What to Know Before You Hire Your First Employee

If you think it could be time to hire your first employee, it’s an exciting but also stressful time.

It can be exciting because perhaps you feel like your business has gotten to the point where you’re expanding, and you can take on the responsibilities of paying an employee. At the same time, there are a lot of things you have to do legally when you hire someone.

For example, you have to be aware of workers’ compensation guidelines where you live. Workers’ comp is something employers pay for and it’s managed at the state level, so workers’ comp insurance in New Jersey is going to be different from Florida, and both will be different from California. Not every state requires you to have workers’ comp for just one employee, but some do. This is just one of many things you have to think about.

The following are important things to know before you hire your first employee.

Set a Budget

When you’re planning to hire an employee, you need to think about the costs beyond just their salary. You’ll have to pay state payroll taxes and unemployment taxes, as well as workers’ compensation and potential benefits. You’ll also have overhead to consider, like their equipment and workspace expenses.

Are you going to hire a full-time employee, or in your current situation, would it make more sense to hire a part-time or contract employee?

Get An EIN

One of your first steps, when you’re hiring your first employee is to first get an employer identification number or EIN. You’ll use this on documents, including your tax returns submitted to the IRS. If you need to get an EIN, you fill out the SS-4 form from the IRS. You can download the form online from the website of IRS.

An EIN is similar to a Social Security number for businesses. You might already have one, depending on your operational structure.

Every state has its own process to register for an employer identification number, and you can learn more about the specifics by going to the labor department’s website in your state.

Once you have an EIN, you can start to think about how you’ll manage your taxes. You’ll have to withhold part of the salary or pay of your first employee for Medicare and Social Security. You’re also responsible for sending it to the IRS.

You’ll need to keep all of your tax records related to your employees for at least four years, and you’ll need to set up your federal tax withholding, federal wage and tax statement, and state taxes.

Go ahead and think about setting up a payroll system because this is going to be the easiest way to stay organized and manage withholdings.

Define the Role

Once you’ve got the tax specifics out of the way, you can start to think more about the role itself. You need to know the support you need and the ideal candidate for the position.

This is when you’re going to build out a detailed list of the responsibilities you hope the person will be taking on. You’ll also get more specific about what you’re going to pay for the position, and once you’ve figured these things out, you can write a job description.

After you define the role, you can start to post the job opening.

You want to cast a pretty wide net to help you find the best-qualified candidate, and this might mean posting on a range of sites like LinkedIn and Indeed. You also have to make sure to include a statement at the end of your post indicating you’re an Equal Opportunity Employer.

Interview Candidates

You should aim to interview at least a few candidates. Try to think about what’s most important to the position and frame the interview questions around those priorities. Ask candidates to give you examples where they’ve shown their skills or demonstrated that they’re an asset.

Once you choose a candidate and you make them an employee, it’s a good idea to run a background check. This is an important part of keeping your business, customers, and other future employees safe.

You need to be compliant with laws in the U.S., meaning you have to get express written consent to run a background check. The laws surrounding how you get the information and what you do with it can get complex, and some states put restrictions on the type of criminal information you can seek out.

You need to know what the guidelines are in your state, and you should use a third party to do your background check.

Work Eligibility

When you hire someone, you have to make sure they’re legally allowed to work in the United States. If you hire someone who’s not eligible for employment, you, as the employer, could have to pay fines or face criminal penalties.

Before the first day on the job, your need to ask your new employee to fill out the first section of Form I-9, which includes their employment eligibility, Social Security number, and contact information.

By the time the person is in for their third day on the job, they should show you valid ID documentation and employment authorization.

In most states, this is enough, but some states require employers to enroll in E-Verify.

When you hire a new employee, you need to report them to the labor agency in your state.

Along with new employees filling out Form I-9, they also need to fill out IRS Form W-4, which is the Withholding Allowance Certificate.

Get Worker’s Compensation

Finally, workers’ compensation was mentioned above, and if this is your first employee, check to see the laws in your state. You may not be required to get worker’s compensation, but it’s still a good idea.

Workers’ comp coverage protects employees, but also you. If someone gets hurt at work, then your workers’ compensation insurance pays them a portion of their lost wages and can cover some medical expenses. Then, you’re protected from a lawsuit.