasks. You can learn just as much about a job candidate by asking them about where they’re doing their work. Have the candidate discuss their current work environment and culture and what they would change about both. Their answers may help you better see how – or if – they’ll be a fit for your company culture.
5. Discuss customer and client interactions
Since job interviews often pertain strongly to work functions, they may overlook another key company culture trait: customer and client interactions. Will your employee be able to appropriately communicate with the people who pay for your goods and services, or with other team members if they are an internal employee?
If you take a more casual approach to client communications and your candidate describes a very formal, by-the-book style, you might need to consider whether it’s possible to shift the candidate’s habits. On the other hand, if you’re interviewing a candidate with a laid-back startup background but your company is a suit-and-tie business, it might take some work for your candidate to properly formalize their communications to your clients. And those are ultimately the people who matter the most – without their money, your business goes nowhere.
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